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Compressed natural gas set to rise in emerging economies

CNG is still making inroads in developing markets

Compressed natural gas can already be classified as a mature fuel in many countries, especially in the developing world, where it is a low-cost alternative to diesel and gasoline, particularly for long-haul heavy-duty vehicles and fleet vehicles that do large amounts of mileage, such as buses and taxis.

In China, a mixture of increasingly abundant feedstock via LNG and pipeline imports, together with central government policy to promote gas use to cut urban pollution, mean there are around 4m CNG-powered vehicles on the road. Similarly, India is incentivising CNG and its gas-driven fleet is expanding fast and has now moved beyond 1.8m.

In the case of Iran-which has led the world in CNG uptake in the transport sector over almost four decades-Western sanctions restricting oil imports also added impetus to the sector, along with access to cheap local gas reserves.

Among developed countries, the US leads the way, reflecting the size of its economy and its promotion of gas in the transport sector to take advantage of cheap domestic supply. But the US addiction to cheap gasoline means CNG uptake remains at a relatively low level, especially among car owners.

The 150,000 NGVs on US roads-over 95% of them CNG-fuelled- remains a fraction of the total seen in some other countries.

The EU has also been backing pilot projects for greater use of natural gas in vehicles, though, again, uptake remains at a relatively low level.

In Japan, NGV penetration has also been modest, despite ambitious government plans to promote the technology. Meanwhile, in South Korea, the government said in March it would replace the 26,000 buses running on CNG with fuel-cell vehicles in a deal with Hyundai to promote hydrogen.

Cheap gas, expensive tanks

CNG, once installed, still offers cost savings compared to gasoline and diesel in many countries-though the fall in oil prices has narrowed the differential. In mid-2016, the CNG equivalent of a litre of diesel in Europe cost around 29% less, while it cost 38% less than the equivalent in gasoline, according to Clean Fuels Consulting. In the US, the home of cheap, low-tax gasoline, CNG has actually been marginally more expensive than gasoline in recent months, though it wouldn't take much of a rise in the oil price to change that.

The shine is taken off any savings on running costs by the premium buyers must pay for a car, which could cost up to $5,000 more than a similar gasoline model in the US or Europe, as well as by the limited availability of refuelling locations. A CNG-fuelled bus or heavy-duty vehicle could cost well over $30,000 more than its gasoline-powered counterpart, but for companies and public transport networks with long-term horizons, the investment case may look appealing.

The improved efficiency and reduced emissions of the latest gasoline- or diesel-fuelled cars means CNG may struggle to penetrate the market on that basis alone

There is also an environmental argument in favour of CNG over petroleum, as using CNG eliminates or sharply reduces harmful SOx, NOx and particulate emissions. But the improved efficiency and reduced emissions of the latest gasoline- or diesel-fuelled cars means CNG may struggle to penetrate the market on that basis alone-even if the recent travails of VW, under regulatory scrutiny in several countries over the level of emissions from its diesel vehicles, have done little to help diesel's cause.

Electric vehicles (EVs), which compete for market share with NGVs, can also boast low SOx and NOx emissions, so long as the electricity comes from renewables or clean power stations, so the environmental benefits disappear there.

EVs are also competitors to NGVs for buyers of fleet-based vehicles, which can most easily refuel at a central point, such as taxis, vans and trucks. But unlike EV technology, CNG or LNG fuel also permits long-range travel and is more suitable for heavy-duty work, making it viable for use in the trucking industry.

Weaker GHG case

While the SOx and NOx case is strong for NGVs, the case is weaker for CO2 and other greenhouse-gas (GHG) emissions. Some NGV proponents say GHG savings of more than 25% are possible, but the US Department of Energy estimates that CNG emits only 6-11% less GHG than gasoline across its lifecycle (others put the saving even lower than that). A big chunk of emissions from CNG come from methane, which is a potent GHG, but one that disperses more rapidly than CO2.

For CNG to expand in western markets, much will depend on the fiscal stance taken by governments, which may change if the fuel catches on. At present, CNG sales can count on low tax where it is a niche fuel. But, if its popularity rises, finance ministries may well view it as a cash cow, much as they do gasoline sales, and tax it more heavily.

Gas demand from the CNG sector can be expected to rise in developing countries where gas is ample and cheap, and the political and fiscal environments are favourable, but the technology looks likely to remain largely restricted to long-range heavy-duty vehicles and short-range fleet transport in Western countries.

This article is part of a report series on Gas in Transport. Next article: Oil's sibling rival

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