Why Gas Could Be The Future Of India’s Transport

India’s push for cleaner fuels will not just trigger an electric car boom. It will also drive consumption of natural gas as the nation weans car owners away from polluting fuels like petrol and diesel, among the largest contributors to Asia’s third-largest economy’s import bill.

Gas will offer cheaper mileage, especially after the stricter Bharat Stage VI emission standards are rolled out in April 2020. Which means, city gas distributors like Mahanagar Gas Ltd., Indraprastha Gas Ltd. and Gujarat Gas Ltd. stand to gain.

Investors are betting on the potential growth. Shares of Gujarat Gas, Indraprastha Gas and Mahanagar Gas have gained between 40 to 77 percent so far this year.

Here are the five reasons why gas may be the future of India’s passenger transport...

Cheaper

Natural gas lowers your car and kitchen fuel bill.

Compressed natural gas increases car mileage and lowers costs. In all, it’s 59 percent cheaper than petrol and costs 41 percent less than diesel, according to BloombergQuint’s analysis. This doesn’t factor in the price of the car, and maintenance and insurance costs.

As a kitchen fuel, piped natural gas is 26 percent cheaper than a subsidised liquefied petroleum gas cylinder of 14.2 kilograms. And it costs half the price of a non-subsidised refill.

Also Read: City Gas Distributors In A Sweet Spot

Greener

Natural gas is cleaner and less polluting than other fossil fuels. New Delhi already uses CNG for public transport. Mumbai has been increasing the fleet of its gas-powered passenger vehicles and other cities may follow suit.

Demand from industries is expected to rise after the Supreme Court banned the use petcoke and fuel oil in Rajasthan, Uttar Pradesh and Haryana, in addition to the existing curbs in Delhi. Highly polluting Petcoke is a key fuel for cement makers. The ban is expected to boost gas demand further, ES Ranganathan, managing director of Indraprastha Gas, told BloombergQuint in an interview.

The judiciary’s curbs on oil and petcoke could propel the growth of city gas distributors, brokerage Motilal Oswal said in a report.

Also Read: North-Based Cement Firms May Appeal SC’s Ban On Petcoke

Stricter Emission Standards

The stricter BS-VI standards will be rolled out from April 2020 in a bid to reduce sulphur emissions. In Delhi, the government decided to bring BS-VI fuel two years earlier than planned. That came after the national capital remained blanketed in a toxic fog, which doctors said was equivalent to smoking 45 cigarettes a day, for about two weeks earlier this month.

Motilal Oswal said the new standards would increase the costs of trucks and buses running on petrol and diesel. That could make CNG more cost-efficient, it added.

Also Read: As India Endures Blanket of Smog, China's Battle Offers Lessons

GST Push

Natural gas, like other petroleum fuels, is out of the ambit of the Goods and Services Tax. Which means, city gas distributors don’t get credits for inputs that can be set off against future liabilities, a key element of the new nationwide sales tax.

Companies don’t get input tax credit for the GST they pay on equipment, gas infrastructure and transportation charges. That increased cost of operations, warranting gas price hikes. Indraprastha Gas lost close to Rs 14 crore in the three months ended September as it failed to pass on the hike to consumers for 25 days, Ranganathan told BloombergQuint.

So, including natural gas under the GST would bring down retail prices, Oil Minister Dharmendra Pradhan said recently.

Expansion

Petroleum and Natural Gas Regulatory Board has been mandated by the government to expand the gas grid and improve city distribution network by inviting bids from interested developers. The board identified 223 areas and will invite bids through multiple rounds, according to Motilal Oswal. Even the government’s think tank NITI Aayog has drafted a plan to expand the network in 326 cities by 2022 from existing 87 regions.

That would throw up new opportunities for gas distributors.