LNG-Run Trucks Offer A Growth Opportunity For India

Liquified natural gas trucking could be the next big growth opportunity in the Indian gas sector.

"There's no reason India cannot achieve a target similar to that of China in the LNG trucking sector," AK Singh, managing director and chief executive officer of Petronet LNG Ltd., told NDTV Profit. Singh said the government is aiding the sector and Petronet LNG wants to be the leader in the business because of its storage capabilities.

Kamal Kishore Chatiwal, managing director at Indraprastha Gas Ltd., concurred. "We feel that LNG going forward, in the next three to five years, could be a major growth opportunity for city gas distributors," he said. The segment, he said, would help grow the share of gas in India's energy mix.

Here's what we need to understand about the fuel policy benefits to the sector, and its supply infrastructure.

"LNG is not only environment-friendly, but also cheaper than diesel," Singh said. "LNG long-haul trucks can travel 700-1,000 kilometres in one fill."

The government's think tank NITI Aayog, in its January 2024 report on LNG as a transportation fuel in medium and heavy commercial vehicles, said diesel and LNG high-duty vehicles have similar ownership costs, with diesel trucks costing about 2% more.

The report suggested reducing or exempting toll charges could promote LNG truck adoption, as seen in some European regions. It also said advances in energy efficiency and production scale can lower total cost of ownership for all fuel technologies.

Emkay Research said to achieve a 20% return on capital for LNG stations, a profit margin of Rs 3.5 per kilogram is needed, setting the selling price at Rs 72.5-74.5 per kg.

LNG is currently competitive with diesel and could be even more so if priced 20% below diesel while maintaining a 10% lower total cost of ownership, the brokerage said. Additionally, LNG's higher density than compressed natural gas allows for longer driving distances, making it ideal for long-haul trucking, and its lower greenhouse gas emissions support India's sustainability goals.

Fuel station availability is crucial for LNG trucking growth. The Indian government aims to establish 1,000 LNG dispensing stations by 2030. Major oil companies and city gas distributors also plan to set up LNG stations nationwide, with Emkay Research estimating an additional 400 stations by 2030.

The following are the various infrastructure efforts made by energy companies:

• Petronet LNG has completed four LNG stations and plans to add one more at its Dahej terminal in Gujarat, with 10 additional stations scheduled for FY25.

• Indraprastha Gas Ltd. has commissioned one LNG station, handling 5,000-7,000 kg per day, and will establish more stations in the future.

• GAIL India Ltd. aims to capture over 50% of the LNG retail market by 2030 and will invest Rs 650 crore to set up LNG outlets for medium and heavy commercial vehicles along major highways. The company has already established stations in Nasik, Savrolli, Ajmer, Mandideep, Bhubaneswar and Cuttack.

• Indian Oil Corp. has begun LNG sales at its first outlet in Sriperumbudur, Tamil Nadu, and plans to open 15 more stations on major highways.

• Hindustan Petroleum Ltd. aims to set up 11 LNG dispensing stations in Phase 1 along the golden quadrilateral.

It's estimated that there are about 4 million trucks and heavy vehicles in India, with 1-1.5 million diesel-powered, according to Emkay Research.

The brokerage suggests that 3-5% of these could convert to LNG trucks by 2030, creating a potential market of around 50,000 vehicles. According to the NITI Aayog report, about 3,000 LNG heavy-duty vehicles are needed to justify 50 LNG retail outlets.

• Sydney-listed Blue Energy Motors was an early adopter of LNG trucks in India with its Blue Energy 5,528 4x2 model, which offers a range of up to 1,400 km per fill.

• Tata Motors Ltd. has entered the LNG market with the Tata Prima LNG and Tata Ultra LNG trucks.

• Ashok Leyland Ltd. is investing in R&D to enhance the performance and efficiency of its LNG trucks.

• Volvo sells LNG high-duty vehicles globally and can import kits for local assembly in the 420 HP segment.

• Cummins India Ltd. is developing 250 HP natural gas engines for high-duty vehicles.

The NITI Aayog report estimates that 6 million tonne of daily LNG sales are needed for energy companies to justify retail outlet economics.

Emkay Research predicts that adding 400 LNG stations, with each LNG truck filling 150 kg of fuel daily, could generate a demand of 2.4 million metric tonne annually. For comparison, China’s 5,82,000 LNG trucks and 4,800 stations handle 18-20 million tonne annually.

Nuvama Research expects domestic LNG demand in India to rise with increased models and infrastructure. Petronet LNG’s Singh anticipates significant volume growth in this sector.

India has a target to increase the share of gas in its energy mix from 6.7% currently to 15% by 2030. Thus, adoption of LNG fits within this aim.

The following are the current policies in place:

• The April 2018 notification by the Ministry of Petroleum and Natural Gas introduced guidelines on storage and handling, operations of LNG operations.

• In November 2018, the Ministry of Road Transport and Highways allowed for the retrofitting of diesel vehicles to run on LNG.

• In January 2020, the Ministry of Road Transport and Highways allowed for the classification of vehicles as dual-fuel, meaning they could operate on both diesel and either CNG, Bio-CNG, or LNG.

• In June 2020, the Petroleum and Natural Gas Regulatory Board concluded that any entity can set up an LNG station in any geographical area.

While India has made significant stride in promoting LNG as a transportation fuel, it still lags behind several global peers like China, the European Union, Italy, Spain, the Netherlands and Germany.

India has a relatively sparse network of LNG filling stations as compared to these countries. China, the EU and the Netherlands have heavily invested in LNG infrastructure.

Other countries have also offered substantial financial incentives and supported research and development in LNG technology, which has contributed to the rapid adoption of LNG trucking in the regions.