PRESTON
UNIVERSITY KARACHI
15TH
Banglor Town
main Shahra-e-Faisal Karachi
The impact of CNG as an
alternative automobile fuel on Oil marketing companies
Submitted to
Raja Rab Nawaz
Submitted by
Kareem u ddin
( Reg # 1511105008)
BBA FINAL
Acknowledgements
Acknowledgements
We would
like to thank Mr. Raja Rab Nawaz for his support and advice throughout the
course of our BBA program.
We would
also like to thank Mr. Ghulam Murtaza Shiekh (CNG) and Mr. Kashif Siddiqui
(CNG) for addressing our queries about everything and bearing with us.
Table of
Contents
Preface
It was nearly a decade ago when the government took
initiative to promote compressed natural gas as alternate environmental
friendly fuel in the transport sector. It is however during the recent years
that CNG caught the imagination of car owners by storm. Thanks to spiraling
prices of gasoline that has made it an unaffordable fuel for a majority of
vehicle owners. From a modest beginning with 2 refueling stations in 1994 there
are about 700 stations across the country today. And with more than eight
hundred thousand CNG vehicles plying on the roads, we are the third highest in
CNG vehicle population after Argentina
and Italy. Meantime, by providing free from custom duty
and sales tax imports, the government has provided a platform for a takeoff for
the expensive CNG infrastructure to which the investor as well as the consumer
have both responded positively and prospects for more and more vehicles
switching over to CNG are becoming brighter than ever before.
Natural gas is an environmentally clean, plentiful,
low-cost, domestically produced fuel for motor vehicles. But is it a safe fuel,
a question that continues to boggle motorists’ mind. Any motor vehicle fuel can
be dangerous if handled improperly. Fuels contain energy, which must be
released by burning. Gasoline is a potentially dangerous fuel, but, over time,
we have learned to use it safely. The same is true of natural gas. Natural gas
safely generates our electricity, heats our homes and cooks our meals. But like
gasoline, natural gas must be understood and respectively used safely.
Project Objectives
· To determine the impact of
CNG as an alternative automobile feul on Oil marketing companies (OMCs)
· To analyze the Industry by
determining the existing number of CNG stations and market share of oil marketing
companies (OMCs) and private CNG operators.
· To determine the effect of
introduction of CNG on the earning of PSO
· To determine the historical
growth trend in CNG industry
· To determine the demand of
CNG in the future
· To identify the possible
problems and safety hazards/concerns associated with the use and conversion
from Motor gasoline (MoGas) to CNG
· To identify to promote ow to Promote CNG
Impact of CNG on Motor Gasoline Sales
To determine the impact of CNG on the sales of MoGas we
carried out the analysis on the sales of 32 selected stations of PSO and
analyzed their sales before and after installation of CNG to get a better
picture of their impact on oil marketing companies.
According to our analysis, sales of MoGas before CNG grew by
7% whereas average growth after the installation of CNG at the respective
stations grew by only 4%.
There are numerous factors involved behind this decline in
the mogas sales. Particularly rapid increase in the price of mogas people
generally shifted from mogas to a cheaper automotive fuel ie; CNG. However
there were other factors that have to be considered in this analysis of ours.
The decrease in the mogas was not so substantial because the shift to the CNG
sector was countered by the increasing number of new cars being produced and
sold through consumer financing.
The other important finding that we discovered was that the
average growth in CNG in the respective stations of PSO was 46%. The factors
behind these figures is the rapid increase in the conversion of all types of
vehicles from mogas to CNG (given ahead in the report).
Finally the average earnings of these respective stations
after installing CNG were found as Rs.366713.59 whereas prior to the installation of CNG was
Rs.172965.82.
Following
are a few graphical representations of selected stations and their respective
earnings and growth.
State of CNG industry in Pakistan
Pakistan is consuming, annually, 1.2 million
tons of motor gasoline and 6.9 million tons of high-speed diesel (HSD) for
automotive use in the transport sector. CNG was introduced in the country in
1992 as an alternate fuel for gasoline vehicles and a number of incentives were
provided to the investors in the form of duty concessions, tax reductions,
price differential vis-Ã -vis motor gasoline. Based on the incentives given by
the Government, the CNG sector has shown remarkable growth attracting
investment of about Rs 10.0 billion in terms of infrastructure, vehicle
conversion, etc. So far 394 CNG stations are operational while almost 200 CNG
stations are at commissioning stage. It is estimated that almost 400,000 petrol
vehicles are running on CNG. CNG has also restricted growth in the demand of
HSD which otherwise was on an increase due to the trend of large-scale
conversion of petrol vehicles to diesel resulting in indirect diesel
substitution. CNG as an alternate fuel contributed in the reduction of
emissions level besides generating employment opportunities, while saving
valuable foreign exchange through fuel substitution.
It is
estimated that due to the existing price differential with motor gasoline, CNG
will continue to grow at a fast pace replacing motor gasoline. Since Pakistan
is deficient in its HSD production and importing about 4.5 million tons of HSD
per annum amounting to approximately $ 1.0 billion, there is an urgent need
that the Government may consider providing incentives to use CNG in diesel
vehicles by upfront cost reduction of CNG fitted diesel vehicles through fiscal
measures to promote dedicated fleets of CNG buses / trucks.
The CNG market, currently at 44
MMscfd, accounts for about 1.7% of the total natural gas market. However, the
year-wise consumption of CNG has increased by 50% over the past three years,
and this trend is expected to continue at least into the near future.
Historically, the Government of Pakistan (GoP) has encouraged the use of CNG in
automotive vehicles as an alternative to liquid petroleum fuels. In 1997, the
Government introduced a number of measures to shift consumer preferences
towards the use of CNG as an automotive fuel. OGRA’s role in the CNG industry
has helped the increased use of natural gas in the transport sector. Procedures
for the application and grant of licenses, approval of CNG equipment, imports
and safety compliance by the CNG stations have been greatly streamlined to
facilitate private sector investment. Investment promotion incentives have
included duties and sales tax exemption on imported machinery, equipment,
conversion kits, cylinders, etc. for a period of five years since 1997.
Already, Pakistan is
considered to be the third-largest CNG user in the world after Argentina and Brazil.
In addition to the incentives
discussed in the section above, there also exists a policy of maintaining a
substantial disparity between the prices of gasoline and CNG to benefit CNG
consumers. Consumer prices are uniform across the country and are determined by
market forces. It is important to note that both the input gas price and the final
consumer price are fixed for the individual operator, and the profit or
‘Operator’s Margin’ is based on a ‘netback’ principle calculated by subtracting
the input gas price, taxes and other expenses from the fixed consumer price.
Vehicles Converted to CNG
The policies mentioned above have had substantial success,
with an almost fivefold increase in the number of vehicles operating on CNG
between FY 2000 and FY 2004. According to the press release by the chairman of
the CNG stations association of Pakistan printed on 17th of July
2005 in Dawn the number of vehicles on CNG were 824,000, while according to the
Economic Survey of Pakistan, there were about 450,000 vehicles operating on CNG
in FY 2004 making up about 35% of the motorcars, vans and taxicabs on the road
as compared to 85,050 vehicles on CNG in FY 2000. In recent years, the
introduction of new vehicles factory-fitted with CNG kits has increased, which
has improved the safety standards of CNG use.
Natural
Gas Supply
Forecasts for the supply of gas from the existing fields
were developed on the basis of current information and forecasts obtained from
industry and government sources. The supply from existing fields includes all
the producing fields, those already contracted with the utilities and those for
which reserve certification has been completed. The new discoveries include
fields already discovered that are not yet contracted and are passing through
the phase of reserve certification and investigative studies. In line with the
trends observed in the past, the estimates of anticipated supplies from future
discoveries were developed assuming a reserve addition of 9.77 Tcf per decade
in the future, or
a
constant rate of 0.97 Tcf per year in the forecast period. A calorific value of
950 Btu/scf was assumed for accounting purposes, and gas supply was projected
to increase from 3,700 MMSCFD in FY 2005 to a maximum of 4,100 MMSCFD in FY
2008, and then expected to decline gradually to 2,500 MMSCFD by FY 2025. The
gas production profiles of existing and anticipated gas discoveries are
presented in Exhibit 8.37.
Supply-Demand
Gap of Natural Gas
To work out the supply-demand gap, gross demand was
calculated by adding transmission and distribution losses and compression fuel
usage to the net demand. These losses and compression fuel usage were assumed
to be at 8.0% during the study period. Both supply and demand forecasts were
normalized to a gas calorific value of 950 Btu/scf for accounting purposes. The
forecasted gross demand for gas, the supply, and the projected gap or surplus
in the market are tabulated in Exhibit 8.38 and are shown graphically in
Exhibit 8.39 The supply forecast is based only on onshore gas discoveries and does
not take into account any import of gas or offshore potential. The gap in the
market appearing from FY 2010, adjusted for surplus supplies available during
the FY 2005-FY 2009 period, is also given in Exhibit 8.38 Under this adjustment
in the gas supply forecast, the gap in the market is expected to be about 160
MMscfd and 7,100 MMscfd during FY 2010 and FY 2025, respectively.
Indigenous gas supplies are expected to fall short of the
demand after FY 2009 and the alternatives available for filling this shortfall,
as well as issues associated with each, are summarized below.
- Imports of crude-oil refined products, particularly furnace oil, could be increased to meet the shortfall. This would not be advisable as the country is already heavily dependent on imported oil.
- The country has a well-developed infrastructure for the transmission and distribution of gas, which is a more efficient fuel better suited for use in the power and industrial sectors than oil. In order for the continued and full utilization of the infrastructure available in the country, the government should encourage and induce local as well as foreign oil and gas companies to increase their investment in the exploration activities in the country so that the decline in local production can be met through new discoveries.
- In addition to encouraging oil and gas exploration efforts in the country, and given Pakistan’s proximity to major gas reserves in the Middle East and Central Asia, the import of gas through transnational pipelines from these gas-rich regions should also be considered.
Safety concerns associated with CNG
The natural gas is compressed and dried to remove water at compressed
natural gas fueling stations before being provided to vehicles at 3000 to 3600
pounds per square inch. Although the use of high storage pressure might appear
dangerous to compression, storage and fueling of natural gas vehicles are
generally designed to meet stringent industry and government safety standards.
Remember that high-pressure gases are used safely every day in industrial and
medical applications. No matter what the fuel, fueling stations, indoor parking
structures and repair garages must be built to ensure high levels of safety.
Requirements for facilities handling natural gas and natural gas vehicles may
differ from those for gasoline or diesel vehicles. Natural gas, being lighter
from air, rises toward the ceiling and disperses. Therefore the danger of fire
would be greatest near the floor for liquid fuels and less for the natural gas.
Problems Encountered with CNG
A brief list of problems encountered with CNG is given
below:
·
Engine Power Loss
- Cold Start
- Gas flow Mal-adjustment
- Intricate Fault Localization
- Long queues
- High number of engine checkups / tuning
- Less space in trunk
- Suspension (shock absorber) problems due to cylinder weight
- Availability of CNG stations
- No standard check of quality ie; pressure
- Inconsistent gas metering and Quality of CNG
Conclusions
The report is based on detailed analysis of the impact of
CNG as an alternative automobile fuel on Oil marketing companies (OMCs).
Following is a summary of conclusions as a consequence of this report:
Recommendations
The principal recommendations falls under four basic
factors, one, creating awareness; two, strengthening of institutional
arrangements for testing and compliance with safety rules; three, Refueling
stations to act as awareness and compliance centers; four, increasing training
opportunities.
Creating awareness and information dissemination
As said earlier, the vehicle owners, the drivers, the
mechanics, and the general public at large are little informed on the basic
attributes of natural gas as an alternate fuel. There is some “fear of the
unknown” in their minds for using gas in their vehicles. The motorist and the
commuter, who is an equal stakeholder in using gas vehicles, are almost
completely ignorant on basic safety considerations that must be kept in mind
for converting to compressed natural gas. The CNG conversion workshops in their
own interest have a little interest in providing more information to the
driver. In order to allay the fears and avoid unnecessary concerns, the
government should take steps to increase awareness in this regard. The
awareness can be through simple facts through print and electronic media
publication of fact sheets distribution of materials in Urdu and English
holding of workshops and seminars for mechanics and users of compressed natural
gas publication of articles for general awareness
Strengthening of Institutional arrangements
Most of the motorists are unaware
on vital information on the safety and periodic testing requirement of CNG
systems fitted in their vehicles. The present institutional arrangements are
not sufficient to cater to an increased number of vehicles being converted to
CNG across the country. The relevant agencies are limited by staff/capacity to
allow the owners get periodic testing carried out on the CNG cylinders and equipment.
The following can be done to augment this capacity; creating sufficient
hydrostatic cylinder test facilities by HDIP in all major cities designating
the private sector workshops for hydrostatic cylinder testing reducing cylinder
test cost to as minimum as possible integrating one-window test/inspection and
certification facilities at all cylinder testing centers designating selected
workshops with adequate facilities for periodic testing of CNG vehicles
introducing instrumented tune-up facilities for CNG vehicles.
Establishing of model testing centers in major cities.
Refueling stations to
act as awareness and compliance centers
We consider that the
CNG-refueling stations can act as compliance as one of the principle sources
for dissipating information and creating awareness on the safe CNG practices
for the vehicles. We consider there is a
dire need for a large-scale introduction and creation of training avenues for
promoting efficient use of CNG at present and for the future. In this respect following
major activities can be initiated for example; developing training materials
for technical, safety and maintenance aspects of CNG vehicles conduct of
training workshops on CNG conversion and use in the road transport sector and
introducing training and education seminars at educational institutions
Auditing of CNG refuelling stations
CNG refueling station is a very important component of the
compressed natural system. We think there should be an introduction of a
standard auditing procedure, which should be initiated by the government so
that there is a consistent quality that persists throughout the country’s CNG
stations. This way people will feel satisfied and start converting more.
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