CNG conversions fall 11% until June due to low oil prices and poor public policies

Despite having represented savings of more than S/25 billion for Peruvian transporters in the last 18 years, the market for conversions to natural gas in Peru has begun to slow down due to the lack of public promotion policies and the fall in the price of petroleum derivatives, reported the Automotive Association of Peru (AAP).

According to the report “Natural gas vehicle market – First half of 2024”, prepared by the AAP’s Economic Studies and Statistics Department, the rate of vehicle conversions to CNG registered a contraction in the first half of 2024 compared to the same period last year.

Thus, according to Infogas figures, the number of vehicles activated with CNG (converted and new) during the first six months of this year totaled 25,004 units, -10.3% lower than the same period in 2023.

In a disaggregated manner, it was observed that the number of vehicles converted to CNG in the period analyzed reached 24,383 units, a fall of -10.9% at an annual rate, while the number of new CNG vehicles stood at 621 units, reaching an increase of 26.5%.

“If the rate of conversion of vehicles to natural gas continues for the rest of the year, it is expected to close at around 50,000 units, below the figure for 2023 (56,000 units) and the historical record for 2022 (74,000 units).“, the AAP said.

According to the AAP, this decline is explained by “insufficient comprehensive and efficient public policies that encourage the conversion and/or transformation of the vehicle energy matrix towards an environmentally responsible one.”

It is worth mentioning that the University of Chicago’s ‘The Air Quality of Life’ report (AQLI) indicates that all residents of Lima lose an average of 2.2 years of life due to vehicle pollution alone.

“One of the main advantages of natural gas is that this fuel reduces polluting emissions, improving the quality of life of the population, and also contributes directly to the reduction of global greenhouse gas emissions,” the report highlights.

NGV: oil price falls, demand for conversions falls in Peru

Another factor that influenced the result would have been the fall in the prices of petroleum-derived fuels. Gasoline, for example, went from S/16.97 per gallon at the end of 2023 to S/15.93 per gallon at the end of June of this year; meanwhile, the price of CNG went from S/1.66 to S/1.76 per cubic meter.

“That is, after standardizing both prices, it is observed that the gap between both fuels has been reduced. However, the difference between both products remains significant, where the price of gasoline is 2.6 times more expensive than that of vehicular natural gas,” says the AAP.

To support this position, it is estimated that CNG users have obtained savings totaling S/1,443 million during the first six months of 2024 compared to petroleum derivatives.

However, Since NGV was introduced in the Peruvian market – around 2006 – the accumulated savings amounted to S/25,226 million“a balance that has directly benefited people with natural gas vehicles, increasing their purchasing power.”

CNG vehicle fleet grows faster than gas stations

According to information as of June 2024, the number of conversion workshops increased to 316, above the 264 workshops registered in the same period of 2023, achieving a growth of 19.7%.

“This variable has been recording significant progress, particularly since 2022, when the gap between the price of CNG and petroleum derivatives widened, a situation that drove the conversion of vehicles in our country,” the report continues.

It should be noted that the number of CNG refueling stations stood at 342 at the end of the first half of this year, and increased by one station compared to the same period in 2023. However, at the end of the first half of 2024, there are 1,384 active CNG vehicles per refueling station, a figure higher than the 1,235 vehicles per station compared to the same period in 2023.

“The increase in this indicator in recent years indicates that the fleet of CNG vehicles has grown at a faster rate than the number of charging stations,” the organization warns.

What to do to recover the CNG conversion curve?

The AAP warns of “insufficient measures and policies that encourage conversion by the State.” In the end, the demand generated is scarce because distribution is limited to some departments, mainly in the north of the country, Lima and Cusco, “ignoring important regions such as the southern coast, almost all of the mountains and jungle of Peru.”

In this regard, the association points out, the State is required to promote the construction and completion of the Andean gas pipeline, whose work has been halted for 5 years and also that the construction of the pipelines in Ayacucho, Junín, Ucayali and other areas of the country that need natural gas to boost their development be accelerated.

“Our country has a considerable proven reserve of natural gas, which ensures its supply, so if we manage to increase the distribution of this hydrocarbon, the dependence on fuels derived from petroleum would be reduced, avoiding exposure to fluctuations in international crude oil prices,” he said.

Similarly, the AAP indicates that the State must assume a leading and more active role in the popularization of natural gas, through an articulated strategy that manages to expand the NGV ecosystem, where not only conversions are promoted but also the network of charging stations, and which involves the participation of the private sector.

“Currently, there are lines of financing and state bonds that allow a vehicle to be converted to CNG; however, as long as the natural gas distribution and marketing network is not expanded to more regions of the country, the impact will remain limited,” he concludes.

The data

• The number of vehicles that register CNG consumption, which represent the active fleet of said vehicles, closed the first half of 2024 with a total stock of 325,676 units, exceeding by 10.6% what was reported in the same month of 2023.
• According to figures from 2023, of the total national vehicle fleet, around 9.5% correspond to vehicles that consume natural gas.
• So far this year, the number of vehicles converted to CNG by each conversion workshop reached 1,526, lower than the 1,622 in 2023.
• The AAP cited Colombia as an example, where the State, through the state-owned company Ecopetrol, leads the construction of the main gas pipelines in that country.
• According to a study by Senati, it was calculated that if a taxi driver works 10 to 12 hours a day and travels about 200 kilometers a day, he can spend about S/2,100 a month on gasoline. However, if he uses CNG, the expense would only be S/624.
• According to ComexPerú, in 2023 we recorded a deficit in the Hydrocarbon Trade Balance of US$5,019 million in the country. In addition, according to figures from the BCRP, in 2022 and 2023 more than S/8,300 million were disbursed for the Fuel Price Stabilization Fund.