Auto LPG policy running on fumes as policymakers ignore fuel's potential

The government is largely ignoring this least polluting fuel in favour of diesel, petrol and electric vehicles

Kadal Murugan and Suyash Gupta belong to different ends of the spectrum, geographically and socially. But both have something in common. They are both advocates of auto LPG — a gaseous fuel that is consumed in your kitchen and also used by Kadal to power his autorickshaw in Chennai.

Delhi-based Gupta, director general of the Indian Auto LPG Coalition, has been relentlessly championing the cause of what in India has remained an obscure fuel — despite its obvious cost and environmental benefits. Globally, it’s the world’s third most common transportation fuel, behind gasoline and diesel.

Auto LPG is even more relevant today after yet another study, released last week, covering 7,000 cities on the effects of PM2.5 (PM=particulate matter) and NOx (nitrogen dioxide) from 2010 to 2019 by the US non-profit Health Effects Institute highlighted that India accommodates 18 of the 20 cities worldwide with the most severe increase in PM2.5 pollution.

Kadal said that he makes profits even on slow days because of lower running costs — at Rs 3 per km it is cheaper than diesel and petrol. The only tradeoff is lower power. In Hyderabad, market priced auto LPG at Rs 70 per litre is cheaper than petrol and diesel by Rs 40 and Rs 28 per litre respectively despite indirect price controls on both fuels. CNG costs Rs 90 per kg.

Auto LPG generates 51 per cent less PM, and 21 per cent lower carbon dioxide (CO2) emissions than petrol; 74 per cent lower nitrogen dioxide (NOx) and 81 per cent lower PM than diesel; 13 per cent lower methane emissions and 54 per cent lower PM levels than CNG, according to United Nations data.

LPG is not classified as a greenhouse gas by the UN Intergovernmental Panel on Climate Change. Its global warming factor of zero compares with 25 for methane (natural gas). The fuel needs much lower investments in infrastructure, and, since its appearance in 2002 it was sold at market prices — at zero cost to the government and taxpayers.

But India’s policymakers have long ignored the fuel’s benefits and potential. Instead they spent tens of thousands of crores in subsidies, and skewed tax benefits, on diesel and petrol, prompting motorists to opt for higher polluting fuels.

The government is pushing natural gas and electric vehicles (EV) because it is invested in both areas, an official from a state oil company said. Unless automakers build LPG compatible vehicles (as in Korea and Japan) it is difficult to increase supplies, he added. Bajaj, TVS and Piaggio make LPG-fired autos; passenger vehicles are few among the 2.4 million vehicles that run on auto LPG.

That compares with nearly 27 million vehicles using auto LPG globally. South Korea, Russia and Turkey consume over 3 million tonnes of the fuel each, ten times that of India, and together account for over a third of global demand. These nations are also large consumers of natural gas. Nearly half of all private vehicles in Turkey run on auto LPG with global OEMs including Hyundai, Kia and Suzuki offering such vehicles.

“It’s important for the government not to patronise only electric or gas, not just go one way, but provide options for more alternative fuels,” Gupta said. The government gives Rs 10,000 crore for subsidies for EVs but taxes market-priced auto LPG at 18 per cent, domestic LPG carries a GST of 5 per cent. LPG and CNG conversion kits carry a GST of 28 per cent.

Skewed tax and subsidy policies and availability of the fuel were key reasons for languishing auto LPG sales when the fuel was introduced in early 2000 following a Supreme Court directive. Auto LPG sales rose to a record 419,000 tonnes in 2019-20, a fraction of the total LPG consumed, before declining to 327,000 tonnes following the pandemic. Overall LPG use rose over threefold to 28.3 million tonnes in fiscal 2021-22 in the last two decades, but 99 per cent of it was subsidised and used as cooking gas. Diesel demand more than doubled to 77 million tonnes during the period, and petrol use soared fourfold. State oil companies added tens of thousands of petrol pumps to over 80,000 now, while LPG retail was limited to less than 1,400, primarily in Bengaluru, Chennai and Hyderabad.

“The government is heavily invested in CNG, and long on natural gas,” said Hemal Thakkar, director, transport, at CRISIL Research. “They have told the private sector to invest in city gas infrastructure. The Centre is invested in auto fuels,” he added.

The pandemic and the Russian-Ukraine conflict may help sustain LPG’s competitiveness, barring New Delhi’s interference in the market.

City gas investments may unravel if imported LNG continues to trade at over $40 per million British thermal units (mbtu) when India typically pays $10 per mbtu on an average. Attempts by Washington and Brussels to reduce Russia’s relevance in gas supplies will keep the fuel trading at high levels, officials from Petronet LNG and GAIL said, keeping CNG rates elevated.

Meanwhile, LPG is becoming more affordable. Kadal’s auto clocks more miles on petrol but the price differential makes LPG worthwhile, he said. Auto LPG has a lower British thermal unit rating than gasoline, so it takes more fuel by volume to drive the same distance. The price gap may persist because of the emergence of ample supplies of LPG from 2015 after the US struck shale gas, turning into a big exporter of the fuel.

US supplies have brought Saudi LPG contract rates for propane down to $400-$600 per tonne in the past five years from over $1,200 per tonne, according to oil ministry data. Over 65 per cent of LPG worldwide is derived from natural gas; the rest from refineries, and waste.

India’s import infrastructure also has excess capacity. The Ujjwala scheme distributing cooking gas to poor households led to the creation of new Indian LNG import terminals on both coasts. But Ujjwala is tapering, leaving India with around 6 million tonnes of excess import capacity, which can be used in the future for auto gas, an official from a state refiner said. India imports around 60 per cent of its LPG needs.

But exacting regulatory requirements for certification of LPG retrofit vehicles every three years need to be reviewed, Gupta said. In Europe, such certification is less complex and perpetual.

New Delhi needs to pay closer attention to its fuel bets — a policy to only promote gas is now proving expensive after the Russian invasion of Ukraine threatens to keep the fuel at a premium to oil. Incentivising EVs amid a growing dependence on coal-fired generation will only aggravate emissions as coal is the worst pollutant. A balanced fuel mix is what India lacks, and what it must aspire for.

Glossary

LPG when used to power a vehicle is auto LPG; when used in kitchens it is known as cooking gas.

LPG is primarily composed of propane and butane. It is a byproduct of processing natural gas, and

from crude oil refining. Natural gas is methane, a single carbon molecule (CH4).

Propane is a three-carbon alkane gas (C3H8), stored under pressure inside a tank as a colourless, odourless liquid. As pressure is released, the liquid propane vaporises and turns into gas that is used in combustion.

With a lower carbon content than oil, gasoline, diesel, kerosene and ethanol, propane and butane gas contain significantly less greenhouse gas emissions per productivity unit compared to other fuels.

LNG is a liquefied, chilled form of natural gas for ease and safety of non-pressurized storage or transport.

Diesel is by far the most polluting fuel, burning of which produces carcinogenic pollutants such as particulate matter and nitrogen oxides. With a lower carbon content than oil, gasoline, diesel, kerosene and ethanol, propane and butane gas contain significantly less greenhouse gas emissions per productivity unit compared to other fuels.

The history of auto LPG in India dates back to the late 1990s when the Supreme Court issued directives in the M C Mehta case to cut pollution in 11 most polluted cities. The Motor Vehicles Act was subsequently amended allowing LPG to be used as auto fuel.