The global Autogas sector is still dominated by a few countries and faces challenging competition from other fuels, including natural gas – both compressed natural gas (CNG) and liquefied natural gas (LNG).
Autogas maintains its global market share
Autogas demand forged ahead in 2102, but it remains highly concentrated in a few key markets. By Nick Black, Editor, Argus LPG World.
To be successful Autogas needs government tax breaks or grants as well as sufficient infrastructure, support from automobile and equipment manufacturers — and customer loyalty. Where these conditions exist, Autogas can survive the toughest challenges.
According to the latest annual Statistical Review of Global LP Gas, compiled by Argus Media, overall global Autogas demand reached 23.8 million tonnes in 2012, a rise of 2.5% on the level of 23.3 Mt in 2011. The sector has only a 9% share of overall LP Gas consumption globally, although this situation is very different in Europe, where Autogas is now the dominant consuming sector for LP Gas, helped by the vibrant markets of Turkey and Poland.
South Korea, the world’s largest Autogas market, saw demand drop for a second consecutive year to 4.1 Mt compared with 4.2 Mt in 2011 and 4.5 Mt in 2010 — a worrying sign that this market has matured and that growth prospects are limited.
The decline in the market share of the South Korean Autogas fleet reflects the scrapping of older Autogas vehicles, which are often being replaced by vehicles running on other fuels because Autogas has become more expensive and because of a lack of new Autogas vehicle models. Vehicle options from South Korean car manufacturers are becoming limited, with manufacturers unwilling to invest in this sector because of the significantly smaller market share that Autogas holds relative to gasoline and diesel vehicles. (Ed. – there are exceptions; see the article on the new Kia Picanto LP Gas car). This in turn means that new Autogas vehicles are often up to 15% more expensive than similar models fuelled by gasoline or diesel.
One of the main drivers behind the historical strength of South Korea’s Autogas industry has been sustained government support in the form of favourable tax treatment. Fuel taxes on Autogas were just $0.28/litre in 2012, compared with $0.84/l for gasoline and $0.63/l for diesel. But the strength of Asia-Pacific butane prices throughout most of last year — when prices hit a record high — reduced the price attractiveness of Autogas at the pump relative to competing fuels.
The taxi market remains one of the silver linings in South Korea’s Autogas sector. The country’s 250 000-strong Autogas-fuelled taxi fleet makes up less than 10% of the country’s total Autogas vehicle fleet, but it consumes around 1.5 Mt/year of butane, accounting for over 35% of total Autogas demand in the country because of their considerably higher mileage. Taxis in South Korea travel an average of 81 742 kilometres per year, while private-sector vehicles travel 13 030 km/yr.
India’s Autogas industry appears to be turning a corner after years of stagnation, as fuel-pricing reforms promise to increase the pump prices of competing fuels and curb diversions of subsidised domestic LP Gas to vehicle use, boosting official Autogas growth significantly.
Consumption was nearly flat at 341 000 tonnes in 2012 as signs of growth, evident in October, failed to materialise over the rest of the year, according to the Indian Autogas Coalition, which collates sales from state-run oil companies and private-sector sellers. But sales should improve in the current fiscal year (which runs from April to March) as policy spin-offs from two major price-reform measures develop this year, and India’s economic growth accelerates from a decade low of 5% in 2012 to a projected 6.4% this year.
An immediate consequence of the government’s decision to introduce in September a cap on the supply of subsidised cylinders, which cost less than half of non-subsidised prices and which are diverted with impunity from kitchens to vehicles, was that sales of Autogas rose by 20% in October compared with the previous month. Delhi’s curbs on subsidised cylinders badly hurt the black market, estimated at more than 1 Mt/year, or three times officially reported Autogas consumption. Japan’s LP Gas industry is lagging far behind its ambitious target of expanding the Autogas vehicle fleet more than ten-fold by 2031, with even unexpected subsidies insufficient to boost demand.
Japan’s Autogas demand totalled 1.05 Mt in 2012, down 7% from 1.13 Mt in 2011. The industry is targeting an increase in demand to around 1.7 Mt by 2031.
One bright spot for the Asia-Pacific Autogas market was Thailand, where consumption rose by over 15% to 1.06 Mt in 2012 with the number of Autogas-fuelled vehicles exceeding 1 Mt for the first time. Attempts by the Thai authorities to curb the use of Autogas have persistently been met with resistance, with the latest move by the Thai Auto Gas Business Association decrying plans to ban the registration of Autogas vehicles. The government has repeatedly tried to cut LPG subsidies so that prices reflect import costs, but planned increases have repeatedly been suspended amid social discontent. The government is now pushing instead for vehicle owners to switch to natural gas vehicles (NGV) with favourable results. The NGV sector grew by over 20% to 278 million cubic feet per day (2.9 billion cubic metres per year) in 2012. CNG has a price advantage over Autogas, retailing at just 8.50 baht per kilogramme.
The Autogas market in Europe faced challenges from proposed EU legislation in 2012, though the worst of various tax-harmonisation proposals were dropped. German Autogas demand grew, after a difficult 2011. Polish demand stayed relatively static and Greece managed to sustain its unexpected growth surge, which began in 2011. A welcome result came from Italy, where urban congestion laws helped boost demand. Russian Autogas demand reached nearly 2.7 Mt in 2012, enabling the country to retain its position as the world’s third-largest Autogas market.
Outside the European Union, Autogas demand rose in Turkey. The country has the world’s most competitive and well-developed Autogas market, second only in size to South Korea. Autogas remains a source of pride for Turkey’s LP Gas sector, with its wide market penetration and sophisticated retail network. Autogas has a 40% share of Turkey’s overall car vehicle fleet — an astonishing statistic for a country with a strong transport sector that has emerged unscathed from the economic malaise gripping neighbouring Europe.
The Turkish Autogas sector’s rapid pace of growth has slowed nonetheless following a period of rapid growth that began in 1997, prompted by favourable tax treatment. But demand still edged up to 2.7 Mt in 2012 from 2.6 Mt in 2011. The Autogas sector has a 73% share of the Turkish LP Gas market and its success has attracted fierce competition from retailers. But the sector faced a new threat when the government increased excise duties by 24% in September. Demand proved to be robust, helped by Turkey’s extensive network of 9 400 retail Autogas stations and public support for the fuel. Support from vehicle manufacturers is also steady, with Fiat, Hyundai, Renault and Honda all offering Autogas models.
Poland’s Autogas consumption managed to avoid the heavy slump that hit its diesel and gasoline demand. But LP Gas suppliers failed to stop the gradual decline in consumption. Demand for Autogas in Poland edged down by 0.6% to 1.6 Mt in 2012. It was fifth year of decline after consumption peaked at 1.83 Mt in 2007. Despite this fall, Polish LP Gas suppliers have reason for optimism. Autogas is doing much better than competing fuels, which have experienced heavy falls in sales since the beginning of 2012, largely as a result of the economic slowdown.
Russia’s Autogas demand grew to 2.6 Mt in 2012 – a year marked by increased investment in retail network infrastructure, despite the looming threat of government support for natural gas as a transport fuel. The total number of Autogas-fuelled vehicles remained at around 3 million, while the number of retail stations dropped slightly to 4 300 from 4 500 in 2011, reflecting new competition between big retail networks and the elimination of illegal stand-alone fuelling outlets. But Autogas faces serious competition from diesel and the state-supported development programme for the use of natural gas as a vehicle fuel. There are now around 246 CNG filling stations compared with around 4 400 Autogas retail outlets.
Autogas has struggled to achieve any kind of breakthrough in the United States, with gasoline continuing to dominate transport-fuel use – largely the result of patchy federal government support for alternative fuelled vehicles. Rival transport fuel natural gas, once strongly supported only by maverick US investor T Boone Pickens, now attracts serious attention thanks to the overabundance of shale gas. US independent Apache converted its own transport fleet to CNG and US investor Warren Buffet is spearheading a movement to support LNG-powered trains. But Autogas demand continues to edge higher, reaching 339 000 tonnes in 2012, compared with 309 000 tonnes in 2011. The US retail network – at around 2 654 retail outlets compared with around 6 200 in Germany – is relatively sparse, given the vast size of the country.
But Autogas outlets in the US account for roughly 36% of all alternative fuelling stations, according to industry body US Propane Education and Research Council (PERC). After-market propane (Autogas) conversions totalled less than 10 000 vehicles last year, but are expected to double this year. Municipal public transport systems – particularly school buses and other fleet vehicles – offer the sector hope, with US bus manufacturers producing propane-fuelled models. Blue Bird has partnered with alternative fuel product manufacturer Roush CleanTech to create two propane bus models, the Vision and Micro Bird G5. But Blue Bird also continues to support CNG, and has been selling a CNG-powered model “with a proven and reliable Cummins CNG Engine, backed with one of the best warranties in the business” since 1991, according to the firm’s website. Yet the number of school buses fuelled by Autogas has already risen by 20% to 3 000 since the end of 2012, surpassing PERC’s expectations.
PERC continues to lobby for the annual renewal of the 50 US cents per gallon alternative fuel tax credit, which expires at the end of this year. The industry is vying for US government subsidies, while the CNG/LNG sector is also seeking support for fuelling stations and fuel credits.
In Mexico, the government and industry participants are predicting a steady decline in the use of Autogas, reflecting its rising price relative to diesel. Autogas demand dropped to 670 000 tonnes in 2012 compared with 680 000 tonnes in 2011. Back in 2002, fleet managers could save 20% in fuel costs by switching from diesel to Autogas and 70% by switching from gasoline to Autogas. Over the period 2003-08, diesel became less expensive than Autogas and prices only returned to parity in 2009. For gasoline, the price premium over Autogas fell to 30% in 2003 and gained parity in 2006, but is now close to 20%. The price difference is at risk from a long-term Mexican government strategy of raising all fuel prices to match international rates. State-owned Pemex has a monopoly on wholesale fuel distribution, and has to sell at prices set by the finance ministry.
For more information about the Statistical Review of Global LP Gas 2013 and how to order a copy, please go to: www.argusmedia.com/About-Argus/What-We-Do/Consulting/Global-LPG-Review.