On 13 May 2016, the 17th annual China Natural Gas Vehicle (NGV) and filling station equipment exhibition drew to a close. The 50,000 square meter exhibition brought in over 50,000 visitors on its opening day. The annual trade exhibition brings together experts from all over the country and industry to share experiences, best practices, and develop the country’s “Oil to Gas” policy.
With the balancing forces of natural gas infrastructure development in China and an insipidus drop in NGV sales last year, the air in the building was of cautious optimism that NGVs will soon come to have a second spring.
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Sales of NGVs in China collapsed in 2015 along with the drop in the price of oil. The cost of oil to natural gas per BTU is a large driver for NGV adoption: at a ratio below 0.5:1, adoption is strong, while with a ratio of 0.75:1, relatively few choose to adopt NGVs, due to the higher costs of NGVs in China.
China has a tax-incentive program that was stopped and started in some cities during recent winters due to shortages of natural gas. However, as LNG import infrastructure, China’s shale gas reserves, and China’s coal-to-gas resources are developed, China will no longer have this challenge.
In China, CNG is preferred for smaller vehicles, while buses, trucks, and heavy equipment opt for LNG as an alternative fuel, as LNG is a 2.8 times denser fuel. In larger bus and industrial applications, electric vehicles still have range-related challenges. In larger cities such as Beijing, a 99.9 percent reduction in particulate matter and 97 percent reduction in CO is a welcome thought when switching trucks from diesel to LNG. However, LNG trucks are not without their difficulties. In practical applications, fuel economy is lowered as frost is formed around LNG valves during use, which can put strain on connections and cause leaks.
Traditionally, natural gas prices are have not been market-priced, but rather centrally priced in China. However, in some cities, price liberalization has been happening, and from December 2016 onwards, natural gas prices movements will be liberalized across the country, allowing for a 20 percent price movement and no lower limit, according to market demand. Related: Lunar Drilling: The Resource Race For The Moon Is On
In January 2016, China set a “floor price” for crude oil refined products. If international prices for oil fall below $40 a barrel, China will not decrease prices further on refined crude products. These two combined pricing dynamics will ensure a price ratio of 0.65:1, increasing the confidence that no one who switches to NGVs will switch back.
Mixed results for 2016 and an uncertain future
With the price setting developments still being ironed out, the drop in oil price and incentives for electric cars are having mixed results on NGV car sales and charging infrastructure buildup. From January to March 2016, 571 NGV refueling stations including 398 CNG stations were added, bringing the countries’ total to just under 8,000, with the country’s goal of reaching 12,500 charging stations by 2020.
From January to February of 2016, NGV passenger car production was 1,085 vehicles, down 75 percent from 2015, which was already down considerably from 2014. Truck production was 2,311 units, down 36 percent from the previous year. Related: Saudi Arabia Offers Hope For An Oil Price Rally
Only some of the causes of the drop in CNG passenger car sales are related to price points. As noted in some of the exhibitions’ presentations, although most safety issues have been addressed, China still uses 20 MPa as their standard filling pressure for CNG, in contrast with 25 MPa for the U.S. and 30 MPa for Germany.
At 20 MPa, CNG vehicle owners have some range anxiety, only being able to drive up to 200km (124miles) with standard tank sizes. By increasing the pressure to 25 MPa, ICE power is comparable to gasoline, and car range is extended to over 300km with standard tanks. The current decrease in NGV production will make it challenging to meet the country’s 2020 goals of over 11.5 percent market share of NGV sales.
With next years’ exhibition set at 60,000 square meters and set to draw proportionally more visitors, there is a sense that the market is bubbling under, and maturing enough to drive consumers back. With technology advancing to become competitive with gasoline, and prices set by officials to ensure NGVs will be price competitive after December, 2017 looks to be the year that NGVs return to the main stage in China.
By Matt Slowikowski for Oilprice.com
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