Russia jump-starts NGVs [NGW Magazine]

Russia is seeking to expand the market for gas as a vehicle fuel, now considered a niche, to utilise more of its ample gas supply, lower fuel costs and reduce emissions. It wants to achieve this with a range of subsidies for vehicle owners, infrastructure developers and automakers alike.

The challenge that has traditionally faced the industry is the lack of infrastructure deterring vehicle manufacturing and vice-versa. The government is hoping to sidestep this impasse by encouraging both sides of the market.

It decreed in June that the subsidies available for converting vehicles to run on LNG or compressed natural gas (CNG) would double.

Under a decree signed by prime minister Mikhail Mishustin, the government now covers 60% of the cost instead of 30% previously. A further 30% is borne by state-owned Gazprom, by far the biggest player in Russia’s natural gas vehicle (NGV) market, leaving the owner responsible for just a tenth of the cost.

The hike in subsidies, available for small- to mid-sized businesses and private citizens, was included alongside a range of anti-crisis measures introduced in response to the coronavirus pandemic. It was proposed by the energy ministry, with strong endorsement from Gazprom. Businesses and entrepreneurs will also be able to secure a 10% discount on a limited supply of gas as fuel for one year.

The government is looking to introduce supply-side subsidies as well. It published a decree on September 7 setting out rules for granting support for the construction of small-scale LNG production and refuelling infrastructure. The size of these subsidies will be determined once the energy ministry has held a tender to select investors.

This support builds on existing incentives. Since 2019, businesses have been able to collect subsidies covering 25-40% of the cost of building CNG and LNG filling stations, up to a cap of rubles 40mn (now about $500,000). Citing market players it has polled, Moscow-based business management consultancy Creon says these subsidies are insufficient in many cases to justify the stations’ construction, however. Furthermore, there is considerable red tape to get through in order to secure them.

Obtaining the permits necessary to commission completed stations is also a hurdle, according to Creon.

It is hoped that the new programme will see the development of nearly 80 new LNG filling stations along key highways, most of which are in European Russia. Automakers have also received support for developing gas engines, including discounts on the cost of some equipment.

Russia boasts some 484 gas-filling stations – double the amount it had in 2013. Almost all of these are CNG stations, with LNG fuelling infrastructure still at a nascent stage. Some 329 of the stations are owned by Gazprom, which increased gas sales across its network to 779mn m³ in 2019, from 598mn m³ a year earlier.

Gazprom develops demand

Gazprom naturally has a strong interest in seeing more gas-fuelled vehicles on the road. The European gas market serves as the company’s main money-maker, and this will remain the case for many years to come. But Gazprom’s business there has come under pressure in recent years from increased competition from LNG suppliers. Its European sales slumped this year, as a result of coronavirus lockdowns and a range of other factors.

Longer term, the risk is that European antipathy towards hydrocarbons will continue to grow, limiting space for gas. Gazprom has responded to this risk with plans to make room for gas in other areas, including in hydrogen production, LNG bunkering and the NGV market.

The company is developing its gas-filling network at home and also in Europe, where it has 68 CNG stations. Its primary focus is expanding its CNG network, while it sees the development of LNG infrastructure as a longer-term aspiration. Whereas its target for CNG sales is cars and light-cargo vehicles, it sees LNG as more suited for the heavier end of the market: trucks, railway and waterborne transport and mining and agricultural equipment.

Gazprom may dominate Russia’s NGV sector, but its rivals Rosneft and Novatek also want a slice of the market. Rosneft CEO Igor Sechin revealed in late August that the company intended to build four CNG filling stations in the Moscow region, without disclosing a timeframe for their completion. Meanwhile, Novatek recently opened a small-scale LNG plant in Chelyabinsk which it says will provide motor fuel for the region.

Rewards

Supporters of gas vehicle fuel have extolled its environmental benefits. According to Creon, vehicles using gas emit 10-25% less CO₂ than those using conventional fuels. But it is unlikely that NGVs would garner anywhere near as much interest in Russia without an economic rationale.

The market’s expansion would help soak up a small share of the country’s ample gas supply, readily available thanks to its extensive gas distribution network. Gazprom has also pointed to the lower cost of gas compared with traditional fuels. Its subsidiary promoting gas as a vehicle fuel estimated in June that using gas was twice or sometimes three times cheaper than using traditional motor fuels.

The latest demand- and supply-side initiatives for the NGV market come under a new transport strategy approved by the government in March. This strategy is expected to allocate rubles 19.3bn in budget funds between 2020 and 2024 towards developing the segment. But the energy ministry and Gazprom are pushing for even greater sums to be released.

Under the current plan, vehicle gas consumption is expected to reach 2.7bn m³/yr by the end of 2024, while the number of gas refuelling stations will be expanded to 1,273. Longer-term, the strategy sees the share of Russian vehicles running on alternative fuels – predominately gas – rising to 24% by 2030. At present only 2% of Russian vehicles run on gas, state statistics show, including 0.4% of cars, 3.6% of trucks, 11% of light commercial vehicles and 14.4% of buses.