Govt plans cheap gas lifeline for LNG trucks; aims to revive closed outlets

The government is considering the allocation of cheap, locally produced natural gas to trucks running on liquefied natural gas (LNG) — India’s new gas demand centre and a cleaner alternative to the country’s polluting diesel-based transport — after state-run refiner Indian Oil was forced to shut nearly all its LNG retail outlets due to high costs and a low customer turnout, industry sources told Business Standard. 

Indian Oil, the largest operator of LNG truck outlets, has shut five of its six outlets for lack of business, with only one in Sriperumbudur, an industrial area outside Chennai, still operational. Another seven-eight outlets are ready but have not started operations due to a shortage of LNG-fuelled trucks, a company official said. The firm hopes to restart the outlets if it can secure adequate refuelling demand, the official added. Indian Oil declined to comment.  

Oil-ministry officials are considering the allocation of 500,000 cubic metres of gas per day (mmcm/d) — about 0.5 per cent of India’s stagnant domestic gas production and half of what the industry had sought — from fields under the administered pricing mechanism (APM) to LNG retail outlets, according to documents reviewed by Business Standard and two industry participants.  At $6.75 per million British thermal units (mmBtu), APM gas costs about half as much as imported LNG. LNG needs to be delivered at $8-9 per mmBtu to break even operationally, officials from a state-run refiner said — a third lower than spot LNG prices. The government’s allocation should meet the annual fuel needs of 5,000 trucks, industry sources said. There are hardly 700 trucks plying today in India, compared to nearly 900,000 in China, and industry officials say with the right push from the government India can put 100,000 LNG trucks on the road, eliminating millions of tons in emission and adding gas demand of around 11 mmcm/d. 

After Indian Oil’s closures, there are fewer than 20 LNG fuel retail outlets in operation for what was until recently seen as a sunshine industry and a pollution cleanser. 

 

China, by comparison, has around 6,000 outlets. It recently announced a subsidy scheme for purchasing LNG trucks along with plans to increase LNG retailing stations to 8,000 in the next few years, industry data showed. 

The new Chinese subsidies would apply from January 1, 2025, to December 31, 2025, with a truck owner getting a maximum subsidy of 110,000 yuan ($15,100) to scrap a heavy-duty truck and buy an LNG truck, United Kingdom-based market intelligence agency Energy Intelligence said. India gives zero subsidy to the LNG truck sector. 

Indian Oil was forced to stop operations as losses from running the facility far outweighed the benefits of having a presence in the sector, industry sources said. 

Capital costs were high and so were operational losses. LNG retail outlets cost ₹5-8 crore, several times more than a petrol retail station, burdening operators with huge sunk costs. But operational costs are a killer because LNG, a cryogenic fuel stored at -162 degree centigrade, presents a unique problem. The liquefied fuel tends to evaporate in a process called “boiloff”. ‘’We lose 500-600 kg of fuel because of lack of customers,’’ an official at a state-refiner said. 

Indian Oil’s Chennai outlet has a fuelling contract with Concor and manages average sales of 2-3 tonnes a day, with extreme volatility. 

“You need consistent sales of 5-6 tonnes per outlet on a daily basis to cover boiloff costs for an operational breakeven and twice those volumes to make profits,’’ the official said. 

Another state-run refiner pointed to a paucity of trucks and long lead times for new orders at Essar’s Blue Energy, Tata Motors, and Volvo. 

The Essar group is planning to create an LNG-trucking ecosystem. GreenLine Mobility Solutions, an Essar venture, has announced a $275 million equity investment to decarbonise heavy trucking in India, including a $20 million investment from broker Zerodha founder Nikhil Kamath, to deploy over 10,000 LNG and electric trucks.