A nationwide plan to convert 1.4 million gasoline-powered public transportation and commercial vehicles to compressed natural gas hybrids, which was launched in 2019, is progressing at a very slow pace, despite its long-term financial and ecological benefits, the head of Alternative Fuels Union said.
“As per the scheme, at least 1 million vehicles should have been retrofitted by now, but the figure has not exceeded 200,000 so far,” Ali Mahmoudian was also quoted as saying by IRNA.
Even at this slow progress rate, the scheme has decreased gasoline use by 1.5 million liters per day and if the government wanted to import the same volume, it would have to spend $500 million on the strategic commodity per day, he added.
The official noted that if the project had been implemented as scheduled, it could have saved close to 12 million liters of gasoline per day, that is equal to the daily output of Tehran, Shiraz, Lavan, Tabriz and Kermanshah refineries.
Importing the same amount of fuel will cost the National Iranian Oil Company about $2 billion per day.
After the plan was approved by the Economic Council three years ago, NIOC started to equip all CNG retrofitting centers with necessary kits and tanks, and the initiative made headway in the first two years, but it has not registered any progress over the last 12 months due to economic instability and wild fluctuations in foreign exchange rates.
“Equipping more than 300 conversion centers with much-needed tools and personnel cost the NIOC around $90 million. Nonetheless, the plan that was supposed to be wrapped up in three years is far behind its deadline,” Mahmoudian said.
The state-owned Alternative Fuels Union was established earlier this year to speed up plans to promote the consumption of cleaner fuels, such as CNG.
Effective Strategy
According to the official, the current gasoline demand in Iran (95 million liters per day) will surpass supply (105 mlpd) in the foreseeable future and the most effective strategy to help prevent NIOC from becoming a gasoline importer again is by developing the loss-making CNG sector.
Despite having one the most extensive natural gas networks in the world, CNG demand in Iran is less than 25 million cubic meters per day while CNG filling stations can supply more than 40 mcm of the clean fuel per day, he added.
The cost of setting up a CNG station has increased tenfold in five years, but the profit margin remains as low as 3,000 rials (1 cent) for one cubic meter and has not increased since 2018.
“Exorbitant maintenance costs, in addition to low margins for filling stations, are pushing the CNG retail sector over the edge,” Ardeshir Dadras, the head of Iran CNG Association, said.
“If CNG stations go bankrupt and stop working, NIOC will have to import at least 25 million liters of gasoline per day at a cost of $8 billion per year.”
The official further said if the government invests only 10% of the money that will be spent on fuel imports for solving CNG sector’s financial problems, not only can it save billions of dollars, but also help save 40 million liters of gasoline, which will help generate revenues through exports.
Each liter of gasoline is traded at 90 cents in international markets.
According to the official, the industry cannot boom unless more gasoline-powered public transport and commercial vehicles are converted to compressed natural gas hybrids.
Profit Margin
Manufacturers of CNG kits and tanks should be supported financially, retailers’ profit margin must rise in proportion with the inflation rate and the price difference between gasoline and CNG should increase so that more motorists are encouraged to use CNG, Dadras said.
But if CNG station owners are left to their own devices for long, efforts to convert vehicles to CNG hybrids will be in vain, he warned.
The CNG conversion scheme is free for taxis, pickups and commercial vehicles.
CNG fuel is sold at 2,400 stations in the country, but NIOC is facing serious problems in increasing CNG pumps due to high land prices plus major hurdles in importing equipment and parts.
The US, European Union, Russia and China daily use 75 mcm, 45 mcm, 40 mcm and 25 mcm of the fuel, respectively. An estimated 15 million CNG-run vehicles ply the roads worldwide, of which 1.5 million are in Europe.
In the last decade, an estimated $2.4 billion were invested to expand CNG use in Iran.
Although CNG is a cheaper fuel, it has a shorter driving range than gasoline. As a result, running on a close to empty tank will reduce the gas pressure and increase the risk of the valves bursting. So, even if a car does use CNG, it is always wise to maintain a regular flow of gasoline.
