The importance of government incentives

Autogas has been used as an automotive fuel for over 20 years and has proved an effective means of reducing carbon-dioxide (CO2) and other emissions without adding complexity or high cost to the vehicle. Converted vehicles offer the same power delivery and driveability as their gasoline counterparts with significant gains in running costs as well as a reduction of 15% to 20% in CO2 emissions.

The main driver for Autogas, from the consumer’s point of view, is the price of the fuel: in some countries with rapidly growing Autogas sales, the price is barely half that of gasoline; From the point of view of the Original Equipment Manufacturers (OEMs), Autogas can enable them to offer lower emission vehicles, helping them to reduce the average emissions of their overall range of vehicles. Increased fuel availability is also helping to boost demand for Autogas, especially in Europe. In North America, some states have been promoting the use of LPG by taking action to make LPG more widely available; as most Autogas vehicles there are owned by fleets with private refuelling facilities, there are few public filling stations offering the fuel.

A lack of government or industry support for LPG in some key markets is the main barrier to growth of the Autogas market. Some governments, such as those of France, Italy and, most recently, the United States, have halted subsidies to Alternative Fuel Vehicles (AFVs). The withdrawal of incentives and grants has increased market uncertainty, making the technology a riskier investment for OEMs considering entering the market or launching new factory-fitted Autogas models. In new markets like North America, Autogas is finding it difficult to grow without government support.

Based on the findings of a recent study we undertook of the growth opportunities in the North American and European markets for passenger and light commercial vehicles (LCVs) using Autogas and compressed natural gas (CNG), we at Frost & Sullivan believe that the biggest challenge by far is convincing governments to offer a standardized incentive scheme to ease competitive pressure on alternative fuels, irrespective of the technology, for at least five to ten years. This could be either direct incentive which helps quicken the return on investment for the consumer or indirect incentive such as toll-free access to city centres and free parking space for AFVs. Such incentives would strengthen the confidence of end users looking to purchase an AFV and give long-term market stability to manufacturers of AFVs, ensuring that they can make a return on their investment.

Compressed Natural Gas (CNG) is the main competitor to Autogas

Among the different alternative fuels, CNG is the most direct competitor to Autogas as it is priced at a similar level and has the potential to reduce CO2 emissions by between 20% and 25%. However, CNG presents its own challenges, notably on-board storage; whereas Autogas can be stored in simple, light fuel tanks that can be of the desired shape and size, CNG needs to be stored in a bigger and stronger tank, because it is kept at a much higher pressure – around  200-250 bar – to maintain enough density for effective combustion. Due to high storage and handling pressures, natural gas vehicle (NGV) conversions are often expensive, sometimes costing up to twice that of Autogas conversions.

CNG refuelling infrastructure is also more expensive to install and maintain, which is why the refuelling network has not developed as quickly as that of Autogas in most countries. However, some European countries have plans to install refuelling equipment at home, thereby saving consumers the need to make trips to a refuelling station. In some cases, the gas will Bio-Methane (Bio-Gas or Bio-CNG), i.e. produced from biomass.

The outlook for Autogas OEM vehicle sales is bright in Europe…

In Europe, the Autogas market remains dominated by converted gasoline vehicles, but OEM sales are growing and are set to accelerate. Autogas passenger vehicle sales by OEMs in 2010 amounted to 278 000, while sales of NGVs totalled 66 000 (Figure 1). Frost & Sullivan has prepared three scenarios. In the Optimistic Scenario, legislation is assumed to become more favourable and OEMs invest in developing and marketing new Autogas models; this results in strong market growth, with sales reaching more than 870 000 by 2018. In a Conservative Scenario, with policy and market conditions being unfavourable to Autogas vehicles, sales reach only about 350 000. The Frost & Sullivan scenario – a central scenario in which  some market factors are in favour of Autogas while others work against it – represents the most realistic scenario in our view; in that scenario, sales reach 592 000 by 2018. NGV sales in that scenario also expand rapidly to just under 300 000.

Figure 1: European Autogas passenger car market outlooks by scenario
Source: Frost & Sullivan Research

The reason behind the projected sustained growth the Autogas market is that the cost of conversion is smaller than that for CNG, infrastructure costs are low and the fuel is already widely available across many countries. Many key OEMs now have a very attractive LPG product range to suit different consumer needs. These factors do not favour CNG in Europe.

The key markets for OEM Autogas vehicles in Europe are France, Italy and Turkey, with Poland and Germany set to emerge as the next big markets. The recent removal of incentives for AFVs in France and Italy actually favour Autogas over CNG in short term, as without incentives, consumers generally prefer Autogas because the costs of conversion are lower, whether they are factory fitted or aftermarket, as the fuel is more widely available.

…while prices and policies favour CNG over Autogas vehicle sales in North America

As Figure 2 shows, the market in North America (United States only) for OEM (or Regular Production Option [RPO] as it known there) Autogas vehicles is currently tiny – around 2 000 in 2010, including passenger vehicles and LCVs; NGV sales are slightly higher, at about 5 000. The main reasons behind such a small market size and slow growth up to now are relatively high fuel prices (in the case of Autogas) and the recent lapse of federal government grants for AFVs; as a result, the entire cost of conversion has to be borne by the consumer.

The price premium of OE Autogas vehicles over the same gasoline-powered models is of the order of $5 000 to $7 000. This is somewhat higher than the typical conversions cost, as the OEM vehicle is covered by the warranty and service assistance. Most vehicles that undergo conversion are fleet vehicles, which profit from a fuel tax credit of 50 cents per gallon for AFVs.

The North American AFV market is expected to continue to develop in favour of CNG over Autogas, mainly thanks to the extremely low prices of natural gas that have resulted from the recent boom in shale-gas drilling in the United States. With government policies aimed at reducing dependence on fossil-fuel imports, overall gas production in the region is likely to continue to grow strongly, favouring the use of gas as CNG. In the Frost & Sullivan scenario, total North American AFV sales are projected to grow to over 260 000 units by 2018, broken down into Autogas vehicle sales of close to 110 000 units and NGV sales of approximately 150 000. Policies and market conditions are expected to favour Autogas for fleet vehicle sales and CNG for passenger vehicles.

Figure 2: North American Autogas passenger car and LCV market outlook by scenario
Source: Frost & Sullivan Research.

The key reason for a large growth potential for OEM AFVs in North America is that usage is currently very small, with annual sales of just a few thousand vehicles. A growing number of fleets are adopting Autogas for long-distance transportation, due to cheaper conversion and running costs. Government policies, however, do not favour Autogas as the source is still petroleum, and their drive to reduce dependency on crude oil would be expected to favour CNG in the long term.

Technology trends for OEM and conversions

With respect to global trends in technology development, many OEMs are developing new Autogas and CNG vehicle platforms so as to accommodate the fuel tank in such a way that it does not intrude into either the passenger cabin or the storage space in the trunk – a major drawback with AFVs up to now. OEMs are also focusing on safety aspects of AFVs, including making sure that the fuel tank does not rupture in the case of an accident. Meanwhile, the suppliers of Autogas conversion kits are busy developing new technologies to get the best out of the converted vehicles both in terms of driveability and efficiency, not to mention emissions. Some of the new technologies such as lighter and tougher composite fuel tanks and LPG direct injection systems, which deliver efficiency and performance as good as or even better than gasoline systems without any power deficit, are expected to be the market standard in the near future.

For more information on the Frost & Sullivan report on the Autogas and CNG vehicle markets, in Europe and North America please contact Priyank by email at: PriyankA@frost.com.