Natural Gas Vehicles In China

With the price of a gallon of gasoline in the United States now at $5 — and climbing — CNBC’s Rick Santelli is making it his personal mission to demonstrate to the world that cars can easily be converted to run on natural gas. Santelli is best known for starting the Tea Party movement with his famous rant about being forced to pay for his neighbors’ mortgage. If Santelli is right about natural gas, he may start an even more powerful trend. Natural gas is in abundant supply in the United States, and the U.S. is the world’s lowest-cost producer. Lured by the promise of fueling their vehicles at a fraction of the cost of using gasoline, Santelli is sure to have a lot of followers.

The price of gasoline is set by the government in China, and prices were last raised in March to the equivalent of $4.42 per gallon, not as high as the U.S., but still high for a country with a much lower average per capita income that is quickly developing a car culture. With Santelli’s mission in mind, I thought it would be useful to see where China is in terms of using natural gas as a fuel.

Compressed natural gas (CNG), liquefied natural gas (LNG) and liquid propane gas (LPG) are all fossil fuel substitutes for gasoline and diesel that can be used to fuel cars, trucks and buses. In addition to its low cost, natural gas fuel combustion produces significantly less harmful emissions than gasoline. Gas engines emit 97 percent less carbon dioxide and 72 percent less hydrocarbons. The principal disadvantages to using natural gas are that there are presently far fewer refueling stations and that the upfront cost of a vehicle that can run on natural gas are about $1,000 higher than one that uses gasoline.

In December, 1999, China’s National Science and Technology Ministry (NSTM) and State Environmental Protection Administration (SEPA) set 10 percent as a target for clean vehicles as a portion of the overall vehicle population, and set a target of 40 to 50 percent for taxis and buses. Additionally, the policy called for the launch of clean vehicle model zones in 19 cities, including Beijing, Shanghai, Tianjin, and Chongqing.

As part of this program, city governments in China have implemented policies to encourage the industrialization of CNG passenger cars, LNG heavy-duty trucks and engines, LPG engines, and direct-injection LNG engines. Measures that have been used include offering preferential gas price policies and constructing refill stations. At the end of 2010, more than 80 cities across China had gas refilling facilities and the number of CNG/LNG refill stations totaled more than 1,000. During the course of China’s 12th Five-Year Plan, it is projected that an additional 1,000 refill stations will be constructed. Finally, municipal governments have been working with automobile companies and industry research institutions to accelerate the development of new technologies.

Are these measures working? CNG/LNG vehicles have already been incorporated into bus and taxi fleets in 100 cities across the country. In Chongqing, 85 percent of taxis and 92 percent of buses are using an LNG engine. In Shanghai, Chengdu, Xi’an, Xinjiang and Hebei, these percentages are above 90 percent. Despite a decline in the commercial truck market in 2011, trucks using natural gas fuel increased by 7.6 percent.

Since the central government began to implement natural gas policies in pilot cities across the country, China has developed a domestic industry for natural gas products. In 2010, more than 60 natural gas vehicle manufacturers produced over 150,000 natural gas vehicles, and approximately 20 engine manufacturers had capacity to produce 1.0 million natural gas engines annually. Within the passenger car market, taxis are the target segment for natural gas engines because of the potential for operational cost savings.

The total nationwide taxi volume in China is more than 1.1 million units, with an estimated 50 percent having adopted gas engines. China is already among the top seven gas vehicle markets in the world, and with stricter emission regulations providing an impetus for cleaner vehicles, natural gas vehicles will likely increase in demand. According to the country’s national plan, China’s natural gas vehicle ownership will be 1.0 million in 2012, 1.5 million in 2015 and 3.0 million in 2010.

That’s a good start, but there is still a long way to go when taking into account that China produces over 18 million vehicles annually and has a vehicle population that already totals 112 million. As in the United States, high and rising gasoline prices may provide a strong stimulus for growth.

Forbes