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NATURAL GAS VEHICLES WINNING CONVERTS
BY ALEX HESS
Air monitoring stations in the Greater Cairo area
have recorded an aberration. Since 2000, air pollutant levels, which
for decades have climbed along with the growing number of factories
and vehicles, have fallen steadily. At first, scientists might have
thought their equipment was faulty. But now it’s recognized
that the capital’s air quality is indeed improving, with 15
percent less nitrogen dioxide – a toxic gas emitted by car
exhaust – than six years ago.
Much of this improvement can be attributed to the government’s
ongoing campaign to promote natural gas conversion. Today, after
more than a decade, natural gas fuels more than 85 percent of all
electrical power generation and 30 percent of industrial and commercial
production. Now the government is encouraging private vehicle conversion.
Environment minister Maged George, speaking at the International
Association for Natural Gas Vehicles conference in Cairo last month,
said the government has put alternative fuels high on its agenda.
“The ministries of petroleum and environment have implemented
a national program to expand [natural gas] usage as fuel for vehicles
as it is ozone-friendly and has fewer emissions than... the burning
of petrol fuel, in addition to its economic advantage as compared
to other kinds of fuel, and its abundance in Egypt,” he said.
Natural gas was largely overlooked by oil companies until 15 years
ago. “By the mid-1990s Egypt recognized that... oil could
be exported if it [were] replaced by gas in the internal market
bringing with it, of course, significant economic as well as environmental
benefits,” British Gas CEO Frank Chapman said during a recent
AmCham Egypt luncheon. Exploration and recovery is now proceeding
at a dizzying pace. “The speed of natural gas development
in Egypt has set new world standards. In 1994 gas made up just 18
percent of Egypt’s hydrocarbon production; today it has risen
to a remarkable 60 percent.”
Egypt has 59 trillion cubic feet of proven natural gas reserves,
about one percent of the world total. Last year, it became the seventh
largest natural gas producer and is poised to move up the ranks
quickly. But Egypt may never surpass the top three producers, Russia,
Iran and Qatar, which together account for nearly 60 percent of
world gas reserves.
To date, more than 66,000 vehicles – mostly taxis –
have been equipped to run on compressed natural gas (CNG). That’s
enough to put Egypt within the top 10 users of natural gas vehicles
(NGVs) worldwide. But to really make an impact, say alternative
energy proponents, the government and industry will need to convince
private vehicle owners to convert. And that will take some work.
“NGV companies have been mainly targeting passenger taxis...
[but] private cars with relative high distance traveled can represent
another market for the development of the CNG business,” suggests
a report prepared by Nexant Inc., an American energy consultancy,
for the government’s natural gas holding company.
The initial push for NGVs in Egypt came in 1997 through the Cairo
Air Improvement Project (CAIP), a USAID $60 million grant project
that ended in 2004. Among other things, CAIP funded the purchase
of 50 natural gas bus chassis to demonstrate the cost effectiveness
and limited environmental impact of NGVs. More significant, perhaps,
was the project’s market research.
Nexant, contracted for this aspect of the project, conducted extensive
local market surveys and developed a software application that merges
a database of property information with GIS mapping and satellite
imagery to help companies build a comprehensive investment plan.
The software shows available properties suitable for a CNG station
and indicates the amount of traffic in the area to help investors
predict demand for NGV. It also provides information on the current
CNG service coverage of the area and allows investors to build scenarios.
In 2003, the firm also commissioned a survey of the demand for CNG
among private vehicle owners. Consumers are highly skeptical of
the benefits of conversion due to fears that NGVs have less power
and shorter life spans than their gasoline-burning counterparts,
it noted.
According to the survey, 64 percent of 860 private vehicle owners
polled in six governorates said they were unwilling to convert to
natural gas, while the remainder indicated they were unsure. The
five main fears cited by respondents were: loss of acceleration
(99 percent), reduced engine life (99 percent), less safety (98
percent), long waits at fueling stations (94 percent) and higher
cost of maintenance (94 percent). Oddly, with the exception of ease
of refueling, all of these are areas in which NGV producers claim
to excel.
When researchers asked what incentives these private vehicle owners
would need to convert, the five highest ranked responses were: no
loss in engine life, no loss of acceleration, equivalent safety,
higher resale prices and a smaller impact on trunk space. Interestingly,
savings on maintenance and fuel only ranked sixth and eighth respectively,
while a larger network of fueling stations took seventh place. Cheaper
conversion costs only made ninth place. The results suggest that
gasoline is still considered reasonably cheap by consumers and long
distance travel is not a major priority for drivers.
In the US and Europe, standard conversion kits cost about $5,000,
while the Egyptian variety sells for LE 5,000. Egyptian Natural
Gas Holding Company (EGAS) has instituted a “smart card”
program to reduce the upfront cost of conversion. Under this system
there is no upfront cost for conversion but an additional LE 0.45
per cubic meter of CNG is tacked onto users’ bill whenever
they refuel until they have paid off the conversion kit. This still
leaves it 30 percent cheaper to fill up. Conversion companies are
also offering instant cash rebates of LE 300 as an incentive to
private vehicle owners.
For those who do convert, natural gas promises better performance,
insists Abd El Fattah Farahat, head of the conversion department
at GASTEC, one of six companies in Egypt that do conversions. “People
here... are afraid of converting their engine [but] the engine will
do better after converting to natural gas,” he says.
But taxi drivers that Business Monthly spoke to seemed unconvinced.
“CNG is terrible, it ruins your car,” remarks Gamal,
a Cairo taxi driver reluctant to make the switch. “If a gasoline
engine lasts for eight years, a CNG one will last for three, because
you’re putting in parts that aren’t original. [In addition],
the CNG tank is heavy and it weighs the car down from the back,
so whenever you drive on bumpy roads it damages your car.”
He does concede, however, that there are benefits to using natural
gas. “CNG has less emissions, and its better for the environment
and our health,” he points out. Yet he does not believe the
solution is to convert all vehicles to run on natural gas. A better
option, he says pointing to a minibus sputtering a cloud of black
fumes, would be to repair the poorly tuned gasoline engines that
emit noxious fumes.
The sheer number of old and poorly maintained vehicles on the road
certainly presents a problem, says Farahat. He explains that new
models are easily converted and enjoy all the benefits of CNG, but
older models often suffer from knocking and poor acceleration. Moreover,
many of Egypt’s old vehicles are poorly maintained, which
only makes things worse.
Currently, there are six companies that provide refueling and conversion
services in Egypt: Natural Gas Vehicle Company (NGVC), GASTEC, Shell
Express, TOTAL, Arabia Gas and Master Gas. Together these firms
operate about 100 stations nationwide, of which the largest operator,
NGVC, owns 49.
According to Shady Nabil, a financial analyst for NGVC, people will
be more willing to convert their vehicles as the number of service
stations increases, but that requires a larger customer base. It’s
a “chicken or egg problem,” he says. “Entrepreneurs
do not want to put stations until they are sure of the market...
On the other hand, potential [users] of vehicles with conversion
systems do not wish to convert to CNG until they know the infrastructure
of stations and technicians exists.”
The long lines at existing stations would seem to suggest excess
demand and a lack of infrastructure. Not so, insists Emad Hassan,
the head of Nexant’s electronic power division, who argues
that the lines at the pump are “a function of the skewed refueling
pattern.” Because 77 percent of Egyptian NGVs are taxis, there
are certain times and locations at which drivers refuel, he explains.
If the consumer base were broader, this problem would be dramatically
reduced. “If you increase the [number of] private vehicles
we’re going to get into a different fueling pattern, which
is probably after work hours [and] weekends.”
A more significant problem, argues Farahat, is that while the cost
differential is an incentive for some, the savings aren’t
high enough to justify the cost and risks of conversion. CNG sells
for LE 0.45 per cubic meter, which is equivalent to roughly one
liter of 90-octane gasoline, which costs LE 1.30. Thus, a converted
car can travel about the same distance on one liter of petrol as
it can on a cubic meter of CNG, and at about a third of the cost.
And that’s incentive enough for private car owner Ghassan
Hashem, who after months of mulling the issue, has finally decided
to convert his engine to run on natural gas. “I decided to
do it because they said it’s like using the original [engine]
and you’re paying less than half [for fuel],” he says.
Analysts have suggested that by removing the subsidies that keep
gasoline at artificially low cost, the government could create even
more incentive for private vehicle owners to convert their engines.
However, Farahat believes increasing the price of gasoline is only
part of the solution. He claims real progress will only come when
the government uses a heavy hand to legally compel drivers to convert
their vehicles.
Despite the public criticisms of NGVs, Hassan is optimistic about
Egypt’s natural gas future. “The demand is moving fast,
the infrastructure is picking up, lines are disappearing,”
he says.
The government is also upbeat. Speaking at the NGV 2006 conference,
Minister of Petroleum Sameh Fahmy gave a bold projection for NGV
use in Egypt. “EGAS has set a plan that aims at reaching 100,000
vehicles converted to use natural gas by 2010, an objective reasonably
achievable based on the latest conversion rates,” he announced.
If this growth keeps on pace it should help convince skeptics of
the value of NGVs, because the more that are on the streets the
more people will see that they work fine, save money and make the
air a bit clearer.
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