The White Oil Industry - Essay Example

Market Due to the CNG boom, it is often referred to as the “white oil” industry. The CNG market in USA is likely to increase in view of the increasing petrol and diesel prices. Moreover, the greatest point in favor of CNG is that it is an environment friendly, economical fuel which has been tried and tested in counties like Brazil, Argentina and now Pakistan. The following facts support this statement: Mary Land Transit Administration has issued notice to proceed in acquiring 100 buses and is planning to acquire up to 125 CNG buses every year for the upcoming four years. 26 new buses will be acquired for Oakland Airport to replace their old diesel buses According to Steve Spradling, the Director of OSU Parking and Transit Services, they will soon be acquiring their own CNG buses. 45 new buses will be on the roads of Las Vegas by 2009 adding to the present 50 CNG buses Market Size and Trends The market of CNG is growing manifold and presently some 8 M vehicles are operating on CNG worldwide .This figure is expected to reach 50M by the year 2020.(Asian NGV communications publication , September 2008) The diagram shows that the number of CNG vehicles in USA has been steadily increasing and in the year 2006 there were 100,000 CNG vehicles plying the roads from a total vehicular fleet of 700,000. Fuel Consumption: From the following figure it can be seen that the consumption of CNG has steadily increased over the last decade. The consumption of CNG has increased by more than 8%. TARGET CUSTOMER The target customers of CNG buses are: Mass Transit Agencies Urban Transit companies Private Fleet operators Institutions (including schools & Universities), organizations and private companies owning their own fleets Governmental organizations (having their own fleets) Agents & distributors in other regions Airports(for shuttle services) From a layman’s point of view, the governmental and institutional sectors provide good growth opportunities. However, on a broader horizon, it can be seen that world markets other than USA provide exponential growth opportunities. These regions include Pakistan, the 2nd largest consumer of CNG vehicles where government has heavily invested in the CNG infrastructure, Bangladesh and India. Market Readiness: Due to the increased environmental awareness amongst the target market and the technological innovations which have improved the quality and efficiency of CNG buses to match the diesel buses. Moreover, the experience of Argentina and Pakistan has shown that it is tried and tested and the investment of the investors will not sink. Moreover, it would save the huge bill on fuel and is economical. The present hike in fuel prices (petrol and diesel) is another factor which is in favor of converting fleets to CNG powered vehicles. The common observation is that even though the capital investment on a CNG bus might be US $ 25000 expensive as compared to traditional diesel buses, but the savings due to fuel economy are enough to cover up this gap in as small a time frame as 1 year. Moreover, CNG, contrary to traditional belief, has been proven to be a safe and hazard proof fuel. Considering the above now is the perfect timing to enter into this sector. Target Market Growth: According to Asian NGV Communications, September 2008, the world reviews for regional growth are: Region Total NGV’s Cars/LDV’s MD/HD Buses MD/HD Trucks Others Fuelling Stations Asia 4.223.968 3.159.006 105.938 63.181 895.843 4.904 Eurasia 148.056 70.564 8.492 35.000 34.000 278 Europe 857.455 717.981 40.170 45.425 53.879 2.510 South America 3.717.713 3.635.567 13.820 9.660 58.666 4.138 North America 112.140 96.000 11.240 2.500 2.400 1.201 Considering the above statistics, it can be concluded that Asian markets are the fastest growing markets for the CNG industry. The North and South American regions together hold immense unexploited potential and growth is expected in upcoming years. Strategic Opportunities Growing global markets: the greatest opportunity for CNG Buses is the dynamic growth being experienced in the CNG sector in economies like Latin America (Argentina, Brazil), Pakistan, India, Bangladesh and Thailand. Awareness in Institutional Clients: Over a period of years, the environmental awareness has been increasing. This is also due to the research results that show that Diesel combustion remains are carcinogenic and lead to lung diseases and breathing problems. This will impact CNG Buses and would lead to increased demand of CNG buses due to their environment friendliness. Clean Cities program: This is a program introduced in most of the cities in the USA and comprises of publicity through periodicals and intensive print media use, focusing on private and public fleet managers. It aims to encourage the use of Alternative Fuel vehicles. This is a great opportunity for CNG buses since they are the closest substitute of Diesel. Lack of Mushroom Growth in this Sector: The high level of capital investment and technical expertise and industry links required for this sort of business pose as barriers to entry of competition. This is the reason why competition in the CNG bus sector is unlikely to increase in the future. Factors Affecting the Need of CNG buses Reversal of Government Policy: The greatest threat for CNG Buses is if the Government shifts its focus to other alternate fuels for example LNG and LPG. These fuels also provide the same benefit i.e. do not have toxic emissions. Success of Hybrid and Electric Buses: The increasing research on Hybrid, electric and ethanol buses is a potential threat to the CNG bus sector. These alternative fuels are low on emissions. If these technologies prove successful, they have the capability of substituting CNG. Success of the New Emission Controlled Diesel Buses: Diesel buses are economical in capital as well as operating expenditure. They also provide better performance. Due to this, fleet operators were always hesitant in adopting the CNG technology which they eventually did due to pressure by Government and environmentalists. However, the new emission controlled diesel buses with particle traps claim that their emission levels are comparable to CNG buses. These new buses pose a threat for the CNG bus manufacturers. Hike in Prices of CNG The primary benefit that CNG offers is fuel economy. This is the one of the success factors of CNG technology. If there is a considerable hike in CNG prices that closes the gap between prices of CNG as compared to prices of other fuels, it can be expected that there would be many conversions to other fuels. This is another threat that the CNG bus manufacturing sector faces. If the price gap of CNG as compared to other fuels closes, then the demand for CNG vehicles, including CNG buses, will be adversely affected Read More