Communication, Tracking the Keys to CNG use in VehiclesThu, 01/25/2018 - 17:21
Natural Gas for Vehicles (NGV) is a market that is still in its infancy but could grow into a key cog for reaching Mexico’s clean energy goals while providing considerable economic savings for users, according to Josué Hernández, Founder and Director of Natgas. Having spotted the market potential, the company is working to strengthen its foothold in the country. “By April 2018, we had eight Compressed Natural Gas stations (CNGs) already installed, with which we serve over 6,000 clients in the Bajio and western regions,” Hernández says.
The company, a Mexican provider of NGV, highlights its work in Queretaro to illustrate the fuel’s penetration potential. “In Queretaro, over 60 percent of public transport now moves with natural gas,” Hernández says. “By law, in less than five years all public transport must transit to clean energy, which makes Queretaro the first state in Mexico to take this action. Today, our company has the most CNG stations in Mexico. By 2022, we plan to have 42 CNGs installed.”
To reach this level of success, Natgas focused first on public transport, which is where a cost-benefit relationship is truly important, says Enrique Taracena, the company’s CFO. “For public transport owners of taxis, buses and small transport fleets, gasoline costs are a big expense,” he says. “While gasoline prices are rising every day, customer tariffs must remain fixed, meaning that their margins are decreasing at an accelerated rate. By using natural gas, which is more economical, the owner can increase profits while also making the unit safer and less contaminating.”
Because of the expense of gasoline, Hernández says companies working in this sector are more willing to adopt solutions to reduce these expenses, another reason for Natgas to target public transport as its main market. “It is easier to work with the public transport market because it is more price-conscious than the private sphere,” he says. “Owners of public transport vehicles are willing to travel 10km farther to the closest CNG station if the fuel savings are worth it. Private owners choose convenience.”
That is not to say that Natgas is neglecting the private sector. “The more users we cover in the public sector, the more stations can be built, which also means that the possibilities that a private user will select natural gas over gasoline will increase,” Hernández says. “With the expansion of our CNG network, we are indirectly opening our market to the private sector.” He adds that the strategy has already worked in the Bajio and western regions, and that the company is expecting to implement it in the north. “We plan to expand to the north and are looking at cities such as Monterrey or Tijuana to start.”
The knowledge that using a certain product is more profitable than another does not automatically mean that a change will take place, and upfront capital expenditure tends to be among the main hurdles. The same is true for the NGV market, where users must first convert their units from gasoline or diesel to natural gas, explains Taracena. As a result, the company has worked to offer financial support to its customers. “We know that it is hard for public transport owners to pay upfront for the conversion of their units,” Hernández adds. “We have developed alliances with financial institutions so the investment cost can be transferred to a distribution of small surcharges, which is added to the price of the natural gas the user consumes from our CNGs.” Users see the benefit from Day One, he adds, but even higher profits are achieved once the loan has been repaid. “Once the user stops paying the small surcharge, the savings increase. After that, users can save up to 50 percent compared to consuming gasoline or diesel.”
To ensure the smooth functioning of the financing system, Natgas uses a chip that is included in the units. It scans the technical and financial information related to the unit every time the customer fills up, meaning the system knows whether the user needs to pay any surcharge. According to Taracena, the use of such a system was crucial to obtain the support of financial institutions, but he admits that there is still much to do to minimize potential risks. “Financial backers are still afraid that owners may go and fill up somewhere else to avoid paying the small surcharge,” he says. “To combat this, we are in conversation with almost all our competitors, and with regulators, to promote the use of the same system so we can share the information among every company that dispatches natural gas for vehicles. They have all welcomed our proposal.”