Evaluating the technological commercializability of an engine conversion business (gasoline diesel to NGV engines) / Philip De Guzman

Year : 2007

Number of Pages : 59 leaves

Executive Summary

Search for alternative fuel is increasingly becoming a relevant endeavor to many developed and developing countries. Increasing cost of imported fuel and environmental concern are the two main drivers in this quest. Transportation sector is one key area where alternative fuel can play a huge impact in reducing the country's dependence to expensive imported fuels as well as reduction in environmental impact of burning fuels. In the Philippines, several alternative fuels for vehicles are available in the market, wherein coco bio-diesel and LPG for transportation (autogas) are two of the lead choices. While these fuels are cheaper for the user, the downside however is, these are still imported sources of energy thus, does not really help in the country's goal of moving towards less dependency to imported energy. A cheaper and a more environment-friendly fuel, yet still underdeveloped alternative for the country is the use of compressed natural gas or CNG. Philippines is blessed with around 3 trillion commercially available gas reserves for energy (electricity) generation as well as for transportation. The use of compressed natural gas for vehicles (NGV) however requires several support infrastructures and prerequisite favorable condition to prosper. Firstly, gas infrastructure network or distribution system must be in place to ensure commercial availability of the fuel to consumer. This infrastructure includes refueling stations for vehicles as well as pipeline or distribution channels supplying gas to these refuelling stations. While NGV is already a matured technology, there are still some technology hurdles that must overcome in ensuring commercializability of NGV. Existing gasoline or diesel vehicle engine needs to be converted or retrofitted to allow the use of natural gas as fuel source. OEM NGV vehicles are commercially available but are still more expensive versus diesel and gasoline engine counterparts. Economic viability is another consideration as consumer needs to weigh if the cost of investment (thru conversion of OEM) is justified by the savings in fuel. This paper aims to assess the feasibility of setting up a business that converts private and public transportation vehicles (e.g. buses, taxis and jeepneys) engines to NGV engines allowing the use of compressed natural gas (CNG) as fuel alternative. Engine conversion is one the most successful paths towards NGV commercialization as adopted by most countries. It is also one of the profitable businesses that support the NGV industry. However, like any other business, it requires certain conditions in ensuring business success. This study will define these critical factors. Discussion of these factors will cover evaluation of the natural gas industry, technology assessment, market assessment, business operation, and government policies and programs that may support or retard the growth of such enterprise. Natural gas industry and infrastructure analysis will cover assessment of the readiness of the country to support fuel distribution and fuel availability at point of use. Technology analysis will show the technology hurdles and challenges as well as the possible approaches in technology acquisition and use. The paper will not attempt to provide thorough market feasibility as NGV is not yet in existence in the Philippines. The paper will however provide adequate insights on how current NGV user in other countries perceived NGV and the reason why they switched to NGV as well as their concerns and issues. The paper will also briefly provide a narrow estimate of the possible size of the market through statistics, the available vehicles in the target location as well as the growth in number of fleets in the country. A thorough analysis of the government incentive and programs will be done. Comparative analysis of the policies and programs implemented in other countries will also be done to support the conclusions.

Methodology. To be able to establish the business feasibility, NGV program implementation as well as the total natural gas industry evolution in other countries will be evaluated, wherein favorable conditions for successful implementation of NGV and engine conversion business will be identified. Thailand and Malaysia, being among the top three countries in SEA which successfully implemented NGV programs will be the focus of the comparison. Thailand in particular has been chosen as a primary benchmark country because of its remarkable progress in NGV commercialization in the past 12 years. Thailand also has somewhat analogous energy and economic conditions as that of Philippines (transportation industry is energy dependent on imported fuel). NGV programs of these countries will be compared side by side with the NGV road map of Philippines particularly on the areas of technology, market and economic conditions, and natural gas industry structure and government policies and program. Cross assessment will be done on the Philippine setting to determine if similar conditions exist in the Philippine setting. To be able to understand the dynamics of engine conversion business, actual experiences of business owners/managers of engine conversion companies in Thailand were gathered via face to face interview. This paper does not intend to provide a detailed business plan, but rather a precursor to it, by providing the basic information (e.g. technology acquisition, organizational structure, minimum capitalization, key issues and concerns, etc.) in entering the business and being successful in it. At the end of the paper, a recommended roadmap on how to commercialize NGV and enter in the engine conversion business is presented. Analysis and conclusion. Following the NGV implementation experiences of other countries, the approach and programs implemented, analysis of the technology, market and gas infrastructure conditions in Philippines, it is concluded that conversion business will not prosper in the current condition in the Philippines. Technology is not an issue in the business feasibility. NGV engine conversion is already a matured technology available in some advance country. Distributorship approach is one of the successful tech acquisition methods available to anyone who wants to enter the business. Technical support is readily available through the principal. Manpower development and technology transfer is also not an issue. NGV conversion is not so different from autogas (LPG) engine conversion technology, a technology already available in the country. The issue however on this aspect is the approach the NGVPPT, a government program that aims to promote NGV in public transportation, is taking. NGVPPT emphasizes acquisition of OEM diesel buses rather than conversion of current fleets. This government approach does not favor engine conversion business in two ways. First, conversion as a technology approach is not supported, and second, emphasis on diesel buses rather than on gasoline vehicles offers more technology concerns particularly the initial switching cost. Based on the economic benefits of NGV in terms of savings in fuel cost, it is easy to see that NGV has a high market potential. NGV offers high economic returns long term. The Philippines however, unlike other countries such as Thailand, does not offer good financing support to vehicle owners and operators. Initial cost of investment, proven to be one of the concerns of the market as experienced by other countries, is not adequately addressed by the government NGVPPT and policies and programs that promote NGV. The most important reason why Philippines is not yet ready to support NGV engine conversion business or NGV industry as a whole is the lack of gas infrastructure. The gas industry set up in the Philippines where the government has lesser control and influence over the investment direction and commercialization makes it even harder to fast track setting up of the needed infrastructure. Unlike other countries where NGV implementation started with strong backing from state controlled energy companies, Philippine gas industry relies heavily on private investment and funding. At the end of this paper, a recommended NGV conversion business roadmap is presented. Key approach is to build on current government programs focus on buses. It is critical to show and prove that conversion can be a more economical and effective approach in NGV commercialization. Demonstration converted buses is the recommended approach to achieve this. Full scale conversion of gasoline engine vehicles can only commence when refueling infrastructure has been put in place.