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UPDATE: Moscow's CNG Initiatives are Held Back Again

Mon, 13/06/2011 - 06:00

UPDATE: 13/06/2011. Gravitas Research lowers the estimate of the number of CNG powered vehicles operating in Moscow. Due to absence of actionable results and commitment to the implementation of the 553 Decree by the Moscow Government, CNG parc is expected to not to exceed 1,500 CNG vehicles by 2013.


ORIGINAL ARTICLE:

CNG is Back to Transform Urban Transportation in Russia: Moscow Could Lead with New CNG Initiative

Alternative fuels, including natural gas (CNG) for automotive sector is back to the top of the agenda in Russia. According to Gravitas Research estimates, number of light passenger vehicles, commercial vehicles and buses running on CNG in Moscow can reach 30,000 units by 2013 if Decree of Moscow City Government 553-PP from 29.06.2010 “Current Status and Further Measures to Promote the Use of Compressed Natural Gas as a Motor Fuel for the Automotive Transport in Moscow” is fully implemented within 2010-2012. Set of proposals listed in the Decree 553-PP by the Moscow’s City Government aim to expand penetration of CNG in the public transport in Moscow while encouraging private auto transportation companies to transfer their fleets to CNG or ethanol.

As Russian automotive car parc approaches 35 million of passenger cars and 5.4 million of commercial vehicles and 900 thousand buses, ecological impact of intensively growing automotive parc across the Russian Federation is catching attention of not only environmentalist but also city governments. Over the past 6 years, Russian automotive market demonstrated not only one of the highest growth rates in sales of passenger cars and commercial vehicles (CV), but also highlighted unpreparedness of cities to rapid growth of private and commercial transport in the cities requiring urgent changes in urban transportation schemes.

 

Outlook of the Russian Automotive Market

During 2005-2009, almost 10 million of new passenger cars and 1.5 million of CV were sold in Russia. Russia became the second largest European car market right behind Germany in 2008. Overall vehicle parc increased from 30 million to 38 million thus demonstrating 5.7 per cent of CAGR growth during 2005-2009 period. Only economic recession of 2008-2009 slowed down expansion of car sales in Russia when car sales reached 1.45 million passenger vehicles sold in 2009.

 

Graph 1. Passenger Cars and CV Sales Statistics and Vehicle Parcs. Historical Data and Forecast (Russia), 2005-2010

Gravitas Research - Graph 1 - Passenger Cars and CV Sales Statistics and Vehicle Parcs. Historical Data and Forecast (Russia), 2005-2010

Nevertheless, demand for passenger cars and commercial vehicles has been revived in 2010 as automotive financing returned to the market and car scrapping scheme was introduced (other factors also contributed to the revival of sales). Gravitas Research forecasts that Russian passenger cars sales would reach 1.65 million vehicles sold in 2010 while sales of commercial vehicles across LCV, MCV and HCV segments reach 166 thousand units. Therefore, new car and CV sales continue enlarging Russian vehicle parc in 2010 to reach 40 million vehicles and adding challenges to city urbanization across Russian Federation.

As the share of Russian automotive sector contribution to overall air pollution in the country reaches staggering 47 per cent, share of vehicles running on CNG remains negligible in Russia. Unlike LPG sector, which is driven by presence of vast refuelling network in Russia, number of CNG refuelling stations is limited by 226 located mainly in or around the largest cities in Russia. According to the data of the Russian National Gas Vehicle Association, Russian CNG vehicle parc is reaching only 100,000 vehicles in 2010.

 

Contribution of Automotive Sector to Urbanization Challenges in Russia: Example of Moscow

Moscow is a vivid example of automotive sector’s contribution to urbanization challenges in Russia. Since 2005 continuous growth in the number of cars and CV in Moscow resulted in 3.2 million passenger cars and 350 thousands commercial vehicles in 2010. Moscow’s auto parc accounts for almost 10 per cent of the overall Russian passenger car parc and around 7 per cent of the overall commercial vehicle parc.

 

Graph 2. Overview of Russia and Moscow’s Vehicle Parcs. Comparative Statistics. (Russia), 2009

Gravitas Research - Graph 2 - Overview of Russia and Moscow Vehicle Parcs. Comparative Statistics. (Russia), 2009

In 2010, vehicle density in Moscow reached 340 passenger cars & CV per 1000 people compared to country’s average of 270 passenger cars & CV per 1000 people. At the same time, Moscow has sizable parc of commercial vehicles and buses including foreign vehicles. As Moscow’s CV parc reaches 350 thousand units while number of buses exceed 50 thousand units, foreign vehicles penetration is reaching 32 per cent and 42 per cent respectively.

Public auto transportation in Moscow also contributes to deteriorating ecology of the city. Out of 5,800 buses that MosGorTrans (public unitary enterprise that operates Moscow’s public bus transportation system) officially operates in public transportation system of the Russia’s capital (Gravitas Research estimates that actual number of vehicles in active use does not exceed 3,800 buses), majority of the vehicles do not comply with modern emission standards. Despite the fact that MosGorTrans transports almost 1.7 bn passengers in a year or 35 per cent of total number of passengers transported in Moscow by public transport, its bus parc is not capable of tackling environmental problems in the city. Graph 3 provides an overview of the Moscow’s public bus parc by brands of buses involved in the city transportation, their age structure and estimated emission standards.

 

Graph 3. Vehicle Age, Emission Standards, and Brand Structure of Moscow’s Public Transportation Bus Parc (Russia), 2009

Gravitas Research - Graph 3 - Vehicle Age, Emission Standards, and Brand Structure of Moscow Public Transportation Bus Parc (Russia), 2009

As it was highlighted before, dense traffic of car, CV and buses across Moscow has significant negative contribution to the air pollution in the city. More than 82 per cent of air pollution emission is made by rather environmentally unfriendly public and private transport in Moscow. Average concentration of CO, NO2, NO, OZ, SO2, NH3, formaldehyde from autos, CVs and buses emissions in Moscow (especially city centre and highways) reaches dangerous levels (see Graph 4). Overall, according to estimates, environmental damage of automotive transportation (air pollution, noise pollution, chemicals absorption) accounts to 1.5 to 2 per cent of GDP.

 Gravitas Research - Graph 4 - Map of Air Pollution Levels in Moscow (Russia), 2009Therefore, Moscow City Government revived their plans to battle staggering air quality in the city through the wider implementation of alternative fuels such as CNG and ethanol. Decree 553-PP from 29.06.2010 “Current Status and Further Measures to Promote the Use of Compressed Natural Gas as a Motor Fuel for the Automotive Transport in Moscow” of Moscow City Government develop set of clear objectives, implementation measures (economic and administrative), and means to increase penetration of CNG in Moscow’s automotive transportation sector. While Decree 553-PP administratively enforces adaptation of CNG and ethanol in the public transport (including organizations such as MosGorTrans, MosGorHolod, MosAutoTrans responsible for the city’s bus and cargo transportation), range of incentives for private organizations are also included into the Decree in order to popularize CNG as an alternative to gasoline and diesel. Gravitas Research considers Decree 553-PP of Moscow’s City Government to be a serious and important step toward popularization and wider utilization of CNG in automotive domain not only in Moscow but also in the Russian Federation.

Extending earlier adopted Decree 270-PP from 24.04.2007, Decree 553-PP of Moscow City Government suggests important administrative and legal changes in the Moscow’s urban transportation to improve ecology via adaptation of CNG as automotive fuel. Implementation of the program should be conducted jointly with OJSC GASPROM, national gas supplier and distributor. Here are the key action points and measures to be undertaken in accordance with 553-PP Decree:

  • Expansion of CNG refuelling stations network from current 10 to 31 across Moscow
  • Departments and organizations within Moscow City Government will be required to procure automotive services from contractors whose vehicle fleets comply with EURO4 emission standards or run on CNG
  • Gradual replacements of vehicle fleet of Moscow City Government with vehicles running on CNG and complying with EURO4 emission standards
  • Limit access of automotive transport beyond 3rd circular road to the Moscow city center that do not comply with EURO4 emission standards
  • Modification of municipal vehicles (e.g. waste collection vehicles) to ensure higher protection of the environment
  • Service socially important objects (schools, kindergardens and hospitals) with vehicles that comply with EURO4 or run on CNG
  • Gradual modification (retroffiting) of automotive public transport in Moscow to run on alternative fuels, including CNG. MosGorTrans is required to retroffit 11th Bus Parc to run on CNG (during 2010-2012) along with other 5 other Bus Parcs
  • MosAutoTrans and MosGorHolod organizations, engaged into auto transportation services and owned by Moscow City Government, are required to conduct technological and economic expertise of their fleet in order to shift to CNG and comply with EURO4 emission standards
  • Freeze all land rent payments for at least 5 years period for private refuelling stations (if CNG sales exceed 30 per cent of total volume of fuel sales) and auto transportation companies (if at least 50 per cent of their fleet is running on alternative fuels including CNG).

Range of measures to be undertaken by the Moscow City Government is expected to not only reduce pollution from public automotive transport, reduce fuel costs, increase vehicle service life and others, but most importantly encourage private transportation companies and city population to shift to CNG multiplying alternative fuel effects. Successful implementation of the decree is expected to become the first step toward revival of auto CNG across all Russian territory as Moscow’s initiative could be easily replicated in other largest cities of the Russian Federation such as Yekaterinburg, Novosibirsk, Samara and many others. Moreover, local Russian OEMs are capable to meet demand for not only CNG powered vehicles (including city buses), but also for hybrid vehicles capable of running on natural gas, diesel and electricity. Nevertheless, there are number of challenges on the way toward expansion of CNG as automotive fuel in Moscow and in Russia in general.

According to Gravitas Research, some of the key challenges ahead of 553-PP Decree of Moscow City Government are:

  1. Timely construction of CNG refuelling infrastructure across territory of Moscow
  2. Potential internal resistance of the drivers and technical service personnel in adaptation of CNG in the public transportation system
  3. Negative public image of CNG and LPG as alternative to traditional automotive fuels in Russia
  4. Lack of CNG technical service stations with qualified and trained personnel
  5. Competitive pressure from other alternative fuels such as ethanol
  6. Potentially high retroffiting costs to be leveraged by private SME auto transportation companies
  7. Inadequate distribution of CNG refuelling stations between Moscow City and Moscow region resulting in unequal market opportunities for private companies located in Moscow City and outside. Penetration of CNG in households is also limited in the Moscow satellite towns despite their growing population and the highest car density rates across the Russian Federation.

Graph 5 maps strength of potential challenges for successful implementation of 553-PP Decree from 29.06.2010 “Current Status and Further Measures to Promote the Use of Compressed Natural Gas as a Motor Fuel for the Automotive Transport in Moscow” by Moscow City Government.

 

Graph 5. Challenges of Implementation of Moscow City Government 553-PP Decree. Impact Assessment vs Uncertainty (Russia), 2010-2012

Gravitas Research - Graph 5 - Challenges of Implementation of Moscow City Government 553-PP Decree. Impact Assessment vs Uncertainty (Russia), 2010-2012

Overall, Gravitas Research preliminary analysis shows that implementation of Decree 553-PP of Moscow City Government could lead to considerable positive changes in CNG penetration level in Moscow and in Russia in long term. Sizable proportion of public and private auto transport in Moscow is expected to move to utilization of CNG as primary fuel (mono fuel systems) or secondary/primary fuel (for dual fuel systems) if corresponding changes to refuelling infrastructure are made. Gravitas Research forecasts that amount of CNG vehicles in Moscow can grow from less 1,000 vehicles in 2010 to more than 30,000 vehicles by 2013 if Decree 553-PP decree proves its success during 2010-2012.

 

Data Sources:
  • Federal State Statistics Service
  • Transportation Department of the Moscow City Government
  • State Inspection for Road Traffic Safety

About Gravitas Research:
Gravitas Research is a specialized market research and consulting company, headquartered in London, UK. We publish premium market research reports, business analytics and industry analysis of the Russian, CEE and CIS industries and markets

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