How to Maximize Air Quality Benefits of CNG as a Transport Fuel in Pakistan

1. National Urban Air Quality Workshop, Karachi, 13-14 September 2006 How to Maximize Air Quality Benefits of CNG as a Transport Fuel in Pakistan by S. Naushab Sarwar General Manager Hydrocarbon Development Institute of Pakistan

2. Contents • Natural Gas Share in Energy Mix, Resources, Sectoral Consumption & Infrastructure • Use of CNG in Gasoline Vehicles • How to Maximize Air Quality Benefits of CNG • Conclusions

3. Natural Gas Share in Energy Mix, Resources, Sectoral Consumption & Infrastructure

4. Energy Supply Mix 55.5 Million TOE Natural Gas 50.3% Oil & Gas: 80.1% LPG 0.4% Nuclear 1.2% Hydro 11.2% Oil 29.4% Coal 7.6% Oil Import Bill: $4.6 b

5. Pakistan Energy Supplies:1993 to 2005 Million TOE 30 Gas 25 20 Oil 15 10 Primary Electricity (Hydro+Nuclear) 5 Coal LPG 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Fiscal years ending 30th June

6. Reserves, Production and Resources of Oil & Gas Oil Natural Gas (million (trillion barrels)cubic feet) Discovered 844 51.5 Produced 535 18.7 Remaining 308 32.8 Annual Production 24 1.3 Theoretical Resource Potential Oil 27 billion barrels Gas 282 trillion cubic feet

7. Sectoral Energy Consumption Commercial 3.5% Industrial 37.9% Domestic 21.9% Miscellaneous 2.1% Agriculture 2.3% Transport 32.3%

8. Sectoral Oil and Gas Consumption Commercial 2.3% Power 23.5% Industry 19.5% Domestic 14.8% Transport 2.1% Cement 1.2% Miscellaneous 2.2% Domestic 1.3% Industry 10.5% Fertilizer 16.4% Agriculture 1.0% Transport 61.5% Power 43.7% Gas Oil

9. Fuels Used in Road Transport Diesel 7.5 mTOE (7.2 mt) (59% imported) 79.3% 6.1% CNG 0.6 mTOE (67 MMCFD) 14.6% $ 1.7 billion spent on import of diesel oil Petrol 1.4 mTOE (1.3 mt) Present CNG Consumption: 107 MMCFD

10. PAKISTAN GAS INFRASTRUCTURE Islamabad AFGHANISTAN JAMMU & KASHMIR DISPUTED TERRITORY Peshawar Sadkal Retana Mirpur Misa Keswal Pariwali Dakhni Dhulian Bangali Turkwall Adhi Meyal Tut NWFP Lahore Faisalabad PUNJAB Dhodak Quetta Rodo INDIA Multan Pirkoh Loti Sui BALOCHISTAN Qadirpur Sukkur Hassan Mazarani Miano Zamzama Kadanwari Dadu SSGC LINES SNGPL LINES GAS FIELD Sawan Nawabshah Bhit SINDH Hyderabad Bobi Karachi Mazari T.M.Khan Khaskhali Turk Golarchi Nur/Bagla

11. Use of CNG in Gasoline Vehicles

12. The CNG Process in Pakistan: Gasoline Vehicles • Concept • Experimentation • Pilot Programme • Policy & Regulatory Framework • Commercialization • Industrial Development

13. HDIP’s Pilot Programme • A model R&D project leading to development of a new nationwide industry • Pilot CNG stations established by HDIP in 1982 at Karachi and in 1990 at Islamabad • HDIP also established CNG Stations at Quetta and Lahore and installation of CNG Station at Peshawar is under construction • CNG Rules formulated in 1992

14. CNG Industry Development • 1,050 CNG Stations, 1000,000 vehicles • 200 stations under construction • Pakistan has become 1st CNG using country in Asia and 3rd in the world • Investment of Rs. 22 billion has been made and Rs. 2 billion in pipeline • 22,000 jobs created • Achieved petrol replacement and now focusing on diesel replacement

15. 1100 1000 Growth of CNG Industry in Pakistan 900 800 700 600 CNG Stations Growth Rate 57% per year 500 400 300 200 100 0 Sep 1 Jan 1 Jul 1 Jan 1 Jul 1 Jan 1 Jul 1 Jan 1 Jul 1 Jan 1 Jul 2000 2000 2001 2001 2002 2002 2003 2003 2004 2005 2006 Pakistan is the largest CNG using country in Asia and 3rd in the world

16. Main Elements of PakistanGovernment CNG Policy • Strong government commitment • Liberal licenses for CNG retailing • Free market consumer price of CNG • Natural gas tariff for CNG linked to petrol • Priority of natural gas connection for CNG • Exemption of import duty and sales tax for 5 years on import of machinery and kits

17. Positive Experience • CNG as motor fuel has been accepted and gaining popularity as economical and environment friendly fuel • Investors have found CNG business very profitable • Financial institutions have shown keen interest • Vendors’ market has also reacted positively • 3-Wheeler (Rickshaws) have also been converted on CNG • Diesel replacement is in process

18. Negative Experience • Lack of site availability in urban areas • Initial resistance by Oil Marketing Companies and Refineries • Procedural delays from Local Authorities • Lack of safety consciousness in smaller investors

19. How to Maximize Air Quality Benefits of CNG

20. Future Plan : Options for Dieselto CNG Conversion Strategy OPTION – I: Conversion of diesel buses • Dual fuel system • Dedicated CNG Several engineering and management problems experienced OPTION – II: Gradual replacement of diesel bus fleets by CNG driven buses Preferred Option

21. How to Maximize Air Quality Benefits of CNG (1/4) • Introduction of CNG buses/mini-buses/wagons in major cities • Encourage conversion of existing diesel buses to CNG • Setting target dates for replacement of diesel buses with CNG • All new buses/mini-buses/wagons to be inducted in Karachi, Hyderabad, Lahore, Faisalabad, Peshawar, Quetta & Rawalpindi/Islamabad should be dedicated CNG vehicle of petrol-CNG dual fuel Contd...\

22. How to Maximize Air Quality Benefits of CNG (2/4) • Replacement of two-stroke rickshaw with CNG rickshaw (replication of Lahore model) • Provincial Governments should provide incentives to CNG buses/min-buses/wagons like: • Lucrative routes • Exemption from route tax, excise tax and registration fee. • Setting up of large CNG refueling stations Contd...\

23. How to Maximize Air Quality Benefits of CNG (3/4) • Extension of benefits of exemption from custom duty and sales tax on CNG equipment and buses for another 5 years • No registration of two-stroke rickshaws in specified major cities after June 2006 • Facilitate introduction of CNG buses through picking up (fully or partially interest on bank loans) by the government • Local manufacturing of CNG vehicles & equipment may be given priority through attractive incentives under a phased plan Contd...\

24. How to Maximize Air Quality Benefits of CNG (4/4) • State Bank of Pakistan may encourage the commercial banks to establish lines of credit for CNG buses/mini-buses/wagons and for establishing manufacturing facilities in Pakistan • Motivation of CNG equipment manufactures and investors for technology transfer through joint ventures with foreign manufacturers of compressor and CNG cylinders • Establishment of testing facilities for CNG equipment according to International quality standards in HDIP

25. Conclusions

26. Conclusions (1/3) • Following the pioneering research, development and demonstration efforts of the Hydrocarbon Development Institute of Pakistan (HDIP), the commercial use of CNG in petrol vehicles has been successfully implemented in Pakistan • The CNG technology has received widespread public acceptance and private sector investor confidence. A high demand for CNG fuel exists countrywide Contd...\

27. Conclusions (2/3) Governmental policy incentives have been key to CNG development but no direct subsidies were provided and CNG price has been market based Potential for foreign exchange saving and environmental conservation in Diesel Oil replacement by CNG is very significant and is being now taken up Local manufacturing of CNG equipment and dedicated CNG buses are essential for sustainability of CNG industry Contd...\

28. Conclusions (3/3) • In order to maximize air quality benefits of CNG, diesel replacement is essential. All the stakeholders should work to achieve this in accordance with the Cabinet decision regarding “Replacement of Diesel Oil by CNG” • CNG industry development in Pakistan is a Success Story that can be replicated by other developing countries with natural gas reserves and infrastructure

29. Thank you