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12 Nov 2008


Gas Conversion Kit Business Slowing amid Downward Trend in Oil Prices (Business Brief No.2350)

Before 2008, the business of installing NGV and LPG gas conversion kits for cars did not attract much attention, as the majority of users were taxis and motorized tricycles. The popularity of such systems has increased considerably because of rising gasoline and diesel fuel prices many times higher than both LPG and NGV fuels. Therefore, many passenger car owners have converted their cars to run on LPG and NGV, especially in mid-2008 when domestic prices for gasoline and diesel fuels jumped to more than THB40/liter. In light of the growing demand, many automotive repair garages became installers of LPG/NGV conversion kits, even though many of them were largely inexperienced and offered poor service standards. Nevertheless, the frenzy did not last long because the prices of global crude oil and domestic refined fuels dropped sharply toward the end of 2008, resulting in less urgency for car owners to install kits to save on fuel costs, leaving entrepreneurs with an abrupt drop in income. A lot of imported installation equipment now remains in stock, forcing some entrepreneurs to close their businesses because they can no longer shoulder the burden of the unused inventory.
KASIKORN RESEARCH CENTER (KResearch) expects that the gas installation business in vehicles over the next 12 months will tend to slow steadily due to falling crude oil prices in the global market and the possibility that domestic oil prices will remain low. Although the domestic prices of refined fuels through to February 2009 may increase only slightly due to the end of the government's ‘Six-Months, Six-Measures' economic relief plan and resumption of normal excise taxes on fuel at Baht 2.47-3.88 per liter, the government might use the money from the Oil Fund to subsidize oil prices. So, domestic refined fuel prices might rise slightly higher. Meanwhile, the domestic prices of NGV and LPG will likely rise, so the margin between refined liquid fuel prices and NGV/LPG may remain little changed at THB9-15/liter, which might not attract new consumers to install the gas conversion kits because in July 2008 the margin was as high as THB27-36/liter. At that time, the demand for the gas equipment was rather high.
In addition, there are some ongoing concerns about the safety of the conversion systems. That is why consumer demand is waning at present. Only entrepreneurs who offer high standard equipment installations with safety guaranteed by both the government agencies and/or recommended by former customers are surviving, where they provide satisfactory after-sales service and have sufficient operating capital to continue operations in an adverse market.
Due to the high volatility in oil prices, if oil increases to more than THB35/liter after the global economic recovery and gas prices rise slightly, the margin between them in domestic prices could increase to more than THB20/liter; then the conversion kit business may boom again.

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