Will Nigeria’s LPG Demand Buckle under the Weight of the Country’s Forex Problems? - Africa’s premier report on the oil, gas and energy landscape.

Will Nigeria’s LPG Demand Buckle under the Weight of the Country’s Forex Problems?

By Bunmi Aduloju, NAREP Fellow

…Some say that growing in-country LPG production should mitigate these concerns, but..

When Vitalis Obinna, an LPG retailer and dealer in gas cylinders and accessories in Festac Town, a western suburb of Lagos, Nigeria, caught sight of a figure advancing towards his shop, he jumped to his feet with an anticipatory flash of excitement. Surrounded by other LPG retailers at the location, a new customer would mean more sales for the day. Soon, his interaction with this reporter took a turn of business reality.

“Since last year, business has been very dull,” he said. ‘But when the year began, it became really bad. There’s been no profit in cooking gas. We buy gas for about ₦4300 and sell it for about ₦4500. 

“Before now, we used to make profit of at least ₦600 on 12.5kg of cooking gas but now, our profit is ₦150 to about ₦200 for 12.5kg of gas.”

Asides a drop in profit, he also has to put up with reduced customer patronage. 

“Before the price increased, I used to refill at least 10 cylinders everyday but now, I hardly refill three cylinders. In fact, when I think some customers are going to refill their 12.5kg cylinders, you would be surprised that they will only buy ₦500 worth of cooking gas,” he added. 

Nike Kazeem and Christiana Sikiru, both petty traders (selling provisions and groceries) in makeshift stalls, express concern about the increased price of the product in the first quarter of 2021.

Whereas Mrs. Kazeem, who says she’s been using LPG for decades, has resorted to kerosene stove to cook for her family in the meantime, Mrs. Sikiru switched to cooking gas in January “because she found that “Kerosene dries up quickly.” She said that the increase was a normal trend with commodities. “There has been an increase in price but I understand that things are now expensive,” she explained.

Fluctuations in LPG Price Lead to Regional Distortions

According to the National Bureau of Statistics (NBS), the national repository for statistics in Nigeria, the average cost of refilling 12.5kg cylinder of cooking gas was ₦4,117.55 in January, and ₦4,363.51 in February but it fell to ₦4,359.23 in March. 

The average price for refilling 5kg LPG cylinder increased from ₦1,949.02 in January to ₦2,018.91 in February and inched up again, in March, to ₦2,057.71.

In 2021, the total average price for refilling 12.5kg in Q1, stood at ₦12,900.28. However, in 2020, the total average price for refilling LPG cylinder was ₦12,542.04.

Eyono Fatai-Williams, General Manager, NLNG responding to a Thisday enquiry about the increasing price of Liquefied Petroleum Gas (LPG) in January replied that the dependence on imported LPG had put undue pressure on the price of the commodity.

In the same vein, two LPG stakeholders gave a similar account for the increase.

“Gas price is highly seasonal. LPG is a global commodity and during the winter seasons, prices are usually high and then, they go down towards the end of the summer. Then again, by the end of 2020 and early 2021, because of forex changes in Nigeria, it took the prices higher than normal,” says Mr. Bashir Koledoye, Managing Director, Dharmattan Gas and Power Products Ltd, adding that the prices “will continue to drop until the summer”.

Fatai Ogungbenle, Head, Business Development and Sales (LPG), Kwale Hydrocarbon Nigeria Limited, an independent downstream gas company, agrees that the increased price of LPG is tied to the seasonal demand for LPG in Europe during the winter seasons.”

“Europe has more of sustained cold season this year because of global warming. It added to the issue of high demand in Europe and part of America, making us to price highly. But in few weeks to come, I think the price of LPG may likely decrease a bit. But the downside to it is the exchange rate. If nothing is done to it, we may experience this for a longer time more,” he explained. 

“I can remember vividly that a truck of gas in November 2020 was ₦4 Million to ₦4.2 Million. But now, it is around ₦5.5 Million to ₦5.6 Million for over a period of about 6 months,” he added.

Nor is the higher price restricted to the gas molecules alone. The cost of the equipment too is rising. Vitalis Obinna said that he sells a 6kg gas cylinder with an accompanying burner for ₦11,000, a 30% jump increase from ₦8,500 which he sold the two equipment just five months ago, in December 2020 

Koledoye explains that “demand dips with higher prices, but because Nigeria is rapidly adopting LPG, the effect is not significant”. He admits that there are challenges with the Forex situation, “but increase in in-country LPG production is expected to reduce this problem very soon”. In general, he feels comfortable with the way the market is now.

In Q1 2021, 55.7% of LPG consumed was imported. This contrasts with 58.4% of LPG consumption, which was imported in Q1 2020, according to the Petroleum Products Pricing Regulatory Agency (PPPRA), a monitoring and regulatory agency of petroleum products in Nigeria. In both quarters, importation took the lead. 

Apart from the price volatility of LPG in Nigeria and enormous dependence on imported products, the price in each State in the country is largely determined by the landing cost of the product. 

In March 2021, Cross River State paid the highest for cooking gas at ₦4762.65 and Zamfara State, ₦3,749.06, accounting for the lowest.

Similarly, Lagos paid ₦4,435.45 to refill 12.5kg cooking gas cylinder. 

Cross River state residents paid the highest price in the nation for 12.5kg LPG in Q1 2021, with a sum of ₦14,407.89 while Kaduna paid the lowest with ₦10,900.79 in total.

Different Retail Prices

An LPG retailer at New Site, Satellite Town, a sprawling housing estate in the west of Lagos, who pleaded anonymity, says that LPG price varies among retailers too.

“The price of cooking gas differs depending on who we buy from. If we buy at a high cost, we sell at a high cost. If we buy at a lower cost, we sell at a lower cost. The gas station sold 12.5kg of cooking gas to me at ₦4,500, I sell it at ₦4,600.”

“The business of LPG has always been a good business but it is just that now, it is not really yielding money like it used to. Last year, it was sold to us at ₦4,000 naira but since January, it increased”, he added. 

Abundant Resources, Lack of Utilization

Nigeria has the largest gas reserve in Africa. As of June 2020, Nigeria’s proven gas reserve was 203.16 Trillion cubic feet (Tcf), according to a report by the Department of Petroleum Resources (DPR) 

In the report, Sarki Auwalu, the director of DPR, said that even with this huge proven gas reserve, gas utilisation was only about 5.5%. 

Mr. Ogungbenle of Kwale Hydrocarbons expressed dissatisfaction at the underutilisation of Nigeria’s gas potential.

“For domestic use of LPG, we are doing less than 25%, far below what we can do,” he said. 

Some of the challenges that the domestic LPG market is faced with include uneven terminal distribution, lack of adequate transport facilities and administrative charges on the domestic sales of LPG, although deregulated.

INTERVENTION PLANS

Nigeria’s federal government set up the LPG Penetration Framework to encourage the use of LPG in households, power generation, auto-gas and industrial applications in order to attain five million Metric Tonnes of local consumption of LPG in 2022, according to the Federal Ministry of Petroleum Resources (FMPR).

The government’s objective of attaining Five million MT of LPG consumption by 2022, puts the national consumption target of LPG at an estimated 83.33 thousand MT per month from 2018 to 2022. 

In 2021 Q1, only March’s LPG consumption met this monthly target at 87, 199.846 Metric Tonnes (MT). 

Even though the calorific content of Liquefied Petroleum Gas (LPG) is higher than kerosene and other cooking fuels, LPG is more capital intensive than most cooking fuels in Nigeria. 

This initial cost of switching to LPG is a contributing factor to the 43% population without access to clean cooking, as at 2018. 

The LPG Gas Expansion Plan was introduced to increase the consumption of LPG in the nation, as the domestic energy mix consist of 60% firewood, 30% kerosene, 5% LPG, 5% charcoal. 

With plans to increase usage of LPG, the federal government will be injecting 10Million cylinders in ten years to the market, according to Dayo Adeshina, Programme manager of the national LPG expansion plan, during a sensitisation workshop on LPG adoption and implementation for industry stakeholders, in Lagos. 

This story was produced under the NAREP Media Oil and Gas 2021 Fellowship of the Premium Times Centre for Investigative Journalism.

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1 comment

  1. Ehi says:

    LPG demand is currently struggling with the increase in price since December. However, this is not the first time prices were this high (2014) see https://lpginnigeria.com/nigeria-lpg-industry-performance-january-2021/ .
    The main reason for the increase in the FX required to import LPG. As the demand continues to grow ( this is imminent), the reliance on imported LPG will continue. So unless we grant LPG importers FX concessions, these prices will continue to go up which means slower adoption of LPG.

    In the long run, we predict a fall in oil and LPG prices when the world stabilizes from the COVID- 19 pandemic – at the stage, even with the high FX, prices would be bearable.

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