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Sunday Okunbor, General Manager, Commercial at NDWestern Ltd, an E&P independent, is concerned about the Nigerian Government’s predilection for arbitrary price control in the domestic gas market.

“As government is prone to abrupt changes in the policies, we find ourselves strenuously adjusting and adapting”, he told Africa Oil+Gas Report ‘s  Akpelu Paul Kelechi in an interview.

Okunbor advanced that his company is concerned about “how to survive the current price reduction that the government passed last year through the minister of petroleum resources, from $2.50 per thousand standard cubic feet (Mscf) to $2.18 per thousand standard cubic feet.

“It’s a been a major one for us plus the lingering debt that Power sector incurs as they offtake our gas. It is hurting to us”.

Allowing that “what is being owed the (NPDC/NDWestern) Joint Venture by the country’s power sector is over ₦100Billion”, he said “it’s a lot of money so and what that means is that we have to source for money elsewhere to continue running the business. it’s a major problem and we’re doing everything at the advocacy level and also trying to get the government to see reasons why this money actually has to be paid….”

 Okunbor said that his company cannot trigger or exercise the terms of the contract because any attempt to do that will be seen as a sabotage against the government because cutting off gas to the thermal power plants “means that there won’t be power, there won’t be light to the populace and that’s what we don’t want to do. So, we find ourselves begging and at the same time, rendering services to these people without getting the necessary payment for the services”.

Below are excerpts of the full interview:

You handle the commercial side of the Natural Gas business for NDWestern. How has it been like?

The company started selling gas mainly to the power sector and then from there we enriched our portfolio, selling to the GBIs that is, the Gas Based Industries. Dangote Industries for example, uses our gas for fertilizer production.

How have government policies encouraged the business? Nigeria’s Minister of state for Petroleum has declared this decade as the decade of gas

It has been a very interesting time. As government is prone to abrupt changes in the policies, we find ourselves adjusting and adapting.

A major cause for concern is how to survive the current price reduction that the government passed last year through the minister from $2.50 per thousand standard cubic feet (Mscf) to $2.18 per thousand standard cubic feet. It’s a been a major one for us plus the lingering debt that Power sector incurs as they offtake our gas. It is hurting to us. What is been owed the (NPDC/NDWestern) Joint Venture is over ₦100Billion, it’s a lot of money so and what that means is that we have to source for money elsewhere to continue running the business. it’s a major problem and we’re doing everything at the advocacy level and also trying to get the government to see reasons why this money actually has to be paid.

Sunday Okunbor (pictured above): “For us, over 60% of our volume goes to power and you can imagine what that price drop would mean to our business. So it’s a major problem and in fact I can say it is a major disincentive for us to want to invest more in this gas business. Interesting enough, the (Oil Mining Lease (OML) 34 in which ND Western owns 45%, is a gas asset. The production that comes from that field is majorly gas and that is where all the investment is. So, if we’re not getting value for that gas, the owners of the business will not be incentivized’

We cannot exercise those terms of the contract because any attempt to do that will be seen as a sabotage against the government, because cutting off gas from the gas fired thermal plants means that there won’t be power, there won’t be light to the populace and that’s what we don’t want to do. So, we find ourselves begging and at the same time, rendering services to these people without getting the necessary payment for the services. So that’s basically my major highlight in the gas space in the industry since I joined.

Many analysts argue that the way to improve the domestic gas market in Nigeria is to fix the broken power sector. But there are other gas-consuming sectors in the economy: methanol plants, urea factories and merchandise centres like the Ariara market…

NDWestern wanted to have a kind of a robust portfolio, as to where our gas goes to, and we’ve been able to capture the three major sectors in the in the gas industry, which is basically the power sector which consumes the highest in terms of volume; the LDCs that’s the Local Distribution Industries or Companies, and then the GBIs as I mentioned. We wanted a situation where we are able to touch all the sectors and that’s why we brought Dangote in. This contract was executed late last year and the contract is operational as I speak. We Supply Dangote gas for their fertilizer plant. Supplying companies like Dangote could actually help us to balance out. Instead of giving gas to the power sector that doesn’t pay us regularly, it’s better to give it to Dangote who, from the information that we have gathered, pays regularly. For us, it is still early days and we cannot judge but we have started supplying since late last year and it’s been good. We believe, based on the information we gathered from Gas Aggregation Company of Nigeria (GACN, that Dangote would pay us promptly.

How many million standard cubic feet per day does Dangote Industries offtake?

I don’t know if this would affect the contractual obligation on our side, to put out the amount that we supply. Some of these are very sensitive in terms of volume, price and then other clauses in the contract because there are confidentiality clauses in the contract. I can only tell you we’re supplying volumes. These things are very sensitive. Once I quote it, it may get into the press and then before, you know, it’s everywhere and the question is how did this get out, because they are confidentiality non-disclosure Clauses in the contract.

The issue of government allowing a willing seller, willing buyer philosophy in the Nigerian gas market has been on the table for a while. And now government suddenly declares that prices should even be less. What other things are gas producers battling with?

The major challenge has been that we actually wanted a higher price based on our cost of producing this gas. The price should actually be higher than the $2.50. We’ve been on the $2.50 for close to 10 years and the expectation was that this price was supposed to go up but as the government would have it, it went down and also the users also, I’m sure they also were using their power to kind of press government for a reduction. I can tell you this has adversely affected the gas producers. Now, the first thing is that we don’t get enough payment. That’s the first problem. We are not getting our payment as and when due and we have this backlog of debts hanging on us.

The announced reduction of price from that $2.50 to $2.18, effective August 2021, means is that, the revenue that you already taught you have, and that have you projected into the future in terms of forecasting, has now been reduced to that price that has been given. And also, that does not change the payments pattern. So it’s a major setback, to all gas producers, mostly to those that are supplying to Power

For us, over 60% of our volume goes to power and you can imagine what that price drop would mean to our business. So it’s a major problem and in fact I can say it is a major disincentive for us to want to invest more in this gas business. Interesting enough, the (Oil Mining Lease (OML) 34 in which ND Western owns 45%, is a gas asset. The production that comes from that field is majorly gas and that is where all the investment is. So if we’re not getting value for that gas, the owners of the business will not be incentivized in any way to want to put in more money, so that’s the major challenge to us.

The industry has associations that can try to help push your case to the government. Are you guys trying to do that in any way right now?

I’m actually part of a team working in IPPG (an association of indigenous Nigerian Exploration and Production (E&P) companies with a current membership of twenty-five(25) companies) to see how we can push our advocacy as regarding gas price. We would do all we can, in terms of talking to those people that can change things or that can make things to happen to see why we should be incentivized. If government is not even willing to change the price, let it give us other things that can cushion the effect of this price and that’s what we’re asking.

We may not be able to act to make them change the price immediately but they should give us other incentives that can help cushion it. About 30 or 40% of those power plants that are heavily indebted to us are owned by government. Government retained about 20 or 30% of those are those power plants as their own when they privatized them. Government should be able to do something about those debts and that’s why we said if they are not able to pay or if there are other ways, they should incentivize the gas suppliers so that they are able to continue doing this business and push in more gas to power this country. We need gas to make this country work.

What other incentives would you want to see?

There are several others that we’ve looked at; it could be the area of us bringing in equipment. So all those others equipment that we use for maybe drilling or for our wellheads, or anything else that has to do with oil and gas equipment coming in, there should be a tax waiver or all they shouldn’t be any import duties on those so that that, alone, you can count on as something that you can hold on to reduce your cost. Two, we can look at it from the area of royalties. We still pay royalties on these invoices that I told you have not been paid. We have actually paid government royalty for those invoices even though we’ve not received payments. I’m sure you’ll be surprised to hear this.

We believe that those debts should actually be used to reduce royalty payments to government and that would be in major a major incentive to us, if the government is able to do that.

Let us talk about the AKK. There are a lot of people who say opportunities abound with the AKK as industries will spring up along with the AKK.  . Are you lining up to be a feedstock supplier into the line?

We see opportunities in the north as regards to this AKK projects. We attended the last summit that was done and we’ve actually started getting enquiries from people that are planning to develop or put their business in those places. So we’re reviewing those opportunities now and the plan is that, at some point, we will start negotiating most of these volumes that will be going there. So for us, as part of our Global plan to kind of you know, put our foot also in the North through the AKK project, we actually started with that and we have plans to grow our volumes. So for you to go that way, definitely you need to increase your volume. So you know that we have about 600MMscf/d capacity. We’re not fully utilizing those capacity. But again, we need to drill more Wells.

Sunday Okunbor oversees the commercial side of the gas business at NDWestern, the Nigerian independent whose Joint Venture with state firm NDPC is the largest indigenous supplier of gas to the country’s domestic market. Okunbor has over 20years of professional working experience in the oil and gas industry, starting with Shell Nigeria Gas Limited, through Pan Ocean Overseas, to NDWestern, which he joined in 2013.

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.