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Energy Market: Tackling intractable cooking gas supply challenge

Though the country is the largest gas producer in Africa and major supplier to the world, consumers and marketers of Liquefied Petroleum Gas (LPG) or cooking gas lament over the continuous rise in the price of the product

Peter Uzoho

Consumers and marketers of Liquefied Petroleum Gas (LPG), commonly known as cooking gas, groan over the continuous rise in the price of the product largely caused by insufficient in-country supply, high importation costs and multiple levies by agencies.

The price of Liquefied Petroleum Gas has maintained its upward trend since December 2020, with the product now selling for about N500 for one kilogramme (kg) in some places in Nigeria.

This has left many consumers groaning over the ugly situation. In Lagos, the nation’s commercial hub, a- 6kg cylinder now costs N2,400 to fill as against N2,000 in June, while the price of 12.5kg gas cylinder now takes N5,200 to fill.

LPG cylinders

In December 2020, the price of 12.5kg cylinder for LPG was N3,200; in June, 2021, it was sold for N4,400 and from last month July till date, the product is sold for N5,200.

Marketers of the product said 20MT of LPG is now sold for over N7 million, lamenting that they were spending what they used in buying 40MT some months ago to get 20MT now.

The continuous hike in the price of the product has been linked to multiple factors, including the low supply of the product from the Nigeria Liquefied Natural Gas (NLNG), scarcity and high cost of foreign exchange (US Dollar) for importation, and the multiple administrative levies charged marketers by some agencies of government.

These costs are transferred to the consumers as the marketers have to factor in all they have spent to bring in the product and all they have spent on charges locally.

Nigeria as Africa’s largest gas producer

The country is the largest gas producer in Africa and major supplier to the world. The country’s proven gas reserve stands at 203 trillion cubic feet (tcf) as of January 2021, according to the Department of Petroleum Resources (DPR), the main regulator of the country’s oil and gas industry.

The country with its over 200 million population has continued to struggle to satisfy its LPG need.

Africa’s largest oil and gas producer relies majorly on supply from import while its liquefaction company, NLNG, though co-owned by three international oil companies (IOCs), continues to shortchange the country by focusing more on exporting the same product to earn foreign exchange.

Nigeria currently consumes about 1.2 million metric tonnes of cooking gas and only 350,000MT is being supplied to the local market by the NLNG, while the larger shortfall is met through importation.

This comes with huge impact on the consumers who are subjected to paying through their noses to obtain the product at high retail prices.

Successive governments had made several attempts to boost the nation’s LPG utilization and move the masses away from the use of charcoal, firewood and kerosene for health and environmental concerns but those efforts have yielded little or nothing.

The current administration upon its assumption in 2015 had boasted that it would aggressively boost the nation’s domestic LPG supply so that Nigerians would have more access to the product. However, six years down the line, it is still the more you look, the less you see.

Just last December 2020, the government launched its National Gas Expansion Programme (NGEP), a vehicle it wanted to use to enhance local gas supply and utilisation, with LPG as one of the key items on the plate.

Added to that, last June, the government also declared year 2021 to 2030 as the decade of gas, meaning that the nation would be boasting of being able to satisfy its local gas needs by the end of the decade.

But with eight months already gone since the launch of NGEP, many Nigerians are wondering when the result of such programme will be visible and felt by the people.

Lack of decisive action

Marketers and analysts believe that ending the sufferings Nigerians are made to go through to get LPG for their cooking is not rocket science, and it is not too difficult for any serious government anywhere.

They, however, said that successive governments in Nigeria had not shown such needed seriousness to arrest the situation.

They wondered why a country will have a company that has the capacity to supply the LPG needed in the country would not order the company to first satisfy the country’s local demand before exporting.

They argued that LPG like other commodities thrives on demand and supply, with all the market fundamentals playing their natural role on it- inflation, exchange rate, import charges, taxes and levies, the price of oil, and others.

“I think the way forward is, first and foremost, let there be increase in supply by the NLNG to the local market so as to reduce the FX on import, because import is creating a lot of problem now,” a source at NIPCO Plc, who pleaded anonymity, told THISDAY.

He also attributed the 7.5 per cent Valued-Added Tax (VAT) which has just been added to the charges on imported LPG as part of the causes of the rise in the price of the product.

He said: “There is the newly-added VAT on imported LPG which was not there before. But the major thing that is responsible to the rise in price is Forex.

“The two main things now are VAT and sourcing Forex. All us of are aware of the way Dollar has been skyrocketing against the Naira.

“Many are looking up to the NLNG but the supply is not coming because at a time, NLNG said they could not mortgage their export for Nigerian market.

“If NLNG can give enough product, this skyrocketing price will be reduced drastically. NLNG do supply product but the thing is that whatever they supply is never enough for the domestic market. It was 150, 000MT but they increased it to 300,000MT.”

Adding that most depot owners in the country do more of import and that the multiple charges by the agencies was still on the front burner, the NIPCO source revealed that the Petroleum Products Pricing Regulatory Authority (PPPRA) introduced a kind of administrative levy on LPG.

The publication had exclusively reported January this year, that multiple exorbitant charges by the regulators including the DPR, PPPRA, were contributing significantly to the astronomical rise of the LPG price.

The Nigeria Liquefied Petroleum Gas Association (NALPGA) had also said at the time that the levies on a 20MT LPG truck had exceeded N120,000, listing the levies as NUPENG levy–N23,000; DPR’s Off-Take Permit–N50,000; and PPPRA’s Administrative Fee – N49,200, all totalling N122,200.

He had said the levies were just a few of the many rates being paid by the marketers, which were passed to consumers.

The Executive Secretary of National Association of Liquefied Petroleum Gas Marketers (NALPGAM), Mr. Bassey Essien, said that the marketers should not be blamed for the hike in the price of LPG, saying they sell as they buy and according to the volume available to them.

He said out of the 1.2MT being consumed in the country, NLNG only supplies about 300, 000, which should not be in a country that produces the product.

Although, NLNG had said it would ramp up the supply to 450,000 this year, Essien said that still was not enough.

He said, “We are currently consuming about 1.2million metric tonnes and you are saying you are doing 450,000 metric tonnes.

Where will the balance come from? Ten people are living in a house, they need 10 buckets of water to bath, you give them one bucket, how will it help them?

“I sell what I see, I don’t produce gas. It is when and how I buy I sell. If people say they cannot afford it, that is not my fault.

“People have to pay, they have to eat, people have to sell the gas. NLNG said they produce over 4million metric tonnes per annum and we are just consuming under 1.5 million. What stops them from increasing the quantity here?,” he said.

“You will go and export all and we go back and import all. So, marketers sell what is available to them. They have to source for dollar which is not our own currency and they have to make some profit to remain in business.”

Analysts bemoan price hike

However, while the marketers complain over the ugly situation, some economic policy analysts have warned against the danger in the continuous rise in the price of LPG.

They said that it negates the government’s vaunted drive to emplace alternative energy in the country and encourages a return to firewood and kerosene

The immediate-past Director General of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, said “the recent hike in LPG price is inimical to the drive to promote the use of clean energy and protect the environment.”

“It is noteworthy that significant progress has been made in getting a good percentage of the population to transition from the use of firewood and kerosene to use of LPG. The campaign has won a lot of converts even in many of our villages.”

Yusuf warned that the “spike in LPG price may reverse these gains and this will not augur well for the preservation of the environment. We may see a relapse of accelerated deforestation if the spike is not checked.

Gas pricing needs to reflect the reality that we are a gas producing country. We should leverage the huge gas resources to leapfrog in our industrialisation initiatives and environmental protection.”

Another economic policy analyst, Mr. Chika Mbonu, wondered whether government was interested in moving people away from using kerosene and entering the forest in search of woods for coming or it was interested in getting revenue through increase in taxes and levies in imported LPG.

Mbonu said government should find a way to increase local supply of LPG through the NLNG or address the issue of taxes and levies to encourage investment in the LPG space.

He said, “So, everything boils down to what government wants. Is it that they want to improve supply of LPG into the local market so that people will not go back to using kerosene because kerosene is not even available?

“Do you encourage people going back to the forest to go and look for firewood with its attendant effect on health.

“Are you trying to get more revenue through increase in rates and taxes on LPG import or you are trying to increase investments and let people have more access through reduced rates on LPG? So, that’s another crux of the matter.

“So, it’s surprising to me really why Nigeria who has the quality to move people away from wood and kerosene for cooking to cleaner alternative energy has not made NLNG to increase the frequency of its supplies.

The first thing is, the supply from NLNG to Lagos which is a major market to cooking is very epileptic.”

He however, argued that one of the reasons why NLNG has not been able to satisfy local LPG demand could be because of its drive to export and earn foreign exchange.

According to him, the company has rescued Nigeria with dividend payment and taxes payment several times in the past since the onset of the current administration.

“I don’t know whether it is this focus on export that has denied them the ability to meet the local need of the market.

“If you look at the LPG association in Nigeria, they will complain to you that NLNG has been epileptic in their supply to them.

“You know they (NLNG) have export contracts they have entered with so many buyers and they will want to honour those contracts, “Mbonu added.(Feature adapted from ThisDay)

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