Cooking Gas: NLNG pulls prices with domestic supply

Sopuruchi Onwuka

But for the 35 percent of total liquefied petroleum gas (LPG) also called cooking gas supplied from the liquefaction trains of the Nigerian Liquefied Natural Gas (NLNG) Limited, the prevailing jumps in the prices of the domestic fuel would have spelt disaster for homes and businesses in the country.

President of the Nigerian Liquefied Petroleum Gas Association (NLPGA), Mr Nuhu Yabkubu, declared in a chat with The Oracle Today that a number of commercial factors influenced significant increase in the prices of imported LPG in the country, drilling down to retail price hike from N450 per kilogram in the last quarter of 2020 to N600 in August 2021.

Our market survey shows that the price hike has continued to scale up across distribution distances across the country, selling cheaper at areas close to supply reception points and selling costlier at places remote from supply sources.

Price of the domestic gas product is deregulated in the market place, and marketers with niche advantage in remote markets take mark up prices to cover logistics and sundry costs as they deploy transport and storage facilities to make the product available.

Mr Nuhu’s explanations came in response to a spate of public outcry over the spike in the retail prices of cooking gas in the country despite promises by the NLPGA that the group would strive to make the product available, accessible and affordable in the context of global movement for low carbon energy.

He had in several industry debate forums pledged that NLPGA would displace dirty fuels from Nigerian homes and save women from health hazards associated with fumes from biomass, fuels oils and coal.

Despite the pledges by the players in the domestic LPG marketers, the market was jolted in August when the retail prices for cooking gas rocketed from N450 per kilogram to over N600, forcing some families to dust their kerosene stoves and others returning to the traditional firewood for cooking fuel.

Former Managing Director of NLNG, Mr Tony Attah, had said at industry conferences last years that over 100 Nigerian women and girls die annually from health hazards associated with fumes from dirty cooking fuels.

Dirty fuels are usually liquid hydrocarbon like kerosene or diesel and biomass like firewood used by women in cooking in homes in the rural country homes. Mr Attah lamented that the female household members in rural sub-Saharan Africa staked their lives in making meals for the families. The female folk also play dominant roles in small enterprises like restaurants and fast food centers across the continent.

Both government agencies and industry players agree that high cost of cooking gas remains a critical hurdle in the movement to phase out dirty fuels from homes and businesses, and efforts at resolving the problem have focused on making cleaner gas fuel options accessible and affordable. Accessibility is mostly a function of affordability in most instances.

Our survey of cooking gas prices showed over 100 percent increase since December 2020 with some marketers blaming the increase on the Federal Inland Revenue Service (FIRS) which they accuse of unleashing the men of Nigerian Customs Service on LPG importers for all manner of fees, taxes and levies.

A source at the marketing department of 11 Plc stated that the FIRS agents were imposing levies that logically transfers to retail stations for recovery, adding that some of the payments are additional to increase in the normal Value Added Tax which, according to him, has also risen from normal 5.0 percent to 7.5 percent.

Another source at a marketing company told our correspondent that all LPG importers in the country are trapped in the price increase with the customs and the FIRS laying siege on marketers whose products arrive the nation’s quays for import processing and goods clearance.

He said that falling value of the Naira in the parallel foreign exchange market has also worsened the bad situation with more Naira demand for import dollar. He said marketers now pay more to get the adequate volume of dollars with which to transact procurement, charter import vessels, pay associated charges and defray charges at transit and destination ports.

He made it clear that a combination of rising VAT and costlier procurement of foreign exchange has built cost premium on domestic price of cooking gas, pointing out that over 60 percent of all cooking gas used in the country is imported with hard currency.

President of NLPGA, Mr Yakubu, corroborates that the proportion of imported LPG accounts for much of the cost components that determine retail prices.

He expanded the list of the cost components to include pricing index in the international market, explaining that imported LPG is priced on foreign market indices and traded in United Sates dollars which currently trades, according to our findings, at about N530 in the parallel market on Monday.

Mr Yakubu stated that propane, a specification of LPG, sells faster and at higher prices in the winter period when it is highly needed for heating in the temperate zones of the planet. He pointed out that higher prices in dollar directly translate to higher exchange rate in Nigeria and higher prices of cooking gas at the retail sites.

According to the President of NLPGA, shipping charges also rise at a time of high commodity prices, indicating that importers also pay higher shipping charges and associated costs like insurance, bunkering and port charges as the import cargoes sail home.

He added that shipping and insurance charges are further worsened by country risk assessments due to rising insecurity in the country. He explained that shippers and insurers place premium on Nigeria’s prevailing insecurity status and hike charges on vessels with Nigerian destination.

Mr Yakubu also pointed at myriad of extortions by known and unknown entities at the nation’s quays as critical cost builder, saying that all manners of extortions on LPG truck out from terminals directly transfer to retail prices.

Mr Nuhu Yakubu however stated that significant volume of supply from the NLNG maintained strong pull on domestic prices in the mist of external spurs. He said that NLNG staved off over 35 percent of additional increase in prices in the domestic market.

According to him, NLNG has become the beacon of domestic supply, accounting for 35 percent of the estimated 1.2 million tons of daily peak LPG demand in the country.

“Outside the NLNG, there is nothing much coming from the refineries. Very little comes from combination of Nigerian Petroleum Development Company’s (NPDC’S) plant at Oredo; Greenville; Kwalle Hyrdrocarbon; and some small processing plants in the country.”

The NLPGA President expressed gratitude for the intervention of NLNG in the domestic supply of LPG, saying that the price situation would have been far worse if the Africa’s biggest liquefaction company has not evolved domestic supply strategies.

In a virtual presentation to media representatives on the state of the downstream petroleum industry earlier in the year, the Managing Director of Rainoil Limited, Dr Gabriel Ogbechie, had decried continued importation of cooking gas to meet greater part of Nigeria’s domestic requirement, describing it as an unacceptable paradox for a nation that has massive local capacity to meet local and export supply orders.

He faulted prioritization of export revenues from liquefied petroleum gas (LPG) produced locally by the NLNG Limited over satisfaction of local demand which he estimated to have crossed the 1.0 million tons per annum mark.

He said only over 30 percent of the total domestic demand for LPG is met by the NLNG which has production capacity for over 5.0 million tons per annum (mpta) of LPG.

The Oracle Today reports that the traditional supply sources for LPG in the country are the nation’s three refining companies managed by the Nigerian National Petroleum Corporation (NNPC). The refineries are currently moribund and about to undergo overdue rehabilitation.

The NLNG is an export focused venture which currently intervened in domestic LPG supply with about 350,000 tons per annum. Government, through the NNPC, holds overriding 49 percent non-operating interest in the company.

The NLNG plants are built on the coast of Bonny Island which currently has no road or rail link with the mainland Rivers State for transshipment of products from NLNG.

Thus, LPG supply from the NLNG is still fraught with logistics bottlenecks that require only players with marine equipment to take products directly from the company’s facilities.

Outgoing Managing Director of NLNG, Mr Tony Attah, declared at a recent industry conference that the company’s board has approved to increase LPG allocation to the domestic market to 450,000 tons per annum in view of government’s gas expansion programme and deeper penetration of the product among households.

We report that the NLNG produces high quality natural gas liquids or NGLs comprising LPG consisting propane and butane and Condensates as by-products of the natural gas liquefaction process.

With six functioning liquefaction trains, the company holds a nameplate production of 5.0 million tons of NGLs per annum.

“Both products are sold for export on a Free on Board (FOB) basis to pre-qualified companies, including affiliates of NLNG’s shareholders. A significant portion, mainly butane, is also sold within Nigeria as domestic LPG under NLNG’s Domestic Energy Initiative aimed at making clean and affordable energy available,” the company states in its corporate information.

For over 10 years, NLNG Domestic LPG (DLPG) Scheme has helped reduce the use of dirty fuel sources for cooking. It has also stimulated growth in the industry by guaranteeing LPG supply, availability, affordability and enabling the development of a value network for a sustainable ecosystem towards a better Nigeria. 

Between 2007 and 2018, NLNG cumulatively supplied over 1.452 million tons of LPG to the domestic market, spurring a steady rise in annual domestic consumption in a market that was below 50,000 tons per annum in 2007 to over 600,000 tons per annum in 2018.

To ensure steady supply of products, deliveries are made through NLNG’s dedicated vessel chartered for the DLPG Scheme which yielded some further dividends with the commencement of deliveries to Stockgap Terminal in Port Harcourt, as part of deliberate moves to encourage growth of the sector beyond Lagos and reduce the impact of congestion of the Lagos ports on deliveries into the market.

In continuous demonstration of its commitment to its vision of “helping to build a better Nigeria,” NLNG has committed to delivering 450,000 tons of DLPG annually to the domestic market through Nigerian companies with whom it has signed Sales and Purchase Agreements (SPAs).

The number of these off-takers has increased from just six at the inception of the DLPG Scheme in 2007 to 33 in 2018. There are other smaller gas processing plants operated by companies pushing virtual gas supplies in the country with products like compressed natural gas (CNG), LPG, and LNG.