Investigation: LPG rising price hike to persist
The Nigerian Government effort to boost domestic gas penetration is now under threat of rising retail price of the Liquefied Petroleum Gas (LPG) also known as cooking gas.
Investigation by EnergyDay has shown a sharp price increase from N480/kg in June, to N500/kg in July and then N550/kg in August and there are indications that the price of 1kg could go as far as N800 before the end of the year.
Consequently, players in the LPG value chain have expressed worry that 12.5 kilogram of gas could be dispensed for N10,000, if the regulatory decisions and other macro-economic issues are not addressed.
Retailers and marketers have disclosed that the prevailing situation has resulted in general low patronage, because customers have been considering alternative means of cooking.
EnergyDay reporters on Monday, monitored the situation in some parts of the country, including Ogun and Lagos to get first-hand reactions of various people in the value chain of LPG – marketers, wholesalers (gas stations), retailers and end users.
Evidently, since the LPG has assumed the status of a deregulated market, it was established that LPG price varies from place to place as marketers and retail dealers sell at market price and are constrained by Government’s interference.
Our investigation has shown a sharp decline in sales as businesses and households are now opting for alternatives- kerosene, charcoal and electric cooker, and worse still, fire wood, for cooking.
Presently, most of the Gas plants refill 1kg at N500, while retailers are selling to end users at N550 per kg (kilogramme). Retailers themselves presently buy gas from gas plants to restock at prices between N500 and N510.
Further findings have shown that gas plant owners claim to purchase from importers at an average rate of N400 per kg compared with January price of N250/Kg, which is about 60 per cent increase.
In Lagos, when EnergyDay visited Dalevis Gas Station in Ajegunle, Mr Taiwo Mark, Sales Manager, told our reporter that the frequent price fluctuations of LPG have resulted in the drastic drop in sales at the plant.
According to him, Government’s undue interference and policy flip-flop has weakened consumers’ purchasing power as they no longer see them patronise the plant like before.
“Our sales record has shown a drop by almost 45 per cent, thus threatening our sustainability. With the pace of increase in price, 12.5 kg could be refilled for N10,000 before the end of this year, and maybe by then I would have closed this plant,” he said.
The manager at Total Filling Station in Abule-Egba, who would not have his name in print, told EnergyDay that he purchased gas at N422/kg from the depot in Apapa, adding that he has no other choice than to sell at N500/kg, based on operational cost.
“Our price is still better at N500 per kg, compared to prices of other gas stations around who sell between N530 and N550/kg,” he said.
At Petrocam, Elf Bus Stop, along Lekki-Ajah Express Way, the story wasn’t far from what was obtainable in other places. One of the attendants at the gas refilling section of the filling station, said that, as at last week Tuesday, 20 metric tonnes (MT) of cooking gas was sold to them at N8 million. He equally complained of sharp decline in patronage which he attributed to the prevailing price.
“Though the price we get varies based on the quantity of purchase, we got the last 20 MT at N8 million, on Tuesday. There is no guarantee that you would still get it at that rate next week. The prices of LPG change anyhow on a daily basis. It’s quite unpredictable. Recently, we dispense to customers at the rate of N500 per kg.” he said.
At NNPC gas plant in Alausa, the station manager, Akeem Bangboye stated that he often reduces the price to around N480 andN490 per kg, to increase sales.
According to him, “The marketer sold to us at N373 per kg, two weeks ago, compared with N215/kg that we bought for the same volume in July. When we returned to Depot last week, a kilogram was sold at the rate of N424.”
The situation is the same at other stations including Eko Gas,Masha Surulere, Eterna Oil, Ketu Alapere, Emeka Gas Nig ltd, Ijeshatedo, Lagos amongt others visited by our correspondents.
In Ogun, the manager at Mogas LPG Refilling Plant, Igbore, Abeokuta, told our reporter that his plant bought 20MT at N8.2 million, last month.
Similarly, at Oando Filling Station in Owode, AZESOD Gas Plant in Bode Olude and Ecogas LPG Refilling Plant in Adigbe, the price for which gas was gotten directly from marketers was N500/kg.
A retailer who refills gas in Agege/Iyana Ipaja area of Lagos state, told our reporters that low patronage has had adverse effects on their businesses as a result of price fluctuations since the beginning of 2021.
He also said that his profit has not been encouraging as, sometimes, he has had to add his profit to his working capital, in order to be able to restock.
“The current price hike has made my business very difficult, these days. You can’t even predict the price anymore, let alone make enough profit to expand business. Let’s take for instance, you bought from the depot at N100 per kg today. If you were to return there tomorrow, you are most likely to purchase at N300 or even more. So, you can see it is really affecting our business.
And another problem is that the profit you make from the last sales has to be added to your working capital for you to be able to purchase new gas. Is that going to help one grow business? We are not making enough profit.
“Last week, I went to refill gas at the depot, at the rate of N395 per kg whereas, early this year, they did sell it to us at the rate of N210 per kg. Just imagine the difference between January and now. The profit is too low, though I currently sell at N550. Last Saturday, it was sold to me at the rate of N430 per kg. That is why I sell at N550. I have to remove carriage and transport cost, you know.
Yinka Elegbede, another retail dealer at Oniwaya, Agege, said his customers have shrunk in number, and those that still come have reduced the quantity of gas they usually come to get from him due to the frequent price increases.
“My customers are saying that they are fed up of using cooking gas. Just imagine some of my customers that do purchase 6 kg are now purchasing just 2 kg. So, the market is tough, honestly. I bought from the gas plant two weeks ago at N450 per kg and I currently sell at N500. Is N50 profit too much? So, I don’t actually know why they are complaining,” he said.
At Natalia Olaniyan Street in Lekki, Lagos, a restaurant owner, Mrs. Kelechi Orji, said: “You can see it’s firewood I now use. Since gas has now become for ‘big men’ only, I have gone back to using traditional firewood as I have no other better option. I pay nothing to get it, other than send my kids to roam the streets and fetch it. I think I’m better off now.”
Similarly, Mrs Augustina who lives in Kay Farms Estate, Fagba, Lagos, said: “I now judiciously utilize my gas because I know gas is now ‘gold’. The last purchase I made was last week when they sold 12.5kg to me at N…I hope it lasts for the rest of this month because it’s hard to make money. I can’t afford to waste my hard-earned money on gas.”
Another end user, Chioma Okereke in Oshodi, Lagos said: “What is even wrong with this government? What have they done to help we the poor people? Kerosene became costly, and we dumped it for gas. Now, they have come again. Where do they want us to run to in this country? I have stopped buying gas since June. I manage kerosene because it requires less money to purchase a bottle of it, which is sold to us at the rate of N250.”
In a neighbourhood at Shonibare Crescent, Agbado Crossing, Ogun State, Femi Adedayo explained that he now refills a 12.5 kg cylinder which he used to purchase at N3,600 as at September, 2020, for N6500.
“The price has continually increased since last year September. Then, I used to buy 12.5 kg for just N3600, but last month, I got the same quantity for N6500. So, the one I refilled last month should last till the end of August because I am now being mindful of how I use it,” he said.
The Nigeria Association of liquified Petroleum Gas Marketers(NALPGAM), in a statement released to EnergyDay, responding to the continuous spike in the price of cooking gas hinted that the despite several engagements and appeals made to the relevant agencies of Government for urgent action to mitigate the cost on marketer , a 12.5kg cylinder of gas may go for N10,000.
The Association through its General Secretary , Mr. Bassey Essien, said, “ It is worrisome that despite the abundance of gas reserve in Nigeria, the cooking gas produced for local consumption is low and can’t meet the 1.2 metric tonnes consumption size.
He said, “ The issue has always been that 35 percent to 45 percent of what is being consumed locally is supplied by the Nigeria Liquified Natural Gas(NLNG) while 65% to 55% is sourced through importation.
“Multiplying this impact is the reintroduction of value added tax (VAT) on importation of the cooking gas. A particular agency of Government just approached the Ministry of Finance and the Federal Inland Revenue to disregard the 2018 gazette for gas importation, because it wants to show that it is performing.
“This would be a major setback for the Federal Government’s ‘Decade of Gas 2020-2030’ vision. What capacity has been put in place to improve on domestic production? Till date, 70 per cent of the local consumption comes from importation. This is like a step forward and two steps backward.
The NALPGAM Secretary stated that effort towards gas expansion initiatives of the government has been stifled by policy and regulatory inconsistencies.
“Another major issue is the foreign exchange being sourced by importer for the importation of the product. While the government and CBN have refused to offer a forex window for importer, the cost of accessing dollar in the local market is then passed on the end users.
“It is also pertinent to note that the locally sourced NLG is denominated in dollars to the marketers. It is sold to them at the international prices despite being produced locally. There is no justification for benchmarking NLG produced locally in dollars.
“One major issue is that while NLNG is doing so much to fill supply for domestic consumption at around 35%, other indigenous gas producers are not selling to the local marketers. We need government policy to mandate local gas producers to sell to local buyers before considering exporting the gas to other countries,” he said.
Bassey therefore warned that if nothing is done to address the shortfall and reduce the burden on the marketers, prices would continue to rise with attendant consequences on the masses who have embraced the use of cooking gas.
Defending the marketers’ complaint on reintroduction of 7.5 percent Value Added Tax(VAT) on imported LPG by the Federal Government, the Department of Petroleum Resources (DPR), stated that the purpose is to pave the way for new investment in upstream exploration and production.
According to DPR , the absence of VAT on imported LPG was a double jeopardy for government. This would address two issues: government would earn more revenue from collection of VAT while also encouraging local investment in the over 600 trillion cubic feet of gas.
An Energy Analyst, Osato Guobadia, Chief Executive Officer , Enej Insights,
in a conversation with EnergyDay stated that the new Petroleum Industry Act will address some of the contentious issues with the domestication of gas vis-as-vis the prices and supply.
According to him, Nigeria is sitting on huge gas reserve, and it is important for most of the marketers and key gas investors to begin to consider how to invest in local production of gas.
“This is an issue that must be addressed and we need to begin to see how fast we can go to incentivize domestic supply of gas instead of depending so much on exportation.
“It does not make much economic sense to continue to depend on importation of gas when we have so much locally.’
He noted that, while there can be gradual shift from importation of LPG, marketers and investors need to redirect their investments focus on long term benefit of country’s proven reserves of gas which is in excess of 206 trillion cubic feet of gas.