Declining local LPG production drives price of cooking gas upward

By Emmanuel Marculay

Failure of government and operators in the Nigeria’s oil and gas industry to harness the country’s acclaimed huge potential and proven gas reserves is currently affecting consumers negatively, as the price of the product keeps rising in recent times.

Available reports indicate that the country’s production of Liquefied Natural Gas  (LNG), commonly known as cooking gas remains dismal. An analysis of LPG’s production within the past 5 years (between 2015 and 2020), shows that not much improvement has been made.

According to the National Bureau of Statistics (NBS), the country’s annual LPG production figures which averaged at about 36,500 million scm (standard cubic metre), remains static, or at best recording a marginal increase between 2015 and 2020.

Worst still, the NBS has projected further decline of 11.63 percent by the end of 2021. The agency adduced past neglect and underdevelopment of the subsector as being responsible.

Reviewing it’s contribution to the nation’s gross domestic product (GDP), NBS said, Natural gas, which tabulated under the Mining & Quarrying Sector which consists of crude petroleum, natural gas, coal, metal ore and other minerals, recorded a nominal decline of about 16.02 percent in terms of its contribution to the GDP year on year, in the 2nd quarter of 2020.

Meanwhile, the latest report by Petroleum Products Pricing Regulatory Agency (PPPRA) shows that the country now depends largely on importation to meet domestic demand for the product.

According to the PPPRA, the total volume of cooking gas supplied to the Nigerian market in the month of August stood at 85,264.803 Metric Tonnes (MT). Out of that amount only 38,040.457mt was produced locally.

The report which was signed by the Executive Secretary, PPPRA, Abdulkadir Saidu, gave details of the volume imported and their destination thus: 21,606.301mt from the USA, 13,044.266 from Algeria and 12,573.779mt brought into the country from Equatorial Guinea.

Unfortunately, the continued dwindling of local production capacity is taking it’s toll on the price of the commodity.

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.

However, players in the LPG value chain have expressed worries over the rising price of the commodity.

The Nigeria Association of Liquidified Petroleum Gas Marketers (NALPGAM), in a statement attributed the continuous spike in the price of cooking gas to a number of factors.

The association has warned that the cost of a 12.5kg cylinder of gas may rise to N10,000 before the year ends.

The Association’s 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 percent, 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.

Similarly, the new chairman of Major Oil Marketers Association of Nigeria, MOMAN, Mr Olumide Adeosun, has called for the discontinued imposition of Value Added Tax on imported Liquefied Petroleum Gas, insisting it would hamper the adoption of the fuel in the country.

While commenting on the hike of cooking gas price in the country, he said, “Unfortunately, we still don’t produce sufficient domestic LPG; so we are having to do a lot of imports and we are seeing a spike globally in the price of LPG.

“Domestically, what can we do? I think there have been discussions around the VAT that has been levied on the product.

“I think one of the big discussions that is going on right now is how that can be eliminated because the tax naturally creates a barrier to the objectives of the ‘Decade of Gas’, which is to increase the penetration and adoption of LPG, among other things, as an alternative to biomass. So, we are hoping that there will be some headway being made in that direction”, he said.