The retail price of Liquefied Petroleum Gas (Cooking gas) in Nigeria is set to increase significantly as Liquified Natural Gas (LNG) vessels become scarce, leading to charter rate hikes, ahead of the 2023 winter when demand for the heating fuel peaks, this is according to data from Spark Commodities.
EnergyDay gathered that as of August 1, 2023, charter rates surged to $284,750 per day for November and $206,750/day for October, more than doubling from current levels of $ 70,500 / day.
Earlier in March 2023, Spark Commodities assessed the roundtrip cost of moving an April cargo from the United States to Europe at $49,500/day.
Meanwhile, the Nigerian LPG prices are internationally benchmarked based on the Nigerian Liquefied Natural Gas Contract Price (NLNG CP) which is always influenced by international prices.
Like every other globally traded commodity that is subjected to price fluctuations due to market dynamics, EnergyDay Intelligent showed that the NLNG CP changes on a monthly basis, forcing price reviews to at least once to three times per month.
Further check showed that the price of LPG at the retail level dropped from price average of N730 per kilogram in June to around N600/kg in July 2023, and increased to N750/kg in August due to the international reference price in USD/Naira exchange rate.
As of June 2023, the price of the commodity dropped by 76.1 percent to 2.10 per one million British Thermal Units (BTU) on May 31 from 8.78 per one million BTU, according to U.S. Energy Information Administration.
According to a recent report by Bloomberg, LNG traders are poised to shell out more than $200,000 a day to ship liquefied natural gas in the coming months as tankers grow scarce ahead of winter when demand for the heating fuel peaks.
The report, which also referenced data from Spark Commodities, showing that vessels charter rates surged to $284,750 for November and $206,750 for October, more than doubling from current levels, emphasised that if those prices hold, they risk repeating last year’s rally when the global LNG market was rushing to replace Russian supply after the invasion of Ukraine.
Bloomberg said, “Tanker supplies are increasingly tight because traders are using the ships as floating storage in a bet that LNG prices will rise as the weather turns colder.
“Volatile shipping rates can eat up margin for an LNG trader looking to cash in on higher winter prices, and rising transportation costs ultimately can mean higher prices for buyers in Europe and Asia.”
The number of LNG vessels floating on the water for at least 20 days also has risen in late July, with 42 vessels tracked by Bloomberg, which is about 27% higher than the same time a year earlier.
Richard Pratt, an LNG shipping consultant, told Bloomberg, “I certainly see ships being held onto. The higher incidence of floating storage should continue “through August and September barring any supply disruption.”
EnergyDay, however, gathered that since the international price for LPG is priced in US dollars, the Nigerian Naira exchange rate which was N770/$(official) and N885/$(black market) on Monday, August 6, will also affect the domestic price of LPG.
The Nigerian LPG usually sells the cooking gas it produces locally to off-takers based on the exchange rate.
Based on the analysis, with the exchange -the rate of the Naira to Dollar at N770 to $1, the price of a 20tonne Truck of LPG is expected to be sold at N14,184,210.53.
EnergyDay’s further check showed that the prices of 20 metric tonnes of LPG at the major depots in Apapa in the last seven days (July 28 – Aug 7, 2023) have been between N11 million and N10.7 million.
The Nigerian LPG industry is growing, but it is hampered by the volatility of the market, shortage of discharge terminals, storage and distribution infrastructure, and inadequate local production.
The Nigeria LNG has been the major supplier of LPG to the country, having devoted all its production to the domestic market. However, rising local demand continues to outstrip supply, necessitating new supply chains to buffer the present arrangement.
While a market survey by EnergyDay revealed that in the last two years, overseas shipments of LPG from Mexico (X tons), China (X tons) and Vietnam (X tons) which are the main destinations of the commodity to Nigeria, have significantly dropped with a market share of less than 40% , even as the Nigeria LNG now becomes the major supplier to the domestic market.
EnergyDay further gathered that household LPG consumption, which increased from just over 400,000MT in 2016 to 1.04 million MT in 2021, declined to around 800,000 MT in 2022 and 2023, based on EnergyDay’s market survey.
Despite a decrease in domestic consumption of LPG in Nigeria to approximately 800,000MT per year, Nigeria has the lowest per capita consumption of cooking gas compared to other African countries, such as Ghana, South Africa, and Morocco.
The per capita consumption of LPG in Nigeria is only 1.1 kilograms, significantly lower than Ghana’s 3.0 kilograms and South Africa’s 5.5 kilograms.