Experts have revealed that the partial removal of fuel subsidy in Nigeria has weakened the incentive for the switch from traditional fuel (petrol and diesel) to Compressed Natural Gas (CNG) in commercial volume.
This was the keynote remark made by panelists and participants during the panel session on LPG & CNG Market Trends and Update at the just concluded Oil Trading Logistics (OTL) Africa Downstream Energy week, in Lagos.
The interest of Nigerians in alternative fuel options has significantly dropped due to the reintroduction of intervention in the form of subsidy on the price of petrol, which according to them has weakened the interest initially shown by investors following the removal of the fuel subsidy in June 2023.
They stated that major industry players are not willing to take the risks involved in investing in gas pipeline infrastructure, dedicated terminals, and CNG gas stations, because of weak and inconsistent government policies that does not guarantee significant return on investment.
They therefore suggested that the current level of public awareness campaigns to support the adoption of compressed natural gas (CNG) as a vehicle fuel in Nigeria needed to be upscaled, with full deregulation of the downstream sector.
Engr. Felix Ekundayo, President of the Nigeria Liquefied Petroleum Gas Association (NLPGA), has called for more attention to be given to autogas, which he described as the lowest-hanging fruit in Nigeria.
Speaking during his presentation at the panel session, he noted that the commercial growth of Compressed Natural Gas (CNG) in Nigeria is quite insignificant compared to the market for Liquified Petroleum Gas (LPG), which has recorded an annual production growth rate from 60,000 tonnes to between 1.8 and 2 million tonnes expectation in the last few years.
Ekundayo observed that despite the significant growth in domestic consumption of gas in Nigeria, the country’s 1.3 million tonnes per annum is very low compared with 300 million tonnes global demand for LPG.
He emphasized that Nigeria, being one of the top ten in terms of natural gas reserves of 206 standard trillion cubic feet of gas, is quite insignificant in terms of production with 1.3 million tonnes.
The NLPGA President called for a change in the country’s narrative from an import-dependent nation to a major gas producing nation. He added that this change would help Nigeria take its place in the global markets by increasing production volume to match demand.
He emphasized that there are no incentives for conversion, adding that the cost of conversion is high, and the market for petrol is still not fully deregulated.
He called for various initiatives and policy frameworks that would improve significant conversion of vehicles to CNG fuel, influenced by research and development and curiosity of some Nigerians.
Ekundayo disclosed that most of Nigeria’s gas comes from the gas processing plants, and very little comes out of the refineries, particularly the LPG (propane) imported into the country from the refinery in Niger Republic.
He noted that in order to grow the gas market, Nigeria needs to take its place by looking at the demand side, which has a lot of potential to unlock investment in production.
According to him, despite significant improvement in the domestic consumption of LPG, the autogas does not feature in the market dynamics.
Engr. Ekundayo also revealed that there has been an increase in local supply of LPG due to additional supply from the NLNG and other producers.
He however stated that the demand for LPG has grown significantly and observed that Nigeria is not producing enough gas to meet domestic consumption.
The President of NLPGA further emphasized the need for more investment in gas processing plants to sustain supply and address the growing demand. He called for aggressive investment in local refineries to boost supply of the products.
According to Engr. Ekundayo, the Forex exchange has a significant influence on gas importation in Nigeria. According to him, the government needs to implement policies that will boost foreign reserves and maintain exchange-rate stability.
He said, “The optimal approach for the government would be to adopt a diversified strategy for Autogas implementation.
“LPG infrastructure is already well-established across Nigeria, with remarkable growth observed from 60,000 MT in 2007 to an impressive 1,500,000 MT today,” the NLPGA President noted.
Jeremy Parker, Head of Business Development at CITAC, during his presentation on the theme expressed concern over Nigeria’s struggle to come out of the PMS subsidy, stating that it is a setback to the rapid adoption of Compressed Natural Gas (CNG) and the poor commercial outlook of the commodity.
According to Parker, Nigeria’s per capita consumption of Liquefied Petroleum Gas (LPG) is estimated at 5kg per capita, compared to about 44 kg per capita in Morocco in 2022.
“CITAC found out that once people start using LPG for their cooking and other uses, they do not want to go back to using biomass. But noted that at the moment most people in sub-Saharan Africa are still using biomass which makes up 78 percent of the primary energy mix in Nigeria.
“The development of other petroleum products in the country is still very limited, at 78 percent,” the CITAC Head of Business Development said.
With Nigeria’s growing population, Parker sees an opportunity for the government and private sector to invest in meeting the country’s energy demand.
However, he noted that the production and processing of gas in Nigeria is limited, leading to a high demand for imported products.
To address this, Parker called for targeted investment in more terminals, depots, and increased trucks to lift the products, which he described as the first action point.
He further emphasized that Nigeria’s population growth is increasing rapidly with rapid urbanization across the country, which calls for massive investment in energy resources to mitigate against global warming and environmental crisis.
As Nigeria continues to grapple with energy challenges, Parker highlighted the need for urgent actions to be taken to address the country’s energy demands and reduce its reliance on imported products.
He said, “Natural gas is a key solution to meeting the fundamental energy demand in Africa. Electricity growth has not kept growth with demand pushed by growing population in build up towards 2030 and 2060.
The CITAC Head of Business Development therefore noted that LNG, CNG and LPG are premium petroleum products that require a lot of investment, hence the need for the right policy framework and incentives to unlock the potential in Nigeria.
Adetunji Oyebanji, Managing Director of 11PLC (formerly MobilOil), in his intervention during the panel session called for the exploitation of natural gas reserves spread across Nigeria instead of associated gas.
He stated that this measure would help the country to produce and process more gases locally, reducing the need for gas importation.
Oyebanji further stated that Nigeria has a lot of gas reserves in abandoned gas wells, adding that more attention should be placed on the upstream to provide commodity for the midstream and downstream.
He further charged the Nigerian Government to incentivize exploration for gas purposes, targeting gas molecules from gas fields rather than just associated gas from crude oil exploration.
He said, “By doing so, the country can reduce its dependence on associated gas that comes out of crude oil-produced fields, which would help reduce the shortage of commodities and unlock investment in CNG, LNG, and other forms of gas for various uses within the country.
Oyebanji who doubles as the Board Chairman OTLAfrica also added that Nigeria will also reduce its dependence on gas importation and unlock investment in various forms of gas for local usage. He stated that it would help to close the gap in petroleum product distribution and reduce the shortage of commodities.
Jean Sebastien Gerard, LPG Business Development at Vitol, during his presentation at the panel session, suggested that the complete removal of subsidy on petrol in Nigeria could lead to a significant reduction in gasoline consumption and create a market for alternative fuels such as CNG and LPG in Nigeria.
According to Gerard, the growth and penetration of CNG in Nigeria are not the same for white products that have a commercial value for investors.