As FG Interventions Crash, Cooking Gas Prices Skyrocket
By Ese Ufuoma
A major supply crisis is rattling the domestic Liquefied Petroleum Gas (LPG) sector as the price of LPG commonly known as cooking gas continue to rise astronomically and uncontrollably in the country.
This situation is happening despite all the measures recently implemented by the federal government to crash the price of the product. The government had in November last year announced the withdrawal of Value-Added Tax (VAT) and customs duty on the importation of LPG and its associated equipment. The aim of this policy action was to bring down the cost of cooking gas across the country, thereby ameliorating the hardship faced by Nigerians in accessing LPG.
The decision to withdraw VAT on LPG was conveyed by the Ministry of Finance in a letter dated November 28, 2023 and signed by the Minister of Finance and Coordinating Minister of the Economy Mr. Wale Edun. The letter which was addressed to several officials including the Special Adviser to the President on Energy, the Comptroller-General of the Nigeria Customs Service (NCS), and the Chairman of the Federal Inland Revenue Service (FIRS), partly stated that the decision was in line with President Bola Tinubu’s commitment to improving the investment climate in Nigeria, increasing the supply of LPG to meet local demand, reducing market prices and promoting clean cooking practices.
“Consequently, the importation of LPG shall incur a 0% duty rate and 0% VAT rate, effective immediately,” the letter read.
According to the Ministry, other items exempted from VAT and duty payment are LPG cylinders, LPG cascades, gas leak detectors, steel pipes, steel valves and fittings, LPG dispensers, gas generators, and LPG trucks, among others.
In similar manner, interventions by the Nigeria Liquefied Natural Gas (NLNG) company, which supplies around 40% of the domestic LPG consumption, as well as contributions by other players in the domestic LPG space to increase supply to the Nigerian market, have also recently been made to crash the price.
However, all these efforts have not prevented the cost of LPG to continue to skyrocket since the second half of 2023.
A market survey by Valuechain across major LPG gas filling outlets in Abuja, Lagos, Ibadan and Kano showed that the cost of cooking gas currently hovers around N1,000 and N1,300 per kilogramme (depending on the state and retail outlet) across the country and there are fears that the price may rise further.
President of the Nigerian Association of Petroleum and Gas Marketers, Dapo Olatunbosun had warned recently that the price of a 12.5kg cylinder of cooking gas could hit N18, 000 if the government did not wade into continuous price hikes.
Why LPG price continues to soar
Although Nigeria has domestic LPG consumption capacity of 3 million tons LPG per annum, consumption hovers between 1.2 million and 1.4 million tons. Of this number, the Nigerian Liquefied Natural Gas Limited (NLNG) supplies 40 per cent while 60 per cent is imported. The implication is that most parts of the LPG consumed in Nigeria is imported. While Nigeria consumed 1.4 million tonnes of LPG last year, according to the Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), 800 million tonnes or 57 per cent of the consumption volume was imported.
The local producers are Nigeria LNG with 350 tonnes. Kwale Hydrocarbon Nigeria Limited, KHNL, a subsidiary of Sterling Oil Exploration & Energy Production Co. Ltd produced 150,000 tonnes. The rest came from NNPC E& P Ltd (Intermittent production from the Oredo field integrated gas plant), Platform Petroleum and others. Nigeria’s heavy reliance on imports to meet more than half of its domestic LPG consumption has worsened the adversities faced by industry operators.
Consequently, one major factor that has been attributed for the rising LPG cost is exchange rate of the naira to the dollar. This has been the biggest impact on prices , which have not gone away. It was N1, 200 to $1, then N1, 300:$1, and continues to rise even up to N1, 600:$1. The forex hit also squeezed imports. Domestic LPG prices are very sensitive to supply and Forex dynamics. The consequence of the naira exchange rate weakening is that it is hard to contemplate importing enough products as prices will then go up.
Gas supply to the domestic market (by implication LPG production) continues to be heavily compromised by numerous upstream factors, the single biggest one of which is crude oil theft. And as a result of the disruption that this has created, the capacity utilisation of NLNG, the major domestic supplier of LPG, is negatively impacted.
Providing additional context to the reason for the surge in the price of domestic LPG, the NLNG Limited had last November in a statement said that the domestic LPG market, like any other, is subject to dynamic market forces and various external factors. Such factors as changes in exchange rates, escalating price benchmarks mirroring crude oil prices, and the Panama Canal drought-induced vessel scarcity impacting transport costs especially for imported LPG, have had significant effect on energy prices in the recent times and could undoubtedly be some of the reasons for recent price hikes witnessed in the domestic market.
The NLNG currently delivers over 450,000 metric tonnes per annum of Butane, the main product in cooking gas using its dedicated LPG vessel. The company has committed its entire Butane and Propane production to the domestic market from 2023 and despite feed gas challenges, continues to supply LPG to the domestic market, accounting for approximately 40% of the total market volume.
The company said it remained committed to delivering domestic LPG through Lagos and was making efforts to reach terminals in Warri and Calabar as soon as the challenges limiting safe delivery of volumes to these locations are cleared.
Speaking against the backdrop of the persistent rise in the prices of LPG despite the supplies by the NLNG and the production of the commodity at different manufacturing plants in the country, the Executive Secretary of the National Association of Liquefied Petroleum Gas Marketers (NALPGAM), Mr. Bassey Essien, said in a recent interview that one of the major issues in the LPG supply system was a trend where some off-takers have allocations with the NLNG, but with no offtake facilities.
He revealed that the so-called operators would receive the supplies from the company and then turn around to sell it at a double offtake price to some marketers on standby.
“That shouldn’t be. If you ask NLNG why their product is so high at the market, they will tell you they don’t determine the price in the market, that they only sell to their off-takers. And I keep asking, why won’t they know how much the products they supply to people are being sold in the market.
“Why will LPG from NLNG be higher than the one imported? Is it not locally produced? They said they have committed 100 per cent of their LPG production to the local market, but we can’t feel it in terms of the prices. And the thing is, some companies, who don’t have offtake facilities will go and collect allocation from NLNG and then sell it at higher prices, and this is affecting the market”, Essien lamented.
Valuechain sampled other expert opinions and they unanimously decried the impact of LPG distribution infrastructure deficit on the price and the high cost of diesel for powering trucks. According to them, the government should remove some of the many layers on top of the LPG price that have nothing to do with the product, noting that while the FX challenge was a national issue, efforts should be directed towards stopping those little rent-seeking fees.
Ekperikpe Ekpo, Minister of State for Petroleum Resources (Gas), speaking at a stakeholders’ consultative meeting in Abuja recently said the government will prioritise the domestication and penetration of LPG towards ensuring it is accessible, available and affordable for its citizens. He explained that prioritising the domestication and penetration of LPG is one of the three priority areas of President Tinubu’s Renewed Hope Agenda.
“We will intensify efforts to increase upstream gas production, to bridge the significant gas supply gaps which continue to hamper our strategic economic sectors (gas to power and gas-based industries, as well as gas for export).
Implications of soaring prices
The prevailing high cost of cooking gas threatens to derail the federal government’s effort towards LPG adoption and the ‘Decade of Gas’ initiative which seeks to ramp up gas penetration nationwide, as rising prices push users to dirtier alternative sources like firewood and charcoal.
Nigeria has one of the largest gas deposits in the world, that is over 206 trillion cubic feet, but has been unable to effectively harness it. The country is pushing for the majority of its population to adopt LPG as the major source of cooking to meet clean cooking targets under the global energy transition.
In 2020, the federal government instituted a rollout of objectives under the National Gas Expansion Programme (NGEP) targeted at the use of liquefied natural gas for cooking, compressed natural gas for automobile fuels as well as the use of liquefied petroleum gas for small industrial complexes.
