Government should Encourage LPG Usage — Auwalu Ilu

Auwalu Ahmed Ilu is the CEO of a fully integrated LPG supply chain company, Ultimate Gas. It is involved in the offtake transportation, bottling and distribution of the LPG and natural gas liquid. An experienced businessman, with interests in energy, maritime and logistics, Ilu is blessed with over two decades’ experience in the LPG business. Ilu, at one time, had served as the President of Nigerian Association of LPG Marketers (NALPGAM), and he also served as a Presidential member of the LPG Steering Committee between 2004 2007.

In this interview with TEDDY NWANUNOBI, the former President of the Nigeria LP Gas Association (from 2009 to 2013) said that LPG is cheaper from outside Nigeria, explained why many Nigerians are yet to embrace the use of domestic gas, and suggested what the government should do to encourage gas utilisation in the country. Excerpts:

On the challenges in the sector:

You know, Nigeria is richly endowed with LPG, and unfortunately, we are not making very good use of it, until very recently. Even though I must acknowledge that the challenges (have) come over the years, the product availability has increased. The demand has increased. If you look at it, in the last 10 to 15 years, we have grown the consumption level to almost 1.2 million tons per annum, which is quite remarkable. But going by our population, and the fact that Nigeria is a gas (producing country), we are still not doing very well. We have the potential of growing the market up to 5 million tons per annum, because the product is available, and the population is there. But we are making progress, and I believe that we will continue to make progress.

On accessing Nigeria’s gas sector:

Well, like you rightly know, a lot of (priorities have) not been put into the gas sector – one, because the PMS (premium motor spirit) market has been heavily subsidised. Until about two years ago, the petroleum was heavily subsidised, while gas was being deregulated. So, there was no way you can promote gas when you are subsidising one product, mostly PMS, and kerosene. And then, not only you deregulated LPG, you are charging VAT (value added tax) on it, and to some extent, import duty. But from 2007, the Federal Government removed import duty on LPG, and also value added tax, and then, somehow, along the line, it was reintroduced until two years ago, when this administration removed completely the value added tax on domestic LPG. It was removed on importation, but it was added on domestic gas. But I am happy to say that now the government (has) realised, and is giving a lot of priority to the sector.

Now, the government is pursuing the Nigeria gas commercialisation programme, so as to stop the gas player, which has gone in advance stage, and there are a lot of local companies that are processing gas within onshore which also adds to the volume of gas that is available in the market, and very recently, the marginal fields were also given out, which will also produce a lot of gas, which, I believe, will also add to the gas processing facility that will be available, and as you are rightly aware, the government is trying  to see how they can promote the consumption of LNG (liquefied natural gas) locally and the expansion of CNG under the Natural Gas Expansion Programme (NGEP).

Recently, the Nigerian LNG has set aside some volumes out of their own facility that they will use to deliver to the domestic market, just like they are doing with the LPG. That will also help to boost the local market, and also the AKK (Gas Pipeline) project that is taking the natural gas pipeline from Ajaokuta to Kaduna to Kano has also taken off. So, that will also help Nigeria to utilise its gas resources.

On the underutilisation of the gas sector:

There was no fiscal regime, in terms of incentives, in terms of cost, in terms of – even pricing that will make it very competitive, and like you rightly know, you could use this for auto gas. But in a situation whereby the government is heavily subsidising the petroleum, which is used for auto gas, which we consume energy – about 50 million litres a day, when you could have even used either the CNG (compressed natural gas), or LNG for the auto gas industry. And there is no way you can compete with a regulated product, when the other product is deregulated. These are some of the challenges that are not allowing the market to grow.

If you look at it from the naira and kobo point of view, it is not very encouraging, and particularly the amount of capital that is required to deploy to switch over to introduce all these gasification projects around the country is not going to be an easy task. But I believe now, the government, together with the stakeholders, are looking at how to overcome some of these challenges, and it’s been addressed, and I believe that in the next couple of years, Nigeria will be able to optimally utilise its gas resources.

On the Decade of Gas:

I think the most important thing is that they are talking about it, and to be honest, there are lots of policies in place. There are lots of incentives. In fact, if you are importing equipment for a gas process facility, you are exempted from paying some tax, you get some rebates under the added system, and that has helped. I also benefited from that, and it is encouraging a lot of people to do so. At least, now, we are talking about it – and a lot of policy framework and fiscal regime are being put in place. And of recent, the passage of the PIB (Petroleum Industry Bill), which will address the issue of the regulator, the kind of power they will have, and that will also fasten the process of attaining the desired goal.

I see, really priority now is (investing) on gas, rather than on oil. Unfortunately, it came too late, because it came at the time when the economy is really in bad shape, when the global financial system is affected, but never late than never. I believe we will be able to achieve our goals.

On the Year of Gas:

To an extent, we made a remarkable improvement. If you look at 2019, I’m talking about LPG in particular, our consumption was almost like 800 to 900 thousand metric tons, while last year, we were able to reach 1.2 million, and we are hoping that by the end of this year, we will be able to reach about 2.5, 2.6 million tons per annum. There are a lot of investments in the pipeline. So many receiving terminals (have) come on board. A lot of people have invested. We have over almost – how many thousands of SPG filling plants. I can’t even mention the numbers, because they keep on increasing by the day. So, yes, the target has been set, and all the stakeholders, particularly the government are also working hard on it through various programme initiatives and incentives.

On catching-up with the world:

For now, the focus has changed, unlike before. If you look at Nigerian LNG Brass, it was all targeted towards export. But I think the emphasis is on domestic utilisation, which is, at least, the change that we are experiencing. Most of these programmes, most of these incentives are really towards utilising these resources, and there is a huge potential. If you look at the Greenville project that is very successful now, most of the LNG that is being processed there is being delivered to Nigerian customers. As I mentioned earlier, the Nigerian LNG has dedicated some volumes to develop the domestic market. And there are so many other plans in the pipelines. The focus now is now exporting the product, but to be able to utilise it – whether in the forms of CNG, LNG, or LPG.

On why many Nigerians are yet to embrace domestic gas:

For a very long time, it has always been a perception. But with time, people are changing that perception, particularly at a local level. One because of the economic consideration. As at today, LPG is cheaper than firewood, and kerosene is not there for you to buy. So, you don’t have any other alternative – it’s either firewood or gas. And if you look at the cost implication, it’s cheaper. For economic reasons, people are forced to switch over to LPG. Neighbours are seeing it. Mrs. A or Mrs. B has been using it for over a year, and I’ve not seen any fire incident in their houses. So, their neighbours will also adopt LPG as a means of domestic energy. So, definitely, the perception that gas us dangerous is being addressed. Even though, of recent, there have been a lot of cases of gas explosions and accidental situations. If you look at the percentage, it’s changing, most especially at the local level.

On its affordability:

It’s still cheaper, compared to when you use it for a month. How (much) firewood are you going to use in a month? Even though people see it as expensive, it’s cheaper than firewood.

On the high cost of domestic gas:

There are a lot of challenges why the price of gas has remained very high. One, it has to do with the rate of dollar exchange. Two, even though we produce in Nigeria, the logistics to bring it to the domestic market, sometimes, is even more expensive when bringing it from outside the country. As I speak to you now, only about 40 per cent of domestic LPG that is consumed in Nigeria comes from the domestic sector, about 60 per cent is being imported. Logistically, it’s easier and cheaper to bring LPG from outside the country than to take it from Bonny to Lagos, because of the mix match between the loading terminals, the programme they have in the loading terminals, and the receiving facilities, because when those projects were designed, they were designed purely for export. They are designed to accommodate big, large vessels that will take like 45000, 46000, 50000 metric tons, whereas, their receiving facility in the country does not take more than 10 (tons). In fact, some locations like Warri, you can’t go with a 10 toner vessel, unless, maybe it’s half empty, because of dragged constraints and other logistics uses. So, those issues are being worked out, and are also being addressed. We are yet to even utilise most of the LPG. Nigeria NLG export LPG. ExxonMobil, Chevron export LPG outside the country, because the logistics of bringing it from escarvos to Lagos, or to any other location will make (it) very uneconomical, and until those issues are addressed, and until those challenges (have) been sorted out, you have to continue to import to be able to supplement (the product) in the market.

On the small number of Nigerians using LPG:

The market is growing. In 2007, it was 50,000 metric tons. As you address one problem, another one arises. In 2007, the major issue was supply. That is when the Nigerian LNG came in, and said, “Okay, we can guarantee you supply”. But if you look at 2007 to 2021, we have reached 1.2 million (metric) tons, which is a remarkable gross. But if you look at our population, the fact that we are a gas-producing country, then we are not anywhere near where we should be.

On the way forward:

To be honest, this is market-driven. Apart from the government policies. In fact, sometimes, even the government discourages people from using LPG. In 1998, it was deregulated. Import duty was put on LPG. It’s like the government was discouraging the use of LPG. They made it very expensive. Still, as I speak today, the Federal Government is subsidising petrol. So, your auto gas will never develop. In fact, from what I’m hearing, they are even trying to introduce VAT on imported LPG, which is also going to add to the cost. So, a lot of these multiple challenges, which are hindering the accelerated gross of the consumption. Having said that, the market is still growing, year-in-year-out. It has never been the same. Every year is better than the previous one.

On the nation’s multiple gas programmes:

For the first time, the government is talking. Government is even dedicating the 2021 (to 2030) as the Decade of Gas. All these multiple programmes, being initiated by the Federal Government, all the stakeholders, are quite remarkable achievements, and the focus now is on gas, and not only on gas, but also on domesticating our gas resources, which is a priority that the government is putting in place.

Government should keep on with the good work. They should encourage and keep looking at the fiscal regime. I believe that the passage of the PIB, and even though there are a lot of issues in it, you know, we need to look at these issues, and address them so as to unbundle our gas resource sector.

All the government needs to do is nothing but the incentives and the fiscal regime that will encourage people to be able to grow their businesses, which, I think, is being done.