Nigeria: Govt LPG Penetration Agenda Faces Challenges as Price Soars
As the push towards energy transition intensifies, gas has become a critical energy resource. Nigeria has an estimated 209 trillion cubic feet (TCF) of proven gas reserves, according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).
Realizing the critical role of gas in this era, Nigerian government has adopted gas as its transition fuel.
In March 2021, former President Muhammadu Buhari, declared 2021-2030 as the Decade of Gas. The initiative is aimed at making Nigeria a gas powered economy by 2030 by deepening domestic utilisation of gas, reducing carbon emissions and addressing issues around poverty in the country.
”Nigeria is gas nation, rich in oil. But the country has focused on oil over the years. This is a paradox that we have decided to confront by declaring the Decade of Gas,” Buhari said at the launch of the initiative.
“The rising global demand for cleaner energy sources has offered Nigeria an opportunity to exploit gas resources for the good of the country. We intend to seize this opportunity,’’ Buhari had noted.
“Global developments have indeed presented us an opportunity. Gas will become the dominate fuel for generating power, not only globally, but in Africa as well. The question now is ‘Can we rise up to the challenge?”
Despite having huge gas reserves, over 70 per cent of households in Nigeria use firewood as a source of cooking energy. According to the International Centre for Energy and Environmental Development (ICEED), this has led to deforestation and is responsible to the death of over 93, 000 Nigerians annually.
One of the key elements of the National Gas policy is centered around developing the Liquefied Petroleum Gas (LPG), also know as cooking gas, sector. As part of its commitment to addressing the problems associated with the use of dirty fuels for cooking, the government removed Value Added Tax (VAT) on LPG few years ago.
This is aimed at accelerating LPG penetration. The government is targeting a 40 percent adoption rate (i.e. 13.8m households) in 5 years, and 73 percent adoption in 10 years (33.3m households).
“We believe that the sub-sector can create up to 2 million new direct and indirect jobs in Nigeria. Our determination to prioritise the LPG sector development culminated in the Federal Executive Council’s approval of the National Gas policy in 2017, with dedicated input for the enhancement of the LPG sub-sector.
Our driving vision has been to transform the sub-sector from a commodity sector based on export to a value creation sector based on domestic utilisation and industrialization,” former Vice President, Prof. Yemi Osinbajo said in 2019.
However, the soaring LPG price in recent weeks is eroding the progress that has been made by the government. The price has risen by 17 per cent, with 12.5kg now selling for N10,250 from N8,500 recorded in August 2023. Also, the price of 1 Kg soared by 11 per cent to N900 from N800 while 3kg rose by 18 per cent to N2,500 from N2,050.
This has forced many LPG consumers in the country to reverse to charcoal, sawdust and other dirty fuels as source of cooking energy. This is understandable, considering that 133 million people in Nigeria, representing 63 percent, are multidimensionally poor, according to the National Bureau of Statistics (NBS) in its 2022 Multidimensional Poverty Index (MPI) Survey, released in November 2022.
Price expected to rise further
The National Association of Liquefied Petroleum Gas Marketers (NALPGAM) is predicting the price of LPG to rise further in the coming weeks.
NALPGAM is predicting 1kg to reach N1,500, representing 43 percent rise, if something drastic is not done by the government to stabilize the domestic market.
The association believes that the rising cost of LPG can be curtailed if major marketers and off-takers can build more storage facilities.
NALPGAM is appealing to the government to give more incentives to investors in the sector.
“We are appealing to the Federal Government to provide incentives to the LPG investors to make the price affordable. Similarly, our union believes that the incessant rise in LPG price would be contained if more storage facilities are built by the major marketers and off-takers,” the President of NALPGAM, Oladapo Olatunbosun, told Vanguard recently.
“As of today, 20 million metric tons is N14 million, and there is an attempt by the gas tank farm owners and offtakers to increase the price far above what the marketers can afford.
“Some importers were selling 20 metric tons of cooking gas at N14 million after receiving the product from local producers at less than N8 million. We equally think that both states and federal governments should equally intervene in the way of building depots and maintaining the existing ones built by federal government,” he added.
1 million metric tonnes of domestic consumption achieved in 2020
The domestic consumption of LPG exceeded one million metric tonnes in 2020 – the first time in the nation’s history, the defunct Petroleum Products Pricing Regulatory Agency (PPPRA) said in January 2021.
“Nigeria consumed 840,594.37 MT LPG in 2019, indicating an increase of 60.5 per cent over 635,452.061MT recorded in 2018.
“This steady and sustained pattern of growth culminating in the over one million metric tonnes of LPG domestic consumption milestone in 2020 has placed the country 1st in West Africa and one of the leading LPG consuming nations on the continent.
“With this laudable feat, the country is on track to meet the five million MT by 2022 target, set in the Nigeria Gas Policy (NGP) of 2017,” the former Executive Secretary of the agency, Abdulkadir Saidu, said in a statement.
The remarkable growth in the domestic LPG market in 2020 could be attributed to the impact of the Nigerian government’s policies and programmes, coupled with the efforts of relevant stakeholders and regulatory bodies in the industry.
During the period under review, the Nigerian National Petroleum Company (NNPC) Limited, had commenced LPG production and load-out in its Nigerian Petroleum Development Company Limited (NPDC) Oredo Gas handling facility, which has an estimated production stream of 330MT daily.
NLNG’s 100% commitment to domestic market
The Board of Directors of the Nigeria LNG had in January 2022 approved the supply of 100 percent of the company’s LPG production (propane & butane) to the Nigerian market. Consequently, NLNG has prioritized the domestic market for 100 percent of its Butane production, otherwise known as cooking gas.
The milestone came just three months after the company supplied its first propane cargo into the domestic market and has developed a scheme to sustainably supply propane for usage in cooking gas blending as well as in agro-allied, autogas, power and petrochemical sectors of the Nigerian economy to further deepen gas utilisation in the country.
These initiatives are designed to increase LPG availability in Nigeria, diversifying its uses and support the Federal Government’s Decade of Gas initiative. NLNG is currently the highest single supplier of LPG into the domestic market, with an estimated 400,000 metric tonnes supplied in 2021.
“We reiterate our commitment to the domestic LPG market and our expansion drive to further improve LPG supply through the startup of Train 7, which will increase our liquefaction capacity by about 35 percent from 22MTPA to 30MTPA,” said Deputy Managing Director of the NLNG, Olalekan Ogunleye, at the 2nd West Africa LPG Expo and Nigeria Liquefied Petroleum Gas Association (NLPGA) Summit 2022, which held in Lagos from 23rd – 24th June, 2022.
“As a company, NLNG with the approval and support of its Shareholders (NNPCgroup, Shell, TotalEnergies and eni) has committed 100 percent of its LPG production for delivery into the domestic market,” he stated.
“NLNG’s drive to increase the supply of LPG in Nigeria is ably supported by its Shareholders, through its Board, who have shown strong commitment to the growth of the DLPG scheme through consistent increase in reserved LPG volumes.”
However, upstream supply challenges are affecting NLNG’s commitment to the domestic market.
Speaking at NALPGAM’s 35th Annual General Meeting in Port Harcourt, Rivers State, around October last year, The Managing Director/Chief Executive Officer of NLNG, Dr. Philip Mshelbila, said that these challenges include the inability of the market to completely absorb NLNG’s propane production, leading to its scanty export of propane to avoid tank-top situations at its plant.
“When we made that commitment last year, the intention was that every molecule of butane and propane that we produce in our facility will come into the domestic market and since then we have made every effort to keep to that since January 2022. We have been successful in achieving supply of 100% of our butane production.
“We have not been able to reach 100% with propane, not because we don’t want to but because the market capacity to absorb the propane is just not there. We intend that all the butane and all the propane that we produce goes into the domestic market whether propane is being used to blend with butane as cooking gas, used as autogas, or used in industry to generate power,” he said.
“Our production capacity as NLNG can supply about 400,000 tons per annum which is somewhere roughly about 40% of the current national demand. This means that the balance has to be imported. Last year, we supplied about 400,000 tons per annum into the Nigerian market.
“But we did that under extremely difficult circumstances where our gas supply into our plant was 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 created, our capacity utilisation fell. Unfortunately, that remains the case today.
“If we have more gas input to our plant, we can produce more LPG. So the issue of supply for us starts with addressing the upstream supply challenges, the biggest of which is crude oil theft,” Mshelbila said.
He stated that despite NLNG’s commitment to 100 percent LPG supply into the market, some local producers still export LPG out of the country. He called on all stakeholders to collaborate in reversing the trend.
Mshelbila described the Decade of Gas initiative of the Federal Government as one of the most comprehensive plans in the industry, and called on stakeholders in the industry to work collaboratively to ensure implementation and unlock LPG potential in the country.
“I think that we need some favourable government policies concerning LPG pricing. We need a utilisation policy that encourages the deepening of this market. The government will need to adopt a phased removal of kerosene subsidies. We all know the challenges that subsidies provide as a whole,” he said.
