Though the Federal Government master plan for efficiency in the use of gas as encapsulated in the 2021-2030 Decade of Gas Agenda is expected to yield positive outcomes as Nigerians across all levels maximise the ideas and ideals of domestic gas consumption, but analysts have argued that laudable as this sounds, the government may not have the will power to follow it through. Ibrahim Apekhade Yusuf in this report examines the issues
Gas everywhere but not enough to go round!
From available information, Nigeria has the world’s ninth largest reserve of gas with about 207 trillion standard cubic feet, as at 2019. However, the irony is that of the about 1.3 million metric tons required for local consumption, Nigeria gets a little over 450,000 metric tons of LPG from its liquefaction company, the NLNG, co-owned with the nation by three international oil companies, which is about 40 per cent while the shortfall of 850,000 metric tons the balance is provided through other domestic producers or via imports. The implication is that Nigeria is a net importer of LPG and thus exposed to the vagaries of market forces and traders’ insatiable appetite for profit.
According to the Energy Commission of Nigeria report of 2014, Nigeria currently consumes 58 per cent energy consumption in households.
The President of the Nigeria LPG Association (NLPGA), the umbrella body for all stakeholders in the LPG industry, Mr. Felix Ekundayo, has admitted that NLNG’s domestic supply intervention has created the much-needed foundation growing over 1,000 per cent, from a 60,000MT market in 2007 into a 1.3MT market and is still growing.
Ekundayo who made this known recently, noted the most important hallmarks of the intervention is drastically reduced supply disruptions and birthed several indigenous companies in Nigeria’s LPG market.
How incurably defective policies affect gas supply chain
In the view of Dakuku Peterside, a policy analyst and leadership expert, the rising cost of gas is at once scandalous and clearly worrisome because the authorities have failed to do the right thing at the right time.
While attempting a prognosis of the crisis in the gas supply value chain, he noted that “The continuous rise in the price of Liquefied Petroleum Gas (LPG/cooking gas) exemplifies everything wrong with Nigeria’s economy and why our economic handlers should make a deliberate effort to create an atmosphere of optimism.”
According Peterside whatever needs to be done must take into cognizance certain fundamental issues within the gas supply value chain.
“To establish the fundamentals that led to the increase in the price of cooking gas, I need first to set some clear facts about the micro and macroeconomics of LPG gas in Nigeria and global trends that impact the LPG sector,” he said.
Specifically, he said, LPG is a product priced in the international market, hence the vagaries of the price fluctuations in the global market affect the price of domestic LPG because over 50 per cent of LPG sold in Nigeria are imported from abroad and priced in US Dollars.
“Prices of gas keep soaring at the international market with consequential impact on the local market. Between January and August, the prices of 5 kilogrammes and 12 kilogrammes cylinders of gas rose by nearly 300 per cent.”
Besides, the exchange rate regime and the valuation of Naira against the USD impact directly on the price of LPG in the domestic market.
Clearly, the LPG, he said, “Is a product that opens itself to influences both local and international and almost has an inelastic demand structure because of its importance. An increase in its price does not produce a radical shift in the quantity demanded of it. Although LPG is souring in price, many Nigerians are left with little choice than to still buy it with significant unintended budgetary implications and resultant deprivation of the opportunity cost because of the increase in prices.”
According to economic pundits, importers, depot owners and the Federal Government are complicit in the continuous rise of LPG price through price-fixing, reintroduction of value added tax, exorbitant landing cost and levies, as well as dollar scarcity and devaluation of the Naira.
In the view of these analyst, more often than not, importers embed expenses incurred into the price it sells LPG to the marketers at the depots and terminals, and these expenses are passed on to end-users of the product.
Added to that is that fact that the Federal Government reintroduced the 7.5 per cent VAT on LPG in 2021, thus further pushing the price up.
Enter decade of Gas Agenda
In its quest to boost gas supply, the Federal Government initiative that declared January 1, 2021 to December 31, 2030 as “The Decade of Gas Development for Nigeria,” the official launch was declared by the President Muhammadu Buhari, whilst in attendance last March at the hybrid event.
The event was organised by the Ministry of Petroleum Resources, sponsored by Nigeria LNG Limited (NLNG) and produced by Brevity Anderson.
In a related development, the Association of Local Distributors of Gas (ALDG) in its maiden edition of its webinar series tagged: ‘The Decade of Gas- Unlocking Opportunities in The Domestic Gas Market,’ key stakeholders in the industry drummed support for the initiative.
Inaugurated in 2020, ALDG promotes the interests of stakeholders in the natural gas value distribution chain.
The lineup of speakers included Engr. Yusuf Usman, COO, Gas & Power, NNPC, Audrey Joe-Ezigbo, Deputy Managing Director, Falcon Corporation, Olakunle Williams, CEO, QSL Gas & Power Ltd and Sumeet Singh, Director, Sales & Strategy, Powergas Africa Limited. The session was moderated by Olu Verheijen, Founder & MD, Latimer Energy.
In his opening remarks, Usman called for the creation of a Decade of Gas Masterplan to complement the declaration of the decade of gas.
The 10 year development plan, he said, will establish key timelines, define an appropriate investment strategy and make provision for infrastructural development ultimately it will ensure that the progress and success of the decade of gas can be measured.
He also noted the importance of passing the Petroleum Industry Bill (PIB) this year to provide the progressive regulation needed to attract investment in the gas sector.
While sharing insights from an investor’s perspective, Audrey Joe-Ezigbo called on stakeholders to envision the end; a nation that is fully industrialised, with in-country value addition and thriving gas-based industrialisation.
With this goal in mind, public and private players in the sector should then take actionable steps to achieve it.
She acknowledged the progress achieved in policy development and sector-wide consultation under the current administration while calling for more decisive action that gives the industry traction as investors continue to navigate the challenges of multiple regulatory interfaces and the sanctity of contracts.
Anchoring his thoughts on energy security, Olakunle Williams acknowledged that there is a lot of work to be done to achieve the 180,000 megawatts required for the provision of secure, consistent and sustainable energy generation in Nigeria.
He called for an increase in gas utilisation and production to support gas-based industrialisation and match growing energy needs for a population that is estimated to reach 400 million by 2050.
To achieve this, he stressed the need to domesticate and localise infrastructural development and financing.
Sumeet Singh while sharing the journey of building a Compressed Natural Gas (CNG) business in Nigeria noted the importance of providing infrastructure that links different parts of the country.
He revealed that their business model of trucking gas by utilising virtual pipelines was conceived because they needed to move gas from points of availability to points of demand in the absence of infrastructure.
CBN N250bn intervention to the rescue
Interestingly, oil and gas experts have called for investment in domestic gas infrastructure, stressing that a N250 billion intervention from the Central Bank of Nigeria to boost gas supply in the country must be an elixir for private sector-led investment.
Worried over the soaring price of Liquefied Petroleum Gas (LPG) and Compressed Natural Gas (CNG) in Nigeria amidst disruption to the operations of the Nigeria LNG due to flooding, the stakeholders insisted that the country’s 208 trillion standard cubic feet of gas must be useful to the citizen.
It may be recalled that the National Gas Expansion Programme (NGEP) was introduced to make CNG the fuel choice for transportation and LPG the fuel choice for cooking, captive power and small industrial complexes.
The framework for the implementation of the intervention facility for the NGEP established by the CBN introduced a N250 billion facility to help stimulate investment in the gas value chain.
While the objectives were to improve private financing access, stimulate investments in infrastructure, adopt CNG and LPG, develop gas based industries such as petrochemical, and boosting employment, stakeholders however argue that there is need for access to financing to enable more operators into the space.
As at June this year, National Bureau of Statistics (NBS) data had shown that the average retail price for refilling a 12.5kg cylinder of cooking gas increased by 121.2 per cent to N9,486 in June 2022 from in the same period in 2021.
Price of CNG, which the Ministry of Petroleum Resources had projected would be below N100 per litre is already trading above N400 as most products are imported making the disparity between naira and dollar to drastically affect the pump prices.
With the challenges expected to go worse due to the disruption of Nigeria LNG’s operations owing to flooding and disruption to gas market globally following the Russia and Ukraine war, Nigeria had been importing over 55 per cent of LPG as the demand intensifies in the country.
The prevailing situation linked to lack of investment had reportedly forced the CBN to inject about N250 billion loans to leapfrog the Federal Government domestic gas expansion programme.
The CBN had stated that the objectives of the facility being implemented in collaboration with the Ministry of Petroleum Resources were to improve access to finance for private sector investments in the domestic gas value chain; stimulate investments in the development of infrastructure to optimise the domestic gas resources for economic development; Fast-track the adoption of CNG as the fuel of choice for transportation and power generation, as well as LPG as the fuel of choice for domestic cooking, transportation and related activity recommended by the Ministry of Petroleum Resources.
President of Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN), Prince Billy Harry said while the N250 billion funding made available by CBN remained an elixir, the conditions for accessing are too stringent.
He noted that the apex bank must understand the dynamics of the situation in which most of the small scale indigenous companies in the petroleum marketing sector operate.
According to him, unless the conditions are lowered to accommodate the marketers the projected objectives of the intervention could remain a mirage.
Harry said there was need for more investment in LPG and CNG, adding that huge gap exists in gas infrastructure in the country.
He said there was need for the CBN to work with associations in the sector to drive the agenda of domestic gas utilisation, stressing the country has everything it takes to stop importation of LPG.
“Nigeria has huge gas resources and should not be importing gas. I think the intervention by the CBN is commendable but more is needed. The infrastructure needed to unlock gas is huge,” Harry said.
Given growing gas demand in Nigeria, Harry said there’s no any sense if the current LNG production in the country is focused on export market when Nigeria is attempting to increase domestic LPG consumption to five million metric tonnes (mmt).
PricewaterhouseCoopers’s Associate Director, Energy, Utilities, and Resources, Habeeb Jaiyeola, stated that it was high time for government to stop importation of LPG, stressing that the CBN N250 intervention remained a critical elixir towards the plan.
Amidst plans to meet net-zero goals as well as Sustainable Development Goals and the Paris Climate Change pact Jaiyeola urged industry players to take advantage of the N250 billion Central Bank of Nigeria (CBN) intervention facility to address the bottlenecks in the domestic gas market, while urging sustainable finance into the gas sector.
“The move by the CBN is laudable and the intent of the fund is also quite comprehensive and seeks to ease funding challenges for all players within the LPG value chain,” Jaiyeola said.
Dayo Adeshina, Programme Manager, National LPG Expansion Implementation Plan, had said the intervention was critical for the sector, noting that there was need to tweak the plan to ensure that players in the sector seamlessly access the loan.
He noted that the objectives of the intervention would be achieved if commercial banks stop treating the loan as commercial loans.
Damilola Owolabi, Chief Executive Officer, Selai Gas Station Ltd, said a lot could happen in the LPG space but funding critical infrastructure remains a challenge.
Light at the end of the tunnel
Thankfully, some of the militating factors against gas availability are changing with time and new realities because of new government policies that are helping increase production through independent gas producers (eliminating gas flaring) and expansion of the Train 7 project to increase capacity to produce more gas for the country.