Curbing Price Setting in Cooking Gas Market

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With the anti-competitive tendencies of some operators in the liquefied petroleum gas sub-sector, the price of locally produced cooking gas in Nigeria is frequently hiked above the price of the imported variant. This has been perpetuated by artificially-engineered bottlenecks, Ejiofor Alike reports

Nigeria is blessed with natural gas resources to the extent that the country is said to be more of a gas nation than an oil nation, ranking ninth globally in terms of gas reserves.

Through the Nigeria LNG Limited, the country had accounted for 10 per cent of the LNG supplies to the global market, but could not consolidate its position as a result of lack of sustained investments to build more LNG projects, especially Brass LNG, Olokola LNG and Train 7 of the NLNG Limited.

NLNG is also a net exporter of Liquefied Petroleum Gas (LPG), better known as ‘cooking gas,’ in Africa, producing over two million tonnes yearly.
But despite Nigeria’s endowment in gas resources and the country’s huge contributions to the international market, local consumption of cooking gas is the lowest in Africa, as only less than 15 per cent of the country’s output is consumed locally.

Despite the huge benefits of gas over other cooking fuels – firewood, Kerosene, and charcoal, Nigeria’s per capita consumption of a little above one kilogramme, compares very poorly with other West African countries like Ghana (4.7kg) and Senegal (9kg) per capita, according to the World Liquefied Petroleum Gas Association (WLPGA),
Before the administration of President Muhammadu Buhari assumed power, Nigeria spent over $1 billion yearly on kerosene subsidy, when other countries were moving away from the use of dirty fuels to avoid health hazards associated with environmental and indoor pollution, coupled with deforestation.
With over 50 per cent of Nigerian household still relying on dirty fuels such as kerosene, charcoal and firewood, Nigeria has continued to face increasing environmental and health challenges.

The NLNG set aside about 350,000 tonnes of LPG yearly for the domestic market.
But the country has per capita consumption of only one kilogramme, which is significantly lower than Indonesia – 24kg, Egypt – 85kg and South Africa – 8.5kg
In fact Nigeria’s yearly consumption of about 200,000 -250,000 metric tonnes is far less that the projected consumption figure based on 2004 World Bank estimated market potential of 3.2 million tonnes per year.

Challenges of LPG penetration
Since the NLNG intervened in the supply of LPG to the domestic market, the company has delivered over 800,000 metric tonnes as it increased its yearly allocation to the domestic market from 150,000 metric tonnes to about 300,000MT as a result of increasing demand.
The LPG sector has also recorded improved jetty availability and capacity with the investments made by Navgas , NIPCO and PPMC, a subsidiary of NNPC.

Also the number of LPG offtakers selected by the NLNG increased from six in 2007 to over 20 in 2017.
However, despite the gains recorded since the intervention of NLNG in 2007, deep penetration of LPG into the Nigerian market is still being hindered by sundry challenges.

Apart from sub-standard products from some questionable sources, the supply of LPG in the Nigerian market is heavily impacted by the inadequate low-draft vessels, as there is only one in Nigeria and this has led to inefficiencies in shipping operations, leading to high unit freight cost, which is transferred to end users.
Until very recently, there was inadequate and uneven spread of receiving terminals, as there were only two operational receiving terminals in Lagos, while LPG trucks from South-South and South East travelled to Lagos to load product.

In Lagos, there is limited jetty availability as NNPC has only one jetty – NOJ, and preference is given to vessels of petrol, while low priority is given for LPG vessels in Lagos.
Apart from the issue of jetty occupancy, availability and turnaround times, there are also the challenges of channel draft restrictions, and maritime security.

The LPG sector is also hampered by inefficient and unsafe operations, which have led to fatal incidents that scared actual and potential users of LPG, thus frustrating efforts to encourage Nigerians to switch over from the use of kerosene, firewood and charcoal to the use of LPG.

Also apart from inadequate transportation infrastructure, there are also inadequate bulk storage facilities, which are not evenly spread as most of the bottling plants are concentrated in the southern part of the country, while the north relies heavily on firewood.

Before Technoil Limited embarked on the construction of a cylinder manufacturing plant in Lagos, which is billed for commissioning this year to produce five million cylinders yearly, there was no functional cylinder manufacturing plant in the country and this has affected availability, ownership and standardisation of cylinders.
The Standards of Organisation (SON) is supposed to test the integrity of cylinders in circulation every five years but many cylinders in the Nigerian market have been in circulation for over a decade without integrity texts.

With the internal squabbles between the two major players in the LPG sector – the Nigerian Association of LPG Marketers (NALPGAM), and the Nigerian Liquefied Petroleum Gas Association (NLPGA), there is fragmentation and weak control and this has affected safety operations.
However, the greatest challenge facing households that want to switch over from kerosene to LPG is the high startup or switching cost, as a result of the high cost of cylinders and other accessories.

While it is very convenient for households to use N1,000 and buy other dirty fuels, poor households cannot afford the cost of cylinders and accessories to switch over to gas even when it is evident that LPG is cheaper.
Some other countries such as India and Brazil that successfully switched over gas supplied cylinders to their citizens at no cost.

Artificial Hike in Gas Price
Of all challenges that hinder efforts to deepen the penetration of LPG in the Nigerian market, the greatest impediment that has consistently wiped out the gains recorded in these efforts is the frequent hike in the price of gas by some operators.

These operators capitalise on the logistics challenges facing the LPG sector to accord undue berthing priority to vessels discharging petrol at NNPC’s Apapa Jetty, to ensure delays in arrival and berthing of LPG vessels from the Bonny Island plant of Nigeria LNG Limited, so that they can temporarily hike the price and erode the previous gains recorded in deepening the LPG penetration in the domestic market.

NNPC has three jetties in Lagos that constitute the Apapa Jetty – Petroleum Wharf (PWA); BOP and NOJ, and all these are used by vessels to discharge petroleum products.
But only NOJ has facilities to discharge cooking gas and is thus dedicated for the discharge of LPG, base oil and other similar products from vessels.

However, NOJ is also used to discharge petrol and other petroleum products from vessels.
Each time NLNG brings LPG vessel to Lagos and another vessel is discharging petrol at NOJ, the NLNG vessel will either wait and incur huge demurrage or go to NAVGAS terminal, which is a private jetty and the only alternative jetty for LPG vessels to discharge in Lagos.

Even when NOJ is vacant and NLNG brings in LPG vessel, any petrol vessel around the high sea will be given priority to berth before the LPG vessel “to avoid creating fuel scarcity” as the PPMC and petrol marketers usually claim.

This logistics challenge in the supply of cooking gas has allegedly given the operators of some private terminals and some officials of the NNPC the opportunity to create monopoly situation by ensuring that each time vessel arrives from Bonny Island in most cases, the NOJ will always be occupied by a petrol vessel. This has led to frequent hike in the price of LPG.

President of NALPGAM, Mr. Nosa Ogieva-Okunbor recently raised the alarm over what his association described as the artificial hike in the price of the product by 15 per cent within two weeks.
Speaking to journalists in Lagos, Ogieva-Okunbor alleged that a cabal within the LPG sector is sabotaging the efforts of the federal government to deepen LPG consumption in Nigeria.

He said the efforts of the Office of the Vice President, Prof. Yemi Osinbajo and the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu were being thwarted by some LPG operators, adding that the marketers have been doing everything possible to encourage the use of cooking gas as domestic fuel.

Ogieva-Okunbor disclosed that the price of 20 metric tonnes of LPG has increased from N4 million to N4.6 million within two weeks, adding that this has resulted to a hike in the price of 6kg and 12.5kg cyclinders.

“About three weeks ago, we were in Abuja for the harmonisation of the new LPG policy so that it can hit the ground running. But three weeks after, this cabal started increasing the price of LPG. Within two weeks, the price of LPG has increased by 15 per cent. What came into our minds is why is it now that the federal government is trying to make LPG available by creating a robust policy that these people are trying to kill the NLNG’s LPG programme and monopolise the market? NLNG ship will come and stay for three days without seeing any space to discharge. Another question is why is imported gas cheaper than locally produced gas? Who is behind it? Why is it that VAT is not paid on imported gas but is paid on NLNG product? You said that you want to encourage the use of cooking gas in Nigeria but the one produced in our backyard is more expensive than the imported gas,” Ogieva-Okunbor explained.

He called on the federal government to beam its searchlight on the LPG sector and remove VAT on imported product.
The LPG operators had blamed the high cost of the product to the sale of the product in Nigerian market at the international price, as well as the payment of associated costs, otherwise called agent fees, in dollars.
With the pricing of the product based on the fundamentals at the international market, marketers argued that the price of LPG always responds to the rising price of crude oil and the high cost of forex.