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Marketers Insist LPG Export Driving Domestic Products Pricing

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By CHIKA IZUORA, Lagos

The dust raised by the hike in the prices of domestic Liquefied Petroleum Gas, LPG, also known as cooking gas, is yet to settle as the announcement by the Nigeria Liquefied Natural Gas (NLNG) Limited to dedicate 100 per cent of its Liquefied Petroleum Gas production (Propane & Butane) to the Nigerian market has been questioned by marketers.

The NLNG said it will prioritise the domestic market for 100 per cent of its Butane production, otherwise known as cooking gas.

In 2021 when the prices of the product surged, the company increased the volume of its annual commitment to the market from 350,000 to 450,000 metric tonnes, which is about 100 per cent of its Butane production. Butane gas is less volatile and is, therefore, suitable for cooking. In 2020 alone, NLNG supplied over 80 per cent of its LPG sales (cooking gas) to the Nigerian market.

Executive secretary of the Nigerian Association of LPG Marketers, Bassey Essien, said the entire 100 per cent NLNG claimed it supplied to the market was highly inconsequential considering that the market requires 1.2 million metric tonnes to meet domestic demand.

Essien told LEADERSHIP that government regulation is weak and paves the way for some local LPG producers to engage in products’ export, while on the other hand, government encourages import with Value Added Tax (VAT) imposed on imported products.

He also faulted earlier claims by NLNG that dearth of infrastructure had impeded its supply efforts as off takers lack adequate reception facilities to take volume supply.

“The NLNG vessel brings just about 13,000 metric tonnes of LPG to Lagos where private operators have over 30,000 metric tonnes holding facility,” he said.

“The NLNG’s 450,000 metric tonnes which represent its entire 100 per cent production (Butane) is grossly insufficient to satisfy the local market but we have advised that they blend their Propane production with Butane to significantly raise the supply index while government encourage more LPG production and expansion of existing plants to multiply supply.”

NLNG, a venture involving the Nigerian National Petroleum Corporation (NNPC) Limited and Shell, Eni and TotalEnergies, produces around seven million mt/year of LPG (propane and butane) from the six trains.

To meet the rise in the supply volume, NLNG said it had increased the number of off-takers to 43 from the initial six contracted in 2007. However, the NLNG claimed that by committing 100 per cent of its Butane production, it has prioritised the domestic market, thus realising its domestic supply target safely.

NLNG’s current maximum Butane production meets about 40 per cent of domestic demand, while the balance is supplied by other domestic producers or via imports as NLNG’s production alone is not sufficient.

Presently, in order to achieve its aspiration for the domestic supply, a dedicated 13,000 metric tonne vessel, LPG Alfred Temile, delivers the product to the market through Lagos and Port Harcourt terminals.

But the firm claimed that the vessels delivery to these terminals are occasionally hampered by challenges at the terminal, including storage capacity, terminal access, draft restrictions and prioritisation of other products over LPG.

The NLNG has argued that despite growing demand for the product, marketers were unable to offtake the 450,000MTPA allocated to the Nigerian market by the company due to various factors.

According to NLNG, the country’s liquified petroleum gas production remains undermined by the lack of refineries, forcing the company to deploy Butane to help to bridge the domestic demand gap.

Of the 450,000MT allocated to the domestic market by the NLNG, only about 375,000MT was procured by the gas marketers in 2020, according to data shared by the firm.

Essien rejected the argument, saying that 13,000 is on its own inadequate and argued that it is the same marketers whose facilities receive imported products.

Essien further said that even the Train 7 which NLNG hopes to upscale supply with, the project from every indication may not be completed in the next four years and can only add 100,000 tonnes, still leaving a huge shortfall from 1.2 million metric tonnes domestic demand.

Also, spokesman of the Nigerian Independent Petroleum Company (NIPCO), Alhaji Biodun Lawal, said the company had LPG storage capacity of 10,000 metric tonnes and receives supply from NLNG but not on regular bases.

Speaking on the development, the managing director of NLNG, Dr Philip Mshelbila, said the announcement marked the company’s strong commitment to the continued growth of the domestic LPG market and its passion to increase utilisation of one of the most versatile energy sources in the world.

He said the company was inclined towards helping to build a strong economy based on the gas resources that Nigeria is abundantly blessed with, and that natural gas could help drive the economy by providing cooking gas for homes, supporting industrialisation, powering mobile cell sites and complex transportation systems, impacting food supply through its usage for fertilizer production and increasing power supply to both homes and industries while reducing the country’s carbon footprint.

Mshelbila, said, “Gas, as the cleanest of the fossil fuels, has become an essential energy source to be reckoned with during this energy transition period. Other countries are revolutionising their energy industry to cut down on carbon emissions drastically. Nigeria should not be left out in this drive, considering its abundant gas resources. Gas is essential for life and living at the moment, because it can support everything. We will need to develop our economy and create better living standards for Nigerians. We need to change the narrative, and NLNG is being pragmatic about it.

“We are driven by our vision to remain a globally competitive. LNG company helping to build a better Nigeria and are making a reality of our collective dreams that one day we can switch all cooking fuels to gas, and power our vehicles with gas as encapsulated in the government’s National Gas Expansion Programme and the Autogas Policy,” he said.

He further said: “Committing 100 percent of our LPG supply is a major milestone in our journey of domestic gas supply. We supplied our first Butane (LPG) cargo into the domestic market in 2007, which helped to develop over the years the LPG industry in Nigeria from less than 50,000 tonnes to over 1 million tonnes market size annually by the end of 2020. In 2021, we increased our LPG supply commitment from 350,000 metric tonnes (or 28 million 12.5kg cylinders) to actual delivery of 400,000 metric tonnes (or 32 million 12.5kg cylinders) thereby directing most of our production into the domestic market. But this was not enough for NLNG, hence this commitment to do all that we possibly can and supply 100 percent of our LPG production to the domestic market.”

The company’s drive towards deepening the domestic LPG market is pivotal to NLNG’s vision of helping to build a better Nigeria. The company is optimistic that the eventual completion of its Train 7 Project will further deepen the domestic LPG market.

Nigeria’s domestic LPG demand is projected to grow to three million mt/year by 2026, from one million mt/year now, according to government estimates.

The chief executive of NNPC, Mele Kyari, said on November 2 last year that Nigeria requires up to $2.7 billion to revamp LPG and other gas distribution infrastructure in the country.

Oil producers have said they are prepared to channel investment in building the needed infrastructure to boost Nigeria’s domestic gas supply.

The managing director of Shell Nigeria Gas, Ed Ubong, also said that while much of the gas from Shell operated Gbaran-Ubie field, which produces about 864 MMcf/d of gas, is for export, the company is building infrastructure to deliver the gas to local industries.

“Shell is investing in gas portfolio that will increase supply for Nigerian and international customers via an expanding network of plants, pipelines and export terminals,” Ubong said.

Nigeria, has the world’s ninth largest proven gas reserves at 200 Tcf, according to official estimates.

However, the country burns off vast amounts of gas produced along with crude from mostly onshore oil fields in the Niger Delta due to the lack of infrastructure to make use of it.

Programme manager, National LPG Expansion Implementation Plan, office of the Vice President, Dayo Adeshina, in a telephone conversation with LEADERSHIP said government was deepening efforts to balance the LPG market and that what NLNG offer so far is based on stakeholder agreement between November and December last year to dedicate its entire LPG production to local consumption.

Adeshina denied allegations that some local LPG producers embark on export of products, adding that government is engaging major oil producers to prioritise gas production so that they produce more of LPG for the local market.

Also, with importation of LPG, maintaining a steady rise against local production, the federal government is moving ahead to rehabilitate the Warri, Port Harcourt and Kaduna refineries to achieve local production of 360,000 MTPA of Liquefied Petroleum Gas (LPG) by 2023.

According to data by the Nigerian Upstream Petroleum Regulatory Commission, NUPRC, per capita consumption remains very low in Nigeria when compared with other African countries with lower population figures.

Minister of state for petroleum, Timipre Sylva, explained that the move was part of the National Gas Policy of the government.

Sylva said the government was desirous of deepening LPG penetration in the country, noting that only about five per cent of its population were currently using LPG as energy source.

He said other plans by the government include upgrading the Lagos-Apapa LPG Plant from 4,000MT to 8,000MT storage and increasing LPG allocation to the domestic market from Natural Gas Liquids (NGLs) to reduce butane/propane export

The Petroleum Products Pricing Regulatory Agency (PPPRA) noted that 25,000 MT additional capacity is anticipated within the next 6 -12 months.

According to him, the government also aims to diversify supply sources with 110,160MTPA from Nigerian Petroleum Development Company’s Oredo facility.

“By our 2018 record, gas utilisation is being deepened by increasing LPG penetration. LPG consumption increased by about 16 percent year on year.

“A total of 364 LPG plants licences and approvals were issued in 2018. This is expected to give about 15 per cent rise in the nation’s LPG consumption based on storage capacit

“We need to deliver the much-needed energy for development and growth.

“We need to explore ways and means to scale through the Nigeria energy hurdle and put in place strategic measures to address the downside issues, challengaps and aggressively pursue the upside opportunities,” he said.

Mr Clement Isong, executive secretary and chief executive officer, MOMAN, who was responding to LEADERSHIP questions on rising LPG price during the inauguration of the Association’s new chairman, said that taxation of imported LPG and allowing its importation will impede key gas commercialisation programmes.

Isong, further noted that the price increase of the product is also because the country is not producing enough and called for a concerted effort to upscale domestic production given the country’s abundant gas reserves.

Meanwhile, there are reports that the prices of the products have started dropping. Accordingly, 12.5kg LPG has dropped from N8,800 to between N8400 and N8200. In some outlets, the price of the commodity dropped to between N7,800 and N8,000 as of Thursday.

In November, the cost of LPG reportedly rose by more than 240 per cent between January and October 2021.

The situation forced some LPG users to shift to charcoal or firewood, as consumers of the commodity raised the alarm over the persistent hike in price.

The product had increased by 240 per cent for 12.5kg, moving up from N3,000 to N10,200 within the first 10 months of 2021. Adeshina said that the federal government was further putting measures in place to ensure more reduction in the cost of the project.

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