• Monday, July 15, 2024
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Explainer: Will NLNG force majeure affect cooking gas?

Gas firm partners with Lagos community to promote safe environment

The Nigeria LNG (NLNG) declared force majeure on Tuesday due to the flooding that disrupted supplies from upstream gas suppliers in the country.

The company said its declaration followed notice of force majeure from its suppliers.

The gas producers gave the notice as a result of “high flood water levels in their operational areas, leading to a shut-in of gas production which has caused significant disruption of gas supply to NLNG”.

According to the NLNG, its plant is in operation, although at a limited capacity, and the company is working with other stakeholders to mitigate the impact of the reduced supply from its upstream gas suppliers on product deliveries.

With this new development, will the cost of cooking gas skyrocket?

Experts that spoke to BusinessDay revealed that the price of Liquefied Petroleum Gas (LPG), popularly known as cooking gas, will increase but some suggested that it might not be for long.

Etulan Adu, an oil and gas production engineer, said for the domestic LPG market, there is potential for price increase as the force majeure would affect LPG production by NLNG.

He said, “NLNG produces about 400,000 metric tonnes of LPG to the Nigerian market.

“I heard concerns about Nigeria’s domestic market not being able to absorb all of the LPG produced by NLNG; hence, they normally export also to international markets to avoid tank top situations and shutdown.”

Etulan said the force majeure by NLNG exports will put European markets at a tight situation where spot Liquefied Natural Gas (LNG) would have to be sought after in other markets.

“This could lead to further increase in LNG prices as Europe approaches winter,” he said.

According to Etulan, NLNG has 4 percent of global LNG market share, which is critical at this moment when Europe is scrambling for any molecule of gas that is not from Russia.

He said Nigerians should prepare for higher prices for cooking gas, and the government is not ready for any subsidies.

“It is difficult for Nigerians, coupled with the current epileptic power supply and outages. This would even increase energy bills for the masses,” Etula said. “Alternative options for cooking are limited to biomass and electric stoves.”

Esa Odan, a geologist at Ecospectra Limited, said the bulk of the cooking gas used domestically is imported.

“In ideal market conditions, the price of cooking gas in this current situation should not increase since the bulk is imported, except for accidental global surge in prices or dollar related scarcity for product purchase.”

Read also: NLNG declares force majeure as flooding disrupt supplies

According to Odan, due to the Nigerian “unconventional” special market situation, the importers/sellers will latch on to this declared force majeure by NLNG to increase the prices of cooking gas.

He said: “We have seen this play out in most commodities in the country and this will not be different from cooking gas. The price cap will be determined by the extent of this force majeure.

“Presently, the price still fluctuates between N10,000 and N11,000 for a 12.5kg cylinder as the news is just floating in the atmosphere. When it finally hits home, then the price starts taking a lift. However, we hope this will not be the case.”

For David Anomneze, a senior production geologist, the force majeure will be for a short time.

“If there are sufficient volumes at the retail points that are capable of covering the needs for the short time duration, then price will remain, else it will increase,” he said.

Oreoluwa Owolabi, corporate intelligence lead at GAS360, said: “I expect the price of cooking gas to increase because NLNG has been the major supplier of LPG to the Nigerian market

“With this shutdown, there will be scarcity and that would increase the price. Another factor that would affect the price is that companies that NLNG supplied now have to source for forex to import – making the cost of gas more expensive.”

However, Kayode Oluwadare, an energy market analyst at ENRG Solutions, said the NLNG has not shut down its operations which include the production of LPG.

He said: “The force majeure declared is a pre-emptive action aimed at avoiding litigations in case it defaults in its contractual obligations to its buyers if the flood hampers its operations further.

“In that case, the price of cooking gas in the country will definitely increase if operations are suspended. That hasn’t happened at the moment though.”