Infrastructure deficit, distribution costs hinder effective LPG supply in Nigeria

The primary obstacles hampering the efficient supply chain of Liquefied Petroleum Gas (LPG) in Nigeria can be attributed to significant infrastructure challenges and distribution costs says an energy sector expert.

This lack of bulk storage terminals, upstream processing capacity, limited distribution and LPG jetties are influencing the volatility of LPG prices in Africa’s largest economy says Kelvin Emmanuel, an energy sector expert and co-founder/CEO at Dairy Hills.

“They are not enough LPG vessels in the country. Most parts of the LPG consumed are still imported into Nigeria from Europe. They are only two functional LPG landing jetties in Nigeria. NAVGAS and New Oil Jetty (NOJ) terminal in Lagos and then you also have Dozzy terminal in Calabar, Cross River state,” Emmanuel said in an interview on Arise Television in Lagos.

Data sourced from the National Bureau of Statistics show that LPG prices have been rising for months, but recently fell by just 7.61 percent in May.

According to Emmanuel, a lot of the LPG consumed in Nigeria is actually supplied by Nigeria Liquefied Natural Gas Company (NLNG) and is sold in dollars because NLNG has dollar obligations to shareholders in which the Nigerian government federal government has 49 percent equity in it.

“With less than 20,000 metric tonnes of storage capacity available, Nigeria falls short of meeting the required 70 to 100,000 metric tonnes needed for efficient distribution,” he said.

The prices of LPG vary according to location. The prices of LPG in Lagos are not the same as the price of LPG in Maiduguri, Yola, Bauchi or Delta.

The prices are higher because of distribution costs and that also has to do with the fact that two of the three major LPG landing, jetties in Nigeria actually located in Lagos.

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Emmanuel also said that despite a significant increase in LPG consumption in Nigeria, rising from 144,000 metric tonnes to approximately 1.1 million metric tonnes, the country still maintains one of the lowest per capita LPG consumption rates at 1.8kg.

“In comparison, Saudi Arabia has a per capita consumption rate of nearly 500 kg. This highlights a market loss in Nigeria’s LPG sector,” he said.

Despite being home to the ninth-largest proven reserves of natural gas in the world, the CEO emphasized the urgent need for upstream processing capacity and backward integration to ensure that Nigeria can produce up to 90 or 95 percent of the LPG it consumes, reducing reliance on imports.

He further highlighted the volatility of the market and the impact of currency fluctuations on LPG imports. He suggested the establishment of a non-Exchange Traded derivative market for non-deliverable forwards to help importers and companies hedge against currency risks and stabilise prices.

“Considering that you have a high volatility index, the market now needs what they call the non-Exchange Traded derivative for what they call non-deliverable forwards in derivatives trading that will help importers and companies who want to invest in Nigeria to be able to use forward contracts to hedge the risk of currency fluctuations,” he said.

“So, in the short term, I expect that this little bit of lack of uncertainty in the market that will last for another three to six months will impact the prices of importing LPG into Nigeria considering that one metric ton of LPG on international markets somewhere between $280 and $300. And you still need a $125 or $130 landing cost for bringing LPG into Nigeria.”

Speaking on minimum wage, Emmanuel said that the minimum wage debate in Nigeria should be decided by individual states based on their financial capacities.

According to him, measures should be taken to address employee casualisation and provide social protection.

“Targeted subsidies for the transportation sector and exploring alternative energy sources like compressed natural gas (CNG) can help alleviate challenges faced by vulnerable populations. Implementing a uniform minimum wage may not be feasible for all states due to fiscal limitations.”