Depot owners prioritise petrol over LPG adding to higher prices
Deport owners are prioritising storage of white products including petrol, diesel, aviation fuel, kerosene over Liquefied Petroleum Gas (LPG) contributing to the soaring cost of the product in the market.
This decision enquiries show, is due to higher margins they can earn from the storage of petroleum products rather than cooking gas. There is also greater demand for petroleum products.
Private operators own about 83 depots in Nigeria according to data from the Department of Petroleum Resources, along with twenty-one 21 storage depots operated by the NNPC and 9 are dedicated LPG depots.
This often creates need for more storage capacity and means that an NLNG vessel bearing LPG has to wait for weeks in the sea before it can discharge products and importers who bring in the commodity struggle to find storage space contributing to delay and soaring cost.
This is worsened by the recent introduction of Value Added Tax at 7.5 percent previously not charged on the commodity by the government and a naira that has taken a beating. Nearly two-third of cooking gas sold in the domestic market is imported.
The logistical nightmare of getting products out of the inefficient Apapa port and distribution hiccups due to a poor road infrastructure complicate efficient supply of the product and feeds into higher prices.
Officials of the Nigeria LNG limited in an interactive session with journalists on Tuesday say this situation has affected the ability of the local market to even fully absorb their own supply.
Therefore, despite huge demand marketers are unable to offtake the total 450,000MTPA allocated to the Nigerian market by the NLNG, with only about 375,000MT procured by the gas marketers in 2020, according to NLNG.
The supply of LPG into the domestic market has been hampered by Nigeria’s inefficient refineries forcing the NLNG, for whom the commodity is only a by-product, to ramp production.
Worse still, many Nigerians are blaming the company for exporting gas while the local market suffers a deficit.
Butane, the LPG variant used in Nigeria is only a by-product of the LNG production process and the take-off of the NLNG Train 7, could raise increase supply by 30 percent. But this will do little to obviate the problem, if storage and distribution infrastructure continues to pose a challenge.
Austin Ogbogbo, a Marketing Manager, NLNG, during the interactive session with journalists, said the NLNG does not have the license to operate in the downstream sector and so cannot distribute products.
As a midstream gas company, NLNG’s remit is to sell liquefied natural gas to international buyers at fixed contracts that runs for periods up to 20 years.
Ogbogbo said the company in its bid to improve domestic supply of cooking gas began pushing the product into the domestic market in 2007 and had since increased its capacity from 50,000 metric tonnes per annum and six offtakers at the start, to 450,000 metric tonnes per annum and 43 offtakers currently.
Similarly, the Manager, Corporate Communications and Public Affairs, Mrs. Sophia Horsefall, said NLNG remains committed to making more gas available to Nigerians.
Nigeria owns a 49 percent stake in the company, which entitles it nearly half of its profits apart from taxes. In the last five years, the Federal Government has collected $17.15bn as dividends since the company’s inception in 1989.
Other shareholders are Royal Dutch Shell (25.6 per cent), Total (15 per cent) and Eni (10.4 per cent).
Cooking gas prices rose from an average of N3, 600 for 12.5kg cylinder in April to between N6,000 and 7,000 in September.
The soaring cost of cooking gas could force many poor Nigerians to revert to firewood and charcoal, which is both deleterious to their health and threatens the country’s ambition to cut down on emissions.
Recently, Michael Umudu, National Chairman, Liquefied Petroleum Gas Retailers Association of Nigeria said another factor leading to rise in prices is that“, there is a rise in the price of petroleum products in the international market and because of that, the cost of LPG has equally gone up. So importers now pay more on imports,” he said.
According to the NLNG, in order to achieve its aspiration for domestic supply, a dedicated 13,000MT vessel, LPG Alfred Temile, delivers the product to the market through Lagos and Port Harcourt terminals.
The company said the vessel’s 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.ges.