BusinessDay

Petrol to reach N250/litre without subsidy, boom for gas vehicles

Nigeria’s state-oil firm is not backing down from the fight to end subsidy because it is cutting to the bones, but this situation is signalling opportunities for discerning investors in the gas-powered vehicle market.

The end of petrol subsidy is imminent and could see petrol prices rise above N250 per litre at the pump, offering Natural Gas Vehicles (NGVs) a chance to gain deeper traction.

Industry operators see opportunities in skill acquisition for converting petrol-powered cars to run on gas, building and retooling gas stations, sale of conversion kits, transportation of Compressed Natural Gas (CNG), gas sales, storage facilities, and safety and maintenance operations.

The Federal Government is encouraging more use of gas and wants to set up 2,000 CNG filling stations in the next six months to provide a cheaper and cleaner alternative for vehicle users.

In line with this direction, the Central Bank of Nigeria (CBN) has set up a N200-billion infrastructure fund to support auto-gas facility roll-out by marketers.

Last year, the government initially said it would bear the conversion cost estimated at between N200,000 and N250,000 for cars but backtracked.

The government said it was targeting the conversion of one million petrol-powered vehicles – mostly passenger and haulage vehicles that run on Nigerian roads – to start using gas instead of petrol or diesel by the end of this year.

According to Gabriel Ogbechie, group managing director, Rainoil Limited, Nigeria requires about $6 billion worth of investment to fully adopt gas-powered vehicles in the country.

“Investment can be made in areas such as Liquefied Petroleum Gas (LPG) bulk storage, LPG trucks, LPG filling plants, LPG skids and gas cylinder manufacturing, Liquefied Natural Gas (LNG) plants,” he said.

Read Also: Proving Nigeria’s 600TCF of gas could unleash economic growth

Already, some marketers are keying into this strategy. For example, Lagos-based gas firm, Banner Energy Limited, has started converting petrol and diesel-powered vehicles to Liquefied Petroleum Gas (LPG)-powered cars.

The company recently completed the construction of autogas filling plants in Abuja for the NNPC to flag off the Federal Government’s Autogas Policy. It is now equipping young technicians with the skills for auto-gas conversion.

Analysis by industry operators shows that the use of CNG cars could see customers pay as low at N100/litre, which compares better than N250 per litre for petrol.

The Nigerian government first proposed CNG for automotive fuel in the 1990s as part of efforts to harness natural gas resources.

The NGVs gained some momentum in Benin City when NIPCO plc in 2010 commissioned its first CNG plant and filling station. It converted the cabs for drivers and gave them a 10-year repayment plan. Now, there are over 6,000 NGVs in the state for both public transport and for private use.

Other corporations including Dangote Group is powering its trucks with gas. Sahara Energy and some other companies also have vehicles in their fleet powered by gas.

Conservative estimates put NGVs in Nigeria to between 20,000 and 50,000, but the country is one of the leading consumers of petrol in Africa, typically using around 1 million-1.25 million mt of petrol per month.

Much of the use of petrol is because it is cheaper on account of government subsidy. According to the Nigerian National Petroleum Corporation (NNPC) in a recent report, fuel subsidy gulps over N120 billion monthly.

The benefits of switching to gas are that it is cheaper and cleaner. Olufola Wusu, commercial lawyer, oil and gas/intellectual property consultant, said, “The use of natural gas as a fuel for transportation can help reduce greenhouse gas emissions by 20 – 30 percent when compared to petrol and diesel.”

Considering that the corporation reported a trading surplus of only N24.19 billion in December 2020, suggests this cost is unsustainable.

The NNPC is working to convince labour unions and civil society groups why fuel subsidies are injurious to the federation and may have contributed to the decision to splurge $1.5 billion on rehabilitating the decrepit Port Harcourt refinery.

Get real time updates directly on you device, subscribe now.