Hi guys it’s your Emerging Markets Clean Energy Business expert and today we would be discussing the retail pricing of LPG in Nigeria. This is a knowledge sharing interactive piece, I will appreciate your comments and inputs and I will respond immediately. Let’s get the ball rolling
The Nigerian annual consumption of LPG has grown from 130,000 Metric tonnes in 2011, 145,000Metric tonnes in 2012, 250,000 Metric tonnes in 2013, to 500,000Metric Tonnes in 2016 with a potential to hit 2Million Metric Tonnes in 2018.
Despite the steady upward movement of the consumption Level, Nigeria is still ranked lowest in sub-Saharan Africa in per capita usage of LPG, consuming 1.8kg compared with Ghana at 3.0kg; South Africa consumes 5.5kg; while Morocco consumes 44kg per capita. Nigeria’s consumption is a meagre 1.8kg per capita, compared to the West African regional average of 3.5kg.
About 30 million households and more than 100 million Nigerians are said to depend on firewood as a source of energy for cooking with its attendant collateral damage to human health and the environment.
The Major Barrier to the proliferation of LPG in Nigeria at the moment is Infrastructure for storage and distribution to the end users and majorly price instability of the product. However this piece will be focused on the volatility of the pricing of retail LPG.
UNDERSTANDING RETAIL LPG PRICING IN NIGERIA
There are many factors that go into determining the retail price of LPG in Nigeria. These all fluctuate over time. Kiakiagas.com constantly review all of these factors to make sure that we put out competitive prices.
NLNG is the major supplier of LPG to the Nigerian market. The country currently has 21 Off-takers who are designated buyers of the product from NLNG saddled with the responsibility of distributing the product to the local market as NLNG is not interested local distribution of LPG
The following should help explain all of these factors…
Now lets look at it one after the other
Nigerian LPG prices reflect the fact that LPG is an internationally traded commodity and influenced by international prices. The international benchmark for the cost of Nigerian LPG is the Nigerian Liquefied Natural Gas Contract Price (NLNG), also commonly called the NLNG CP.
The NLNG CP changes on a monthly basis, forcing price reviews at least once to three times per month. All internationally traded commodities are subject to price fluctuations. Agricultural and natural resource products are similar to LPG, in that they are subject to the prevailing price in international commodity markets.
2. Exchange Rates
The NLNG CP is expressed in US dollars per tonne.
As the international price for LPG is in US dollars, the Nigerian Naira exchange rate also affects the Nigerian price of LPG. Exchange rates change numerous times per day, making the setting and publishing of prices even more challenging.
NLNG hinges the price on the international market fundamentals; it means that although the product is produced locally, it has to be bought with the US dollar which has increased the price of gas because of the rising cost of the dollar.
When the exchange -rate of the Naira to Dollar was $1= NGN190 in early 2016 the price of a 20tonne Truck of LPG was sold at NGN3.5million ($18,421) and the retail price of a 12.5kg cylinder was between NGN2700-3500 ($14-18). The official exchange -rate of the Naira to Dollar in 2017 is $1= NGN305, the consignment from NLNG in February 2017 was sold for NGN5.1 million per 20 metric tonnes ($16,721), and the current retail price of a 12.5kg cylinder is now between NGN4500-5500 ($14-18).
Looking at the two prices, you will realise that the price of the product from NLNG did not really change but the retail price of LPG in Nigeria increased because of the Exchange rate.
3. Shortage of Discharge Terminals, Storage and Distribution Infrastructure
The biggest challenge facing the LPG sector is not supply as the Nigeria LNG has stabilised supply; the chronic challenge is in the area of logistics.
The Nigerian National Petroleum Corporation (NNPC) has three jetties in Lagos that constitute the Apapa Jetty – Petroleum Wharf (PWA); BOP and NOJ, all used by vessels to discharge petroleum products.
But only NOJ has facilities to discharge LPG and thus dedicated for the discharge of LPG, base oil and other similar products from vessels. However, NOJ is also used to discharge petrol and other petroleum products from vessels.
So, whenever NLNG brings LPG vessel to Lagos and another vessel is discharging petrol at NOJ, the LPG vessel will either wait and incur huge demurrage or go to NAVGAS terminal, a private jetty and the only alternative jetty for LPG vessels to discharge in Lagos.
Even when NOJ is vacant and NLNG brings in LPG vessel, once a petrol vessel is around the corner, it will be given priority to berth before the LPG vessel “to avoid creating fuel scarcity” as the PPMC and petrol marketers usually claim.
Though the country has not experienced acute scarcity of cooking gas since NLNG intervened in 2007, persistent hike in price occurs whenever NLNG vessel experiences delays in loading at the Bonny Island plant or when the vessel is diverted to a private facility in Apapa as a result of lack of berthing space in PPMC jetty.
Sometime around December 2016 - January 2016, the prices of LPG soared to NGN6000-7500 ($19-24) because the NLNG dedicated LPG vessel was unable to discharge LPG at the Apapa port from December 29, 2016 to the second week of January as a result of jetty unavailability at that time.
4. LPG Transportation and Logistics Costs
All the three Inland Bulk Terminals are currently located in Lagos, the commercial nerve centre of Nigeria. There are 35 other states plus the Federal capital territory that all gets their domestic supply from Lagos with Bridger and Bobtail Trucks.
The states are different distances from the delivery depots which, in turn, differentiate the prices from their counterparts in the different parts of the country.
For example, if your LPG 20tonnes Plant is located in Lagos the cost of a Bridger truck to deliver LPG from the terminal at Apapa (in lagos) to your plant is NGN200,000 ($655) or NGN95,000 ($311) for a bob-tail truck if you operate a mini skid plant of 2.5-10tonnes. Also, the cost to deliver that same quantity of LPG from Lagos to Port-Harcourt is 450,000 ($1475) for a Bridger truck and NGN350, 000 ($1147) for a bobtail truck. These logistics costs can vary across the different geographical locations of Nigeria, LPG pricing also varies by location and distance from the source.
The main cost variables of retail LPG pricing are:
1. The cost of the product from NLNG
2. Terminal fees of NGN28,000 ($91) and NGN14,000 ($45) for per load of LPG in a Bridger and bobtail truck respectively
3. The logistics costs from the bulk depots to the retail bottling plants.
4. The logistics costs from the retail bottling plants to retailer outlet
The seasons also affect LPG costs, as the worldwide demand is generally higher during the northern hemisphere winter. In general, higher demand results in tightening of supplies and an increase in prices.
Since NLNG pricing is hinged on the price in the international market, when there is winter in Europe and the price of gas goes up, Nigerians are also made to pay the high price even though there is no winter in Nigeria.
What is the Average retail price of LPG around the world?
The average price of LPG around the world is 0.58 U.S. Dollar per litre. However, there is substantial difference in these prices among countries. All countries have access to the same natural gas prices of international markets but then decide to impose different taxes. As a result, the retail price of LPG is different
The average Price of LPG in Africa
The price of LPG per litre in these countries are stated below
1. South-Africa- $0.96
2. Kenya- $1.69
3. Togo- $0.51
4. Ghana- $0.79
5. Nigeria- $0.65
The average price of LPG using prices of the four African countries used in this research listed above is 0.92 U.S. Dollar per litre. The average retail price of LPG in Nigeria is slightly higher than the Global average price and also lower than the African Nigerian Average price.
As entrepreneurs’ we see challenges as market opportunities; the price of LPG in Nigeria can be stable if the operations across the distribution across the value can be fully optimised to reduce costs which will in turn reduce LPG price.
The following are investment opportunities in the Nigerian LPG Industry
1. Build Dedicated LPG Berthing Jetties: There are only two jetties in Nigeria with LPG discharge facilities which reduce the turn-around time in discharging of product which slows down the entire value chain. Nigeria needs at least three jetties to consolidate the two we have on ground at the moment to achieve easy discharge of products especially in the coastal areas like Port Harcourt, Warri and Calabar.
2. Expand Bulk Storage Terminals: The current capacity of the coastal bulk terminals in the country is 27500MTonnes. Only 4 storage facilities with a combined capacity of 17,500Mtonnes are currently active in the country. The average monthly consumption of LPG in Nigeria is 41,000Mtonnes. This buttresses the point i stated earlier that when there are delays in loading of the product from bonny and discharge at the Apapa terminal in Lagos, there will be price hike because the current storage infrastructure is not big enough to keep stock for more than a week. As soon as the product is discharged the price will crash down.
3. Build More LPG Plants: To saturate the LPG Market in Nigeria there needs to be at least 2000 bottling plants, the current reality is about 350 bottling plants, so the retailers still travel long distances to get the gas from the plants which will incur logistics costs which in turn increases the retail price.
While Kiakiagas is a leading integrated marketer of LPG in Nigeria, we are also dependent on the primary LPG supplier (NLNG) and current storage infrastructure in place for storage and distribution of the product and are subject to changes in the international price, taxes, transport and other related costs and considerations.
The variation in limited discharging facilities of LPG, insufficient bulk storage terminals, inadequate numbers of LPG plants as well as non-availability of Bridger and Bobtail trucks for distribution is an impediment to the growth of the Nigerian LPG industry
The challenges highlighted are market opportunities for investors and entrepreneurs who are considering investment in the growing LPG industry.
For more enquiries about the investing in the Nigerian LPG Industry, you can write us Gaspreneur@kiakiagas.com or call or whatsapp +2348085269328 and we would help you build a profitable LPG Business.
I am waiting for your responses and comments