In 2019, Nigeria depended on LPG from foreign sources, especially the United States of America. It is necessary to examine the effects of this market condition.
The Nigerian LPG market has been experiencing steady increase for over a decade. Between 2007 and 2018, the Nigerian LPG market capacity was reported to have increased from 70,000 MT per annum to 600,000 MT per annum. The growth recorded was made possible through government policies, such as the deregulation of the market, and partnerships with the private sector.
The Nigerian Liquefied Petroleum Gas Association (NLPGA) has set a new growth trajectory to increase the annual Nigerian LPG demand from 600,000 MT to 5,000,000 MT by 2029. This growth in demand must be met by an equal growth in supply. This begs the question of where the supply will originate from.
Figure 1. Source of LPG in Nigerian LPG Market
Source: PPPRA Energy Report, 2019.
Nigeria is a net exporter of LPG, with local LPG demand equalling about 23% of local LPG production. Although Nigeria produces more than it consumes, it is dependent on foreign LPG. If this trend persists, then the growth in the Nigerian LPG market will be driven by imported LPG. It is therefore important to examine the effects of the current situation and determine whether it is sustainable based on 2019 events.
Figure 2. Top Three Suppliers of LPG into Nigeria
Source: PPPRA Energy Report, 2019
Nigeria’s Main Supplier Countries
Out of the 500,000 MT of LPG that was imported into Nigeria in 2019, 300,000 MT came from the United States of America making 72% of total LPG imports. Equatorial Guinea came in second place, supplying 60,000 MT, which was 12% of total LPG imports.
Currently, the US stands as the highest exporter of LPG, with an on-going infrastructural expansion to meet the growing global demand. The United States became a net exporter of LPG in 2012 due to the increase in the production of natural gas, and the shale oil and gas boom. Exports to Nigeria makes up a negligible 0.4% of the total amount of LPG exported from the USA. This falls back to the market size of the Nigerian LPG market. Nigeria is 10 times more populated than Netherlands, yet the Netherlands imported 1.7 million tonnes of LPG from the United States in 2019, which is more than two times the total consumption of LPG in Nigeria for the same year.
Although the United States is the topmost exporter of LPG, it still imports LPG from a number of countries. This is probably because the quality (i.e. ratio of propane and butane) of LPG differs based in application, and a particular quality needed in the USA might not be produced in the USA. Most USA exports go to Japan while most of its imports come from Canada.
Although expansion plans have been paused due to the COVID-19 pandemic, plans will continue once the economy returns to normal, thereby increasing the US capacity to supply. Also, the trade war with China cause China to reduce LPG imports from US, and receive LPG from Saudi Arabia. These means, as the Nigerian LPG market demand increases, the United States will be able to meet the demand.
Figure 3. History of U.S. Exports of Liquefied Petroleum Gas
Like Nigeria, Equatorial Guinea produces more LPG than it can consume, hence it is a net exporter of LPG. Equatorial Guinea exports to Cameroon, Ivory Coast, as well as the USA. While much information is not available on Equatorial Guinea’s LPG industry, it is clear that they have a plan to increase production to generate revenue. This will make LPG from Equatorial Guinea available to meet Nigeria’s growing demand.
Local Production of LPG
In 2019, Nigeria consumed about 800,000 MT of LPG, of which only 300,000 MT was locally sourced. The details show that for every 10 kg of LPG sold in Nigeria, 6 kg was imported. The dependence on foreign oil might seem to be due to lack of LPG availability on Nigeria’s/NLNG’s part, but that is not the case for the following reasons:
The challenge with local supply is firstly infrastructural as the NLNG has only one ship used to meet local LPG demand. Due to the NLNG’s stunted capacity to meet demand, marketers need to import LPG from foreign suppliers. It should also be noted that the NLNG has signed a Sales and Purchase Agreement (SPA) with 15 local off-takers to sell 350,000 MT of LPG per annum to them. This agreement allocates only 350,000 MT of locally produced LPG to the local market, leaving 450,000 MT to be imported. This allocation leaves Nigeria import dependent.
Taking cognisance of the risks attached with dependence on foreign LPG, action steps are needed to develop local production and supply capacity. The National Gas Policy revealed that only 5% of households in Nigeria used it by 2017, showing a large growth potential. Fire wood and kerosene are the most used cooking fuels in Nigeria, and while firewood is really inexpensive, kerosene has been made quite unattractive by the removal of the kerosene subsidy in 2016. About 90% of Nigerian households use the cheapest forms of cooking fuels available, It is therefore necessary to ensure LPG is affordable enough for these households.
Nigeria has the 8th largest natural gas reserves in the world, with 5.47 trillion MT of natural gas available. Local production and processing capacity can be increased comfortably to cater for local LPG demand, as well as provide revenue from the sale of other natural gas derivatives. There will also need to be investment in the maritime sector to increase the number of ships that transport LPG within Nigeria, in accordance with all necessary maritime regulations.
Figure 4. Nigerian Household Energy Mix
Source: National Gas Policy, 2017
Effect of Dependence on Foreign LPG Suppliers
The import of LPG increases the cost burden on the end-user. There exists a large price disparity between the cost of 1 kg of LPG in the international market (Mont Belvieu) and the cost of LPG at the Nigerian depot. This can be attributed to freight costs, and other levies. During the month of March, 2020, the average price difference between the local and international cost of 1 kg of LPG was 117 naira. The average retail price for March was 260 naira per kg, showing almost half of the cost of 1 kg of LPG will be removed if the LPG used in Nigeria was locally sourced. With 80 million Nigerians below the poverty line (measured by earning at most $2 a day), LPG will remain too expensive if it this price disparity lingers.
Figure 5. Price Disparity between Local and International LPG Market for 1kg of LPG
Source: KiakiaGas Index, 2020
The market is also dependent on the naira exchange rate against the US dollar. It is likely that the naira will continue to fall, thereby making products purchased in dollars more expensive. The naira was devalued in March but the effect was negligible on the Nigerian LPG market because of the global plummet of petroleum prices. All things being equal, a drop in the value of the naira will reduce the purchasing power of the Nigerian populace with regards to foreign sourced products.
KiakiaGas Limited is a leading Gas business in Lagos,Nigeria with expertise in LPG retailing, New Gas Market development, Building of Gas Plants and Gas strategy advisory
If you need a partner with hands-on local expertise in the Nigerian Gas space or any of our bespoke solutions/services, write us at gaspreneur@kiakiagas.com or call/Whatsapp: +2348085269328