The decision of the Nigerian Liquefied Natural Gas (NLNG) Limited to increase domestic supply of Liquefied Petroleum Gas (LPG) from 300,000 metric tonnes to 350,000 metric tonnes has drawn mixed feelings as the policy was yet to translate to cooking gas price reduction.
But the President of Nigerian Liquefied Petroleum Gas Association (NLPGA), Mr. Dayo Adesina, who is also the Managing Director/CEO of Strategic Energy Limited, in this interview with Daily Sun, maintained that the price of cooking gas has crashed to a considerable level compared to what it was before the intervention of NLNG. He explains that until all issues associated with infrastructure at the jetties are resolved, price of cooking gas may not crash further.
Adesina, who is due to hand over the mantle of leadership in few weeks, equally spoke on what the association has been able to achieve during his tenure and proffered solutions on how NLPGA and the cooking gas marketing body, Nigerian Association of Liquefied Petroleum Gas Marketers (NALPGAM) can work together to move the sector forward and further deepen LPG usage across the country.
Impact of NLNG’s 350,000 metric tonnes of LPG on domestic market
I won’t agree that the intervention of NLNG to increase supply of LPG to the domestic market from 300,000 to 350,000 has not impacted price of cooking gas, because you cannot compare what we have now with what we had earlier this year.
If you compare what we had earlier this year with what we have now, you will know that there is a change. But I understand what you are saying. We need to understand that unless we take care of the infrastructural challenges in the industry, we are not going to have the desired result. As a chain, we need every aspect of the chain to be in tandem. When one aspect breaks, it is going to affect every other thing down the line.
The infrastructural challenges I am talking about are in the area of the jetty. When NLNG designed this programme, it was for one discharge per week. But recently, things took a turn for the worse, where we had one discharge in about a month and half. It is only recently we were able to do two discharges in one month.
To correct the imbalance in the system, we need to go back to the original concept of one discharge per week or even two discharges in a week if it is possible. That is the only way we can achieve the price reduction we are looking at because with that, more players will come into the business, more coastal terminals that are required equally need to come on stream.
As you know, Port Harcourt and Calabar terminals are about to come on stream, just as Dozzy, which is about 6,000 tonnes. With that, that should lessen a lot of pressure on Lagos. And with the existing structure we have, Navgas is about 3,000 tonnes, NIPCO and another jetty is being certified with about 5,000 tonnes. NOJ and POP should be ready between September and October. Outside of that, there is another jetty which is PWA and that should be certified soonest.
So, there are a lot of efforts being made that would impact positively on pricing. One thing we have to remember is that we say LPG is being produced in Nigeria and that pricing should fall. But we should also remember that there was a time when price rose from N2 million to about N3.2 million and later to over N5 million.
In all of this period of price fluctuations, foreign exchange was a major problem. Some of the charges, which included landing fees and Nigerian Ports Authority (NPA) tariffs, had a negative impact on pricing. But thankfully, now that the Federal Government is actually on board and is willing to do something, there has to be a holistic approach to look at where all the challenges are within the sector and once all those things are taken care of, we are going to see increased competition and price will come down significantly.
Understanding LPG pricing mechanism
Let me correct the impression that the price we pay in Nigeria for cooking gas is the same price paid by those in Germany, United Kingdom or any other part of the globe despite the fact that it is produced in Bonny, Rivers State. That assumption is not true.
When NLNG designed its market model and economics, it was based on export of NLG market. LPG is a bye product and as such, that terminal was designed as an export terminal so one cannot take a vessel that is smaller than 30,000 tonnes into that terminal because it won’t be able to berth.
Again, the domestic market was not the priority at that time because the domestic market was serviced by the refineries. That was where our traditional sources of supply came from. Not until when we had challenges and the industry went to lobby the Obasanjo government that he said, ok, give domestic market 150,000 tonnes.
Even then, it took two years before we were able to start lifting from there. So fast forwarding to the current situation, if you run your economics and you built your terminal on being an export terminal, what they have done is to say, ok, rather than charge you the full export price if the vessel is coming from Bonny to Lagos, and not Bonny to Germany or Bonny to the US, that fleet is at a discounted price. That was why I said we are not paying the same price as Germany because if we are paying the same price will definitely be higher.
So the pricing index used is Montbelview, and they are right in that sense because that is the price index from their view, which was a target market from when they were set up. Don’t forget that NLNG is a joint venture between NNPC and International Oil Companies (IOCs). So, unless there is a West African index, local pricing for LPG may be impossible. For now, we can make a case for West African index because the market is significant enough at the moment.
And why that may be possible now is the fact that US is having problems with shale gas, so the domestic market is starting to increase especially with the government support for the LPG sector. So, we are not paying the same price as a person in Germany or any other person outside the country because your own freight is discounted.
Why profiteering in the LPG sector?
If you go back to when I was describing some of the things that are being done now, when we found out that things were getting so bad for a month and half for vessels to just go in, and don’t forget that, that vessel is paying demurrage of $45,000 per day. We approached NLNG and said, look, there is another jetty, which is the BOP that I talked about earlier, suggesting to them that if NOG is congested, why can’t we go to the BOP, which is the same single berth and they said no problem. They said we can certify it if Pipelines Products and Marketing Company (PPMC), a subsidiary of NNPC, will allow us.topics from