Nigerian midstream and downstream regulator NMDPRA said late last year that domestic LPG demand has the potential to grow to 8mn t/yr by 2028 and called on the industry to invest in new infrastructure. But economic challenges in the country stifled growth last year and may continue to do so again this year. Argus contributor Adebiyi Olusolape spoke with the president of the Nigeria LPG Association (NLPGA) and managing director of LPG and LNG supplier Asiko Energy, Felix Ekundayo, about the country's LPG expansion plans:
What is the NLPGA's forecast for Nigerian LPG demand this year?
Ordinarily, without the economic conditions that we are facing at the moment, we would have expected the market to have kept growing at 20pc/yr — the CAGR [compound annual growth rate] for the past 15 years. Unfortunately, it is extremely difficult to predict how the [Nigerian economy] will pan out. LPG demand is currently sluggish, and that is connected to the fact that consumers cannot afford basic commodities, including food, let alone what they perceive as a luxury item. We consider LPG essential but at some point people will reorganise their priorities. So, right now, we only expect to match last year's volumes and that will be a win.
How much LPG was consumed in the country in 2023?
Roughly 1.3mn t but the data are not finalised. The NLPGA's information partner, [consultancy] HydroCIS, usually does year-end data clean-ups before publishing.
Why did LPG prices increase in the second half of 2023?
The biggest impact on prices came from forex [foreign exchange] shocks, which have not gone away. It was 1,200 [naira] to $1, then N1,300:$1, now N1,400:$1, so it has been challenging. The forex hit also squeezed imports. Domestic LPG prices are very sensitive to supply and forex. The consequence of the naira exchange rate weakening is that you cannot import enough product and prices will then go up.
What is the outlook for Nigeria's LPG expansion plans in 2024?
If no interventions come from the government and no new programmes are launched, then I do not see volumes changing significantly. The industry's current volumes are below what [they were] this time last year. That is not a good indicator for the year ahead.
Can you provide an update on the government's cylinder injection and autogasschemes?
We certainly hope these programmes remain. The biggest component here is hope. The new administration is singing the right tunes. They want to promote LPG. They have provided waivers on LPG equipment, which is a good start. But what we start we have to finish. Policy goals and import duty and tax waivers for LPG and equipment alone cannot support demand growth — the cylinder injection scheme in rural areas is paramount. That will address sluggish demand and it could also help local manufacturers of cylinders — if we are going to order cylinders, we should order them from local manufacturers.
The second leg of this, the autogas programme, would benefit the government through a significant reduction in forex demand. Gasoline is roughly $14/mn Btu in Nigeria, but it is imported at about $25/mn Btu and then subsidised, so the government loses about $11/mn Btu. There are gas producers in Nigeria exporting LPG at roughly $14/mn Btu. The argument to date has been that this LPG is not suitable for Nigeria's [butane-centric LPG market]. But it is suitable for autogas. If the government takes this $14/mn Btu LPG and substitutes it for the $25/mn Btu gasoline, the Nigerian consumer won't notice a difference but the government is saving $11/mn Btu. You could then argue about why the consumer would adopt autogas if [they are the same price], but that is a secondary issue. Subsidised gasoline is killing the country, and we export around 40,000-50,000 t/month of LPG. That is a not an insignificant portion of the nation's equivalent demand for gasoline.
What can Nigeria do to absorb the propane currently being exported?
There is no market for autogas in the country today. There [are tax and duty waivers] for gasoline vehicle conversion kits, but you still have to buy the kit. Nobody is going to do this when gasoline is $14/mn Btu and the fuel you're displacing it with is $14/mn Btu. What you have at the moment is a pioneer spirit — people are doing proofs of concept, pilot projects. But you cannot roll these out because there is no financial incentive to convert to autogas. Vehicle conversion equipment is just sitting there because gasoline and propane are the same price, and this is down to government policy. The NLPGA has plans for how to adopt the propane, and how to distribute cylinders in rural areas. The product can be absorbed, but there is a lot of work still needed to get us to that stage.
Aside from redirecting LPG exports and increasing imports, how else can domestic supplies be raised?
A few gas processing plants are expected to be developed. They are long overdue — delayed because of multiple challenges. It sometimes feels like being under siege as a businessperson in Nigeria. If I take my company as an example, we were trying to buy some equipment from Turkey. We struggled to buy the US dollars to pay for the equipment, and then to wire this out — it has been back and forth with the central bank. Why? Because they are doing invoice verification and do not have any expertise on the equipment. Why are they even trying to verify everything that Nigerians want to import? The government needs to generate revenue. Every day you hear ministries, departments and agencies announcing new revenue targets. But the government is not connecting the dots back to the ease of doing business. You cannot even do advocacy anymore without being harassed. Nonetheless, these companies [with gas processing projects] have persevered. We expect [an expansion of a] large plant in Kwale to be ready by the second quarter, and a new plant, the ANOH [Assa North-Ohaji South field] plant [near Port Harcourt], to open in the third or fourth quarter. They have set dates that we have to go by at face value. The volume of LPG to come out of these is expected to be roughly 20-25pc of consumption in Nigeria. Even if it were 10-15pc, it is significant enough.
What plans are there for LPG supplies from the new Dangote refinery?
The NLPGA has asked its secretariat to write to Dangote to say our members are interested in offtake. It will be a significant contribution if the plant works steadily — we are waiting to see if it will. One of the reasons we and HydroCIS have tried to educate the general public is that there is a cautionary note when refineries start to inject LPG volumes into the market. You will not be able to use this LPG for internal combustion engines, which many people currently do because the LPG they buy does not have the olefins that come with refinery output. This is an area where policy must not lag development — we need to see into the future and act now rather than react when things start to go wrong. The refinery output will be fine for use as a cooking gas. But how do we push more volumes on to the domestic market? The volumes Chevron produces have so far eluded the domestic market. I do not see why the government cannot mandate these volumes to be directed to the domestic market. When NNPC was determined to seize volumes from Nigeria LNG, they did so, and I would argue that they should have focused more on Chevron's supply first.
