February 6, 2018

Nigeria’s LPG market rises to over 600,000 mt per annum, with massive investments in infrastructure – Nuhu Yakubu

Nuhu Yakubu

The nation’s Liquefied Petroleum Gas, LPG market has been threatened by many problems, including inadequate funding and policy issues. But in this interview with Udeme Akpan, Mr. Nuhu Yakubu, the President of the Nigeria Liquefied Petroleum Gas Association (NLPGA), who comments on a wide range of issues, said the future of the sector is not bleak.

Nuhu Yakubu

Why is NLPGA committed to increasing investment, production and utilisation of LPG in Nigeria?
As you may already know, the Nigeria Liquefied Petroleum Gas Association (NLPGA) came about by a deliberate policy of the Federal Government of Nigeria, following the Federal Ministry of Petroleum Resources and World Bank jointly commissioned study that was conducted by NEXANT, which report gave good reason for the formation of an umbrella association to pull in and co-ordinate the affairs of the sector, in line with the report recommendations.

So between the Lagos Chamber of Commerce and Industry (LCCI) and the existing LPG marketers association as at that time, there was consensus to collapse into and converge as one body, for common purposes of promoting safe LPG use and market development. The main objective of the association as envisaged by the report, is to promote strategies and measures between government and the private sector, to grow LPG demand and supply in Nigeria, and by so doing deepen LPG utilization for domestic and industrial purposes.

It is because of government’s involvement in the formation of NLPGA that the Federal Attorney General and Minister of Justice approved the name for registration at the Corporate Affairs Commission, and made it mandatory for relevant government agencies like the Department of Petroleum Resources (DPR), Standards Organisation of Nigeria (SON), Nigerian National Petroleum Corporation (NNPC), the Federal Fire Service, etc to be involved as members of the association.

So in direct answer to your question, the reason why the NLPGA is committed to increasing investment in production and utilization of LPG in Nigeria, is because government as at that time till now, is very interested in growing the LPG market, in recognition of the fact that Nigeria has been proven to be more of a gas province than oil, and remains a net exporter of gas, including LPG. So the NLPGA is charged with the responsibility to develop policies and programs to support government and industry to grow LPG in Nigeria, through infrastructure build out, and awareness creation to promote safety practices as the industry grows.

Can you comment on the policies and incentives put in place by the government to boost investment in LPG?

The best and most important policy of government that was introduced to promote investment in Nigeria’s LPG sector is the introduction of full deregulation, which means government is completely detached from LPG pricing mechanisms in Nigeria. This singular policy of Government then encouraged the major producers of LPG like the Nigeria LNG (NLNG) to intervene in the supply market, to sustain the envisioned growth, towards realising the market full potentials. Since around 2007 till now, LPG demand/supply market in Nigeria has grown from a mere 70,000MT/annum market to over 600,000MT/Annum, pulling along with it, massive investments in LPG infrastructure along the value chain.

So in the last 10 -12 year, along with growth in the market has been development of over five privately financed, owned and operated LPG coastal terminals, in Lagos, Calabar and Port Harcourt, with total storage in excess of 35,000MT, along with LPG ship loading/offloading jetties, LPG cylinder bottling plants, LPG mini plants, LPG road delivery tankers which have particularly seen a growth from less than 100 trucks 12 years ago to over 1,050 as at last count in 2017.

he above does not include the effort made by NNPC, with the revival of the nine LPG Butanization plants strategically located in major cities and towns in across Nigeria’s geo-political regions, adding 9,000MT to its already existing 4,500MT storage terminal in Apapa-Lagos, and returning them to profitable operations.

So in all, Nigeria’s coastal and inland LPG terminals can boast of aggregate storage capacity over 50,000MT as at today, by reason of the positive multiplier effect of a single, yet very important government policy. And effort is on for new policy initiatives that have already been approved by the federal government to kick in, and further deepen investment in LPG sector.

Have the policies and incentives made much impact on LPG business in Nigeria?
As already discussed above, there has been a massive positive multiplier effect of the singular most important government policy on LPG, which is sector deregulation. The multiplier effect is felt both through the related forward and backward linkage businesses.

LPG cylinder manufactures are beginning to eye Nigeria for investments. The old and shut down cylinder manufacturing plants are seriously considering re-opening to commence operations. Nigeria’s LPG cylinder population has grown from less than one million that it was a few years ago, to over four million at present. Likewise, the number of LPG bottling plants which have grown exponentially in the nation. However, I must note that a lot is still needed by way of regulatory enforcement to rein in promoters of sub-standard and uncertified LPG cylinders, cylinder bottling plants and mini plants.

The NLPGA has already commenced training and massive awareness creation to help educate the LPG business operators and the general public on LPG related safety imperatives. And now, with the recently inaugurated and working committees of NLPGA and SON, likewise that of NLPGA and DPR, both being the main federal government regulatory agencies, plans are underway to commence enforcement of safety and standard practices in the LPG sector. The Lagos state government Safety Commission is also gearing up to support enforcement of safety standards in Lagos state.

How profitable is LPG business and suitable for small and medium scale investors?
LPG is like any other petroleum commodity, whose profitability is dependent on many factors, including the segment you are playing in, local and international market forces. In the case of Nigeria however, we have reasons to believe that all the market segments are profitable, even though they have their pitfalls. For example, LPG bulk transportation could be very profitable, except for the very bad state of Nigerian roads. There is good reason to believe LPG retail segment could be consistently profitable, but then contingent on many factors, including degree of adherence to globally accepted best safety practices.

How can potential investors go about investing in LPG?
The best approach is to register to belong with the NLPGA, being an affiliate of the World LPG Association (WLPGA), and the Nigeria’s one stop association of LPG producers, bulk breakers, plant owners, transporters, retailers, engineers, consultants, LPG advocates and Government regulatory agencies, etc

Do we have adequate supply to meet demand, should many Nigerians decide to convert to LPG?
Like I said earlier, Nigeria is a net exporter of LPG. Total in-country supply of LPG is estimated at about four million MT per annum, most of which is exported, because our in-country demand still hovers around 500,000MT-600,000MT per annum (around 10% of our total local production).

The above referred production does not include potentials derivable from gas flare down and many locations in the southern regions of Nigeria. The NNPC refineries have recently increased its supply to the market, and because the market is deregulated, imported cargos of LPG sometimes help to stabilize the local market supply side. And don’t forget that we have some privately promoted refinery projects that are due for commissioning, including the Dangote refinery and the Modular refineries being promoted by the federal and state governments. These projects will free up more LPG into the market, and the consumers will be better off for it, as supply will be pulling down the demand price for LPG as the supply streams mature.

What are the benefits associated with the use of LPG in Nigeria?

The benefits associated with LPG use are globally acknowledged to be enormous and Nigeria cannot be an exception. According to WHO reports, deaths associated with smoke from use of dirty fuels like fire wood and kerosene is more than that of HIV and malaria put together. Also, domestic energy poverty is the most pervasive amongst rural and semi-urban households, and the single most critical barrier for wealth creation. Communal clashes arising from movement of humans for survival and animals seeking greener pastures, both due to deforestation, desertification and desert encroachment is singularly the biggest cause of insecurity and the most topical issue in Nigeria today.

LPG being a broad spectrum fuel, has the potential to reverse all the above amongst many more. Deepening domestic use of LPG will result in less respiratory related illnesses, and reversal of related high mortality rate, and massive reduction in government spend on respiratory related deceases, which in turn frees up capital for other critical sectors of our everyday lives.

To achieve this, government has recently approved the National Policy on Gas, involving LPG penetration strategies, including distribution of LPG cooking stoves to millions of homes across Nigeria, through a specially sourced recoverable fund.

With the use of LPG, reduction in energy poverty is assured for women, girls and children, who will be freed more time by their cooking with LPG, which time they will channel towards more productive wealth creation activities, which will generally improve national productivity, grow Gross Domestic Product, GDP and improve tax revenue collections. Also, by encouraging the use of LPG, less activities and incidents will be recorded of tree felling for purposes of making fire wood used in cooking, and with more efforts, desertification can be reversed for good, with attendant benefit in reduction of human animal migration with related communal clashes.

It is also important to note that LPG has many other applicable uses, including as autogas for vehicles. Autogas has the potential of displacing petrol as the preferred vehicular fuel in Nigeria. And considering that LPG is locally sourced, a switch from petrol to autogas LPG will lead to reduced demand for foreign exchange, boost Nigeria’s foreign reserves and strengthen our local currency the Naira.

LPG is also a viable and sustainable fuel for power generation, be it on-grid, captive and embedded generation. Continuous deepening of the LPG demand/supply market will continuously result in reduction in LPG price, and improve its viability for purposes of cost effective power generation.

Nigeria’s LPG industry, according to the latest industry reports, is a potential USD10$Billion industry, that must be accorded its due attention.

What reasons account for the recent gas explosions in Lagos and other parts of the nation?
Loss of containment, below standard operating procedures by poorly trained plant operating personnel and absence of emergency response systems, are usually the reasons for incidents like we have witnessed in recent past both in Lagos and around the country where such incidents have occurred. But precise reports on the investigative findings on the incidents you are referring will soon be released by the regulatory authorities, to serve practitioners the purpose of learning to prevent further re-occurrence.

What steps have been taken or planned by NLPGA to prevent or reduce this and other hazards?
As already stated earlier, the NPGA and the regulatory agencies have now taken bold steps to improve collaboration, with the formation and inauguration of the joint working committees. Also the NLPG is expanding its training program to reach out to broader segments of the LPG value chain, from domestic LPG cylinder fitters, plant designs and construction, safe operating procedures at all segments, truck drivers, etc. The association is further equipping its training faculty with more expert human resources and equipment towards improving its training program.

What specific problems do investors and others encounter in the sector?
Most banks don’t fund LPG projects, due to their limited understanding of the business. And for the few that do, investors in LPG usually encounter delayed processing of bank credit, for LPG business project start up or expansion. Even when such facility exist in some banks, and available for disbursement, bank acceptable collaterisation requirements do most times pose as huge challenges, once again, because the funding institutions are largely not very conversant with the LPG sector. Banks are more inclined to asking for landed property, rather than LPG plant as loan collateral. This is however gradually changing, with the new CBN policy which encourages banks to consider credit applications, relying on the specialized equipment being financed as the applicable collateral.
Double taxation has been a huge issue the industry practitioners have been faced with. There is a somewhat discriminatory tax policy against LPG, compared to other petroleum products. For example, VAT is applicable to domestic LPG, while it’s exempted for imported LPG, And worse, PMS, kerosene etc are equally exempted from VAT.
Moreover, the federal government subsidy support for competing, yet dirty fuels kerosene is seriously hurting LPG and stunting its growth, in spite of its huge potentials. It’s hard to run favourable LPG project economics comparative to subsidized kerosene and petrol. This has not helped the growth of autogas and power generation relying on LPG. The industry and government are however now seriously engaged towards finding lasting solutions, and the recent Federal Executive Council approved LPG policy is certainly a step in the right direction.

What measures can be taken to tackle them?
Full deregulation of petroleum downstream, as encapsulated in the yet to be passed petroleum Industry Bill, PIB, to enable foreign capital inflow for massive infrastructure build out, reduction in Customs import duty and sundry port charges for LPG equipment, removal of Value Added Tax, VAT on LPG. These are few of the quick measures that can help catalyse LPG growth in Nigeria.

What wise counsel do you have for stakeholders, especially the government, investors and users of LPG at this time?

Support the NLPGA policy and program pronouncements and let’s grow the sector.