Factors sustaining the high price of Cooking Gas in Nigeria

Started by General Moderator, Feb 14, 2023, 12:23 PM

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General Moderator

Much to the chronic displeasure of millions of users of cooking gas in Nigeria, the retail price of the cooking fuel has remained high over the past few years.

The price of 20 Metric Tons of LPG(Cooking Gas) at the LPG terminals, which was as low as  N2,500,000 about 6-7 years ago, has oscillated between N10,000,000 – N12,800,000 in the past three years.

Although some of the factors keeping the price of cooking gas on the high side are not unconnected to the adverse impact of the Covid-19 pandemic on the global economy, others are domestic in nature and can be effectively addressed to considerably bring down the price of the product, if and only if, there is a will and sincerity of purpose by the government and the relevant stakeholders involved.

Freight Cost of Cooking Gas Cargoes
The substantial increase in the cost of diesel(Heavy Fuel Oil) used by the engines of LPG Vessels(Ships) and the power generators onboard, has resulted in the sharp rise in the freight cost of LPG cargoes.

This rise in LPG cargo freight cost apparently causes a corresponding increase in the landing cost of LPG cargoes.

This affects locally produced cooking gas (LPG) as well, because all LPG cargoes supplied to the domestic market are evacuated via marine transport from NLNG's Bonny Island Production Plant to coastal LPG terminals across Nigeria.

The spike in the cost of procuring and maintaining the diesel engines used in powering LPG Vessels, as well as the power generators and other equipment onboard the ship, have also contributed to the rise in LPG cargo freight costs, which has led to the upward movement of the ex-depot and retail prices of cooking gas(LPG).

Maritime Insecurity

Insecurity in the territorial, as well as the international waters around the country (Gulf of Guinea) has made NLNG, the foremost producer and supplier of domestic of Cooking Gas (LPG) in the country, to secure the services of an armed escort vessel for its chartered LPG vessel that conveys cooking gas from its Bonny Island export terminal to LPG depots in Lagos and Port-Harcourt.

NLNG had to do this in order to deter dare-devil pirates from attempting to hijack its LPG cargo and/or abduct the crew onboard during voyage.

This obviously comes at a high cost, which will eventually be borne by the final consumer of cooking gas in the country.

International LPG vessels that make port calls at Nigeria's ports pay high insurance premiums, which invariably increases the landing cost and retail price of the product.

Low Draught at Nigeria's Ports

The low draught at Nigeria's ports makes it impossible for large LPG carriers to berth at the ports.

Basic, as well as, practical economics establishes that the landing cost of a unit (Kilogram or Liter) of LPG delivered by a large LPG vessel with a capacity of about 50,000 Metric Tons, will be lower than that of the one delivered by a smaller LPG Carrier with a capacity of about 5,000 Metric Tons.

Since the draught of Apapa port, which receives the large percentage of cooking gas(both locally sourced and imported) distributed across the country, is just 6.5 meters, it cannot receive very large LPG carriers, hence the landing cost and consequently the retail price of cooking price will be high.

Limited Coastal Storage Capacity

Even if the ports had high draught that can accommodate very large LPG Vessels, the current limited storage capacities at coastal LPG receiving terminals will present a major hindrance.

Since the largest storage capacity in any of the coastal LPG terminals in the country is less than 14,000 Metric Tons, it means no LPG terminal can receive products from a large LPG Carrier with a capacity of - for instance- 25,000 Metric Tons, on a single discharge.

Receiving products from large LPG carriers of capacities ranging from 25,000 Metric Tons and above, translates to economies of scale advantage for the owner of the LPG cargo, reducing the unit landing cost of LPG, and consequently lowering its ex-depot and retail prices.

VAT & Import Duty on imported Cooking Gas (LPG) cargoes

The restoration of Value Added Tax and Import Duty on imported LPG cargoes by the Federal Government has contributed to the sustained rise in the price of cooking gas in the country.

The VAT rate that was adjusted upward to 7.5% last year has been passed on to LPG consumers in the country in the form of high LPG prices.

There's no molecule of doubt that the ex-depot, as well as the retails prices of cooking gas will reduce upon the removal of VAT and Import Duty for imported cooking gas (LPG) cargoes.

Ukraine/Russia War

Although the war started just last year, it has had a major impact on LPG supply and pricing in Nigeria.

Oil sanctions imposed on Russia (the largest producer of gas) by the United States and European Union has negatively affected the supply of LPG worldwide.

The global LPG supply disruption, which made the demand for the product to outstrip its supply, has automatically triggered an increase in the price of cooking gas (LPG), not only in Nigeria, but all around the world.
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