The price of gas

 For much of this year, the cost of Liquefied Petroleum Gas (LPG), also known as cooking gas, has been on steroids. From a market rate shy of N3,500 for a 12.5kg cylinder at the close of last year, the essential fuel climbed first to about N4,500, then to N6,000, and presently hovers between N7,000 and N8,000 at the point of sale to consumers. And no respite is in sight, with marketers warning that the price could hit N10,000 before December if the present circumstances persist.

Cooking gas became staple household fuel for many Nigerians, including the poor, when the price of kerosene, which by the way is a dirtier fuel, got deregulated and spiralled out of reach. Now that gas has also spinned beyond easy reach, many have been forced onto much dirtier alternative fuel sources like charcoal, firewood and sawdust – with all the negative implications for the environmental ecosystem. Those that could afford to revisit kerosene now are middle range consumers, who find it a lesser evil cost-wise compared with gas.

Early this October, LPG marketers decried the high cost of gas, which they observed had put pressure on alternative fuel sources and instigated an inflationary trend even in those. They blamed the high cost of gas mainly on inadequacy of supply to meet high demand, but as well on vaulting transaction costs fuelled by government’s re-introduction of Value Added Tax (VAT) on imported LPG and the sliding value of the naira in exchange with foreign currencies. “It is unfortunate that the Federal Inland Revenue Service (FIRS) and the Federal Ministry of Finance have gone to resuscitate a product that has been exempted from VAT and so gazetted (which) had encouraged domestic gas utilisation. Nigerians are already complaining about the prices of cooking gas across the country, and this would further worsen the situation,” said the Executive Secretary, Nigerian Association of Liquefied Petroleum Gas Marketers (NALPGAM), Mr. Bassey Essien. He added: “The skyrocketing price of gas is our fear and what we are trying to avoid. Early in the year (2021), a 20-metric ton of gas was selling for below N5million, but today the same tonnage sells for N10.2million. As long as there is that supply shortage, the available quantity and the dynamics of supply-demand will keep pushing the price higher.” 

The ‘short supply’ narrative corroborated that by the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, who earlier on cited the inadequacy of product supply to match the volume of demand as one major reason the price of the cooking gas is ballooning. Speaking in September when he visited the Department of Petroleum Resources (DPR) headquarters, Kyari said: “Today, this country is under-supplied with gas. I can tell you that we are having difficulty feeding our network across the country with gas every day. So, this means that once your supply is weak, it will affect pricing. Today, the supply mechanism of LPG is very weak.” 

Although Nigeria is reputed to hold the ninth largest gas reserve in the world, with about 202trillion cubic feet of proven gas reserves and an additional 600trillion cubic feet of unproven gas, the country imports much of the cooking gas consumed locally. And with the sliding exchange value of the naira, the local capital required for transactions is invariably higher, which perhaps explains the dwindling level of supply. Recent data from the Petroleum Products Pricing Regulatory Agency (PPPRA) showed that LPG supply in the country dipped by some by 30.86 percent in September (85,066.55 metric tonnes) when compared with the volume available in August (123,029.79 metric tonnes). Of the volume supplied in September, 33,219.461 metric tonnes got imported from the United States and Equatorial Guinea. Going by official data, efforts are being intensified to locally harness Nigeria’s gas wealth and thereby boost supply, towards matching up with demand. Records showed local producers were able to supply 51,847.085 metric tonnes in September, compared with 32,588.964 metric tonnes in August. Kyari alluded to these efforts when he said: “That is why we are collaborating extensively to make sure that we are able to extract LPG from our gas resources, so that it is made available to the market. Once supply becomes high, the price will definitely be impacted. We are transiting and we will continue to add more volume into the market so that we bring down the prices.”

“From indications, many motorists will be stuck with petrol, and by no means out of their choice, when deregulation kicks in.”

But you could say talk is cheap, because the reality we live with is that the price of cooking gas remains high and rising still. And that is despite government declaring 2021 to 2030 a ‘decade of gas,’ in pursuit of which the Central Bank of Nigeria (CBN) was mandated to put up a N250billion intervention facility for the national gas expansion programme aimed at making Compressed Natural Gas (CNG) the fuel of choice for transportation, while LPG would be for household consumption and as captive power for small industrial complexes. It is as well on that premise government has been touting imminent deregulation of the price of premium motor spirit (petrol), in the expectation that motorists could readily switch to gas in the face of higher costs of petrol. Only that not much progress has been made with the scheme outlined to help Nigerian motorists convert their vehicles from petrol usage to gas usage, whereas the drive towards PMS deregulation has been relentless. From indications, many motorists will be stuck with petrol, and by no means out of their choice, when deregulation kicks in.

Meanwhile, the fate of cooking gas should be instructive. Contrary to official projection that its cost will be restrained, LPG has fallen in line with other petroleum products that are deregulated like diesel and kerosene, and which are prohibitively priced currently on the consumer market. It is the same dynamics at play in all the cases, namely that government unleashed the wild forces of the international market through deregulation without having cultivated capacity for domestic moderation of the impact of those forces. Importation avoidance through local refining / production capacity is one major route to domestic moderation of a deregulated market, but that is what this country grossly lacks at the moment. In the absence of such capacity, the international market forces bear down with tyrannous weight on the Nigerian consumer, accounting for the prohibitive prices of products and leaving government as mere onlooker.

Let’s be clear that those dynamics aren’t going to ever change because they are the fundamentals, meaning that the present fate of cooking gas only foreshadows what awaits petrol when it is eventually deregulated. And whereas attempts are being made to tackle down the price of LPG by boosting local production, such intervention is a long shot for PMS with the present state of Nigeria’s refining capacity. There is no question that subsidy on petrol is utterly wasteful and unsustainable, but some of us argue that deregulation should not be the same as government abdicating responsibility for the ease of Nigerian consumers and handing them over to wild market forces. Deregulation should rather be in tandem with demonstrable cultivation of domestic capacity for moderation of those external forces. Should petrol get deregulated at the present level of importation, we will see worse fate than has befallen LPG befalling it. Mark my words.