‘Operators see increased domestic LPG production in improved investment climate’  

Local operators in the gas industry are optimistic that an improved investment climate will increase Nigeria’s 300,000 metric tons domestic LPG market, which currently ranks lowest in Africa, according to BusinessDay findings.

They maintain that local investments in the Liquefied Petroleum Gas (LPG) currently being hampered by currency mix match, pricing mechanism, absence of attractive fiscal regime, among other, will witness radical growth by way of investment once government provide an enabling environment.

The expectation is that once government through a sustainable framework encourage duty-free regime on the LPG value chain, private sector is willing to invest to enhance the country’s cooking gas market.

Domestic gas projects will become more profitable if indigenous companies are given access, Dada Thomas, managing director, Frontier Oil Limited, observes.

According to Thomas, “the only incentive for indigenous companies willing to continue to invest in gas for domestic use is if government provides an enabling environment.”

Thomas opines that freeing gas for local investors is the first step toward encouraging willing investors to develop gas for the domestic market.

“In a gas project, 70 percent of it is in dollars because of the technology, the equipment is not resident in Nigeria. You have to spend dollars to get a gas project going. So, if government does not address this investment and income currency mix match, there will be no future investment in gas project in Nigeria,” he says.

Analysts insist that to increase LPG to meet local gas demand, the domestic market must be made attractive to investors who need to invest huge capital upfront in gas processing and pipeline for distribution.

They argue that the absence of incentives to encourage investment in key infrastructure to boost local production and sales to consumers, must occupied a pride of place in government priority list.

In a recent report by BusinessDay, Nkechi Obi, managing director of Techno Oil, was quoted as saying that “the desire of local gas companies is for government to provide incentives for investors to build refilling plants and terminals, and DPR to incorporate LPG plants in all mega stations within reach of communities.”

Industry players maintain that while it is not difficult to decipher that utilisation of gas has assumed a new dimension for both economic and technological development, achieving the desire result in local gas supply or the lack of it will remain a very sensitive issue with government involvement in unrealistic prices.

The solution to this is simple and not in any way complicated, a local gas market without government interference in pricing will definitely be attractive to investors, Kareem Jubril Adedayo, an energy expert with Ecobank, observes.

Adedayo says government determination to keep cost of electricity low is hindering this development, as a cost reflective gas price will translate to higher tariff for electricity consumers.

He is however optimistic that in the long run when such investments are matched by improvement in power generation and transmission price will definitely find a lower level than the expected interim surge, should the government decide to deregulate the industry.

Wumi Iledare, director, Emerald Energy Institute, University of Port Harcourt, Rivers State, observes that the gas market is still evolving, adding that perhaps a Gas Purchase Agreement per contract can help as the domestic gas market evolves.

“Export parity pricing with respect to LNG may not be the best way to go if the domestic market is to be expanded for gas. This is intertwined with the tariff paid by electricity consumers as well, more so if gas remains the primary input for power generation,” he says.

Dolapo Oni, head, Energy Research, Ecobank Development Company Nigeria Limited, discloses that a short term gas availability that will focus on meeting immediate power sector requirements, jump-start the domestic gas-based industries, and more importantly, provide a base load of domestic gas volumes that will underpin a major investment in gas infrastructure should be encouraged by government.

Oni is optimistic that this will set the tune for a sustainable commercial framework underpinned by “credible and enforceable gas contracts, and a price regime that is commercially driven and recognises the long term affordability across different buyers.”

“LPG can easily be produced here in Nigeria because we have 182 trillion cubits feet of gas from that we can easily meet all of Nigeria domestic demand. But that requires investment in LPG plants. This not free of charge and if the government does not make it attractive for local investors to produce LPG, the shortfall will continue,” they say.

Analysts are of the opinion that given the fact that LNG is the only bulk producers of LPG in Nigeria with domestic supply still inadequate, there is the need to encourage indigenous operators because they are the ones willing to invest in domestic gas production.

They opine that the only way we can help increase the gas utilisation is strategic reduction in LPG price to accommodate various consumers’ pockets.