Nigeria’s plans to expand the domestic LPG market to 5mn t/yr by 2030 from 750,000 t/yr in 2017 have coincided with severely challenging conditions, brought about by the Covid-19 pandemic and more recently the Ukraine war. Demand grew in 2021 but fell short of target. And hopes of getting it back on track to reach 2mn t/yr last year were thrown off course by rising energy prices following Russia’s invasion of Ukraine.
Argus spoke with Nigeria’s head of the LPG expansion programme, Dayo Adeshina, to discuss the market’s development in 2022:
Ques: How did the Nigerian LPG market perform last year?
Ans: We unfortunately didn’t meet our demand target of 2mn t last year. Demand still rose to an all-time high, but we had a lot of issues in 2022 that distorted the market. The Russia-Ukraine situation resulted in prices rising exponentially. Any increase in price directly affects Nigeria’s market expansion. Affordability is vital, as one of the expansion programme’s “four As” — acceptability, affordability, accessibility and availability.
To a large extent, we’ve tackled accessibility, but are yet to tackle to the same degree affordability and availability. In terms of acceptability, we’ve made significant progress, which you can see from the market’s growth since the programme started in 2017, from 750,000 t/yr to more than 1.3mn t/yr in 2021.
Consumption rose to about 1.42mn t last year, according to government data, which is disappointing. Some issues were beyond our control, such as the Ukraine war. Outside of that, a couple of regulatory issues, including on VAT, acted as a disincentive to importers. But on the delivery of new [LPG import] terminals, we did quite well — two came on stream in the last quarter.
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Ques: What was the VAT challenge for importers?
In 2007, the government removed VAT on LPG imports after a key refinery stopped operating. This caused a huge market imbalance as imports became considerably cheaper than domestically produced LPG. One of the first things the government did was remove VAT on domestic supplies, but it did not reimpose VAT on imports.
Last year, a regulator identified the continuing imbalance and got approval to reinstate VAT [of 7.5pc] on LPG imports, taking effect in the second quarter of 2022. It created huge debit notes for importers and the decision was also retracted late last year. About 65pc of Nigeria’s LPG was imported in 2021, and that trend continued in 2022 because of issues at domestic plants. Supply thinned as a result.
Ques: How high did domestic LPG prices increase last year?
Ans: They consistently rose throughout the year. The average for 20t cargoes from terminals rose to about 612,500 naira/t [$1,331/t]. Prior to that, it was N450,000-500,000/t. And the 7.5pc VAT on imports had a sudden impact on prices.
Ques: How can the government help to ensure LPG is affordable?
We need to continue interventions in areas where policies have created sudden distortions, and to act as an enabler so that this extra volume is coming from additional players, because more competition drives prices down. If you have 10 more producers, then we can see exponential growth in terms of supply. So for as long as there’s a market, and that market is 210mn people, even if it is just the 30mn homes we are targeting to start with, it’s clear there is a significant market.
Ques: Nigeria LNG had planned to supply 100pc of its LPG domestically in 2022, but local media reported it had only delivered about 40pc of mainly butane. Why?
Ans: They had issues with gas processing — they couldn’t get raw gas because of pipeline vandalisation. And we have been trying to develop markets for propane, and had hoped the autogas market would take off last year and absorb a significant amount of their propane, but this did not happen. We have also been looking at power generation for propane, and we should kick off a scheme to substitute diesel with propane this year, but it didn’t even emerge last year.
Nigeria has two major refinery projects that are set to come on stream soon — the refurbishment of the 210,000 b/d Port Harcourt refinery and the opening of the new 650,000 b/d Dangote refinery. What is the latest with these and how much LPG will emerge from the two plants?
I think they are going to begin the restart of Port Harcourt at the end of the first quarter, so it should fully start up in the second quarter if all goes to plan. The Dangote refinery is set to be commissioned this month, but I’m not sure that it’s going to come fully on stream soon. We’ll wait and see. On LPG volumes, we don’t have exact figures yet, but it’s probably going to be mainly more propane.
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Ques: What are your expectations in terms of domestic LPG output in 2023?
Ans: We’re hoping a few domestic gas processing projects will help galvanise production this year. Outside of this, my office is also engaged in a lot of midstream projects.
Ques: Is attracting investment in those midstream projects a challenge?
Ans: Initially, yes, because the upstream players don’t have a line of sight to the downstream LPG sector. But we are enabling these through certain financial institutions and by assisting with risk assessments so that they can move to an FID [final investment decision] on some of these projects.
Ques: What key LPG infrastructure projects are scheduled to open in 2023?
Ans: A couple of terminals should come on stream this year. Two of these have more than 20,000t in storage, so they are seminal projects. This will lift the import terminal storage capacity to well over 100,000t.
Ques: Do you expect the market to return to strong demand growth this year?
Ans: Barring any disruptions such as the ones we encountered last year, we’re hoping that the two new terminals and other new projects, as well as increased market activity, will keep us on track to reach the targeted 2mn t of demand. At some stage, the cylinder injection scheme is going to kick in, which could raise demand exponentially. If all goes well, we should approach at least 1.8mn t in 2023.
Ques: Was the cylinder injection scheme delayed, and if so, why?
Ans: Yes, it was scheduled to start in the fourth quarter, but supply constraints meant it would be dead on arrival if we had started it. It is now set to start in April, and will be launched by the government in 12 plot states.
Under the scheme, new cylinders will be fitted with trackers. We’ve concluded an awareness campaign in eight of these states and we should finish the remaining four this month.
Ques: What are your main concerns for this year?
Ans: Foreign exchange. Our currency has taken a beating, affecting our ability to import LPG because there wasn’t as much access to foreign exchange. The US dollar exchange rate has shot up.
Officially, it is about 461 naira to the dollar, but not many people have access to this — the black market rate is about N760:$1.
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Ques: Is the original plan to reach 5mn t/yr of demand by 2030 still achievable?
Ans: Yes. Two things that give me confidence are the cylinder injection scheme and the two terminals. When we started the expansion programme in 2017, the biggest import terminal [had 8,000t of storage]. The projects since have been in the 8,000t range, then 11,000t, up to the two new 20,000t terminals.
And we have seen approvals for even bigger terminals — 30,000t and 56,000t. Traders are already taking positions to bring in VLGCs rather than smaller 5,000-6,000t cargoes. So there is going to be a significant increase in supply. And by the time we aggregate this with rising domestic production — because don’t forget, Nigeria has 200 trillion ft³ [600bn m³] of proven gas resources and 600 trillion ft³ unproven — this is a huge supply source to tap from.
That is why it is important to enable the midstream projects, to tap into the large upstream potential.
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