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Here’s why Nigerians may pay more for cooking gas in festive period

With the festive season less than six weeks away, there are indications the soaring cost of cooking gas may extend beyond December 2021, a development that will compound what has been a terrible year for Nigerians’ disposable income.

A combination of supply shortfall, re-introduction of VAT, foreign exchange scarcity/naira devaluation, logistic hitches among others, are some of the reasons experts gave for Nigeria’s current inability to meet local gas demands.

These reasons have led to an 87percent increase in the price of Liquefied Petroleum Gas (LPG) popularly called cooking gas as prices of 12.5kg cylinder has risen from N4, 000 in January to about N7, 500 in Lagos and Ogun States, depending on locations.

Other experts fear LPG’s price may jump to N10, 000 before the yuletide season unless urgent steps are taken to increase local production and improve supply to the market.

As the yuletide season approaches, here are four reasons why Nigerians may pay more for cooking gas.

Supply shortfall

Nigeria has one of the world’s largest reserves of natural gas estimated at about 600 trillion cubic feet, which has made it to be the sixth-largest gas country globally as well as the ninth-ranked country in terms of gas export. Yet meeting local demands remains a major challenge.

“Early in the year a 20-metric ton of gas was selling for below N5 million but today, the same tonnage sells for N10.2 million. As long as there is that supply shortage, the available quantity and the dynamics of supply-demand will keep pushing the price higher,” Bassey Essien, the executive secretary of the National Association of LPG Marketers said at an event.

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The marketers union warned that the 12.5kg cylinder of cooking gas, which currently sells between N7,500 and N8,000 could rise to N10,000 by December if the government fails to address the crisis.

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He also lamented that more Nigerians were being forced to return to kerosene, firewood, charcoal, and sawdust due to the sudden rise in the price of cooking gas.

Re-introduction of VAT

Three months ago, the Federal Government reintroduced the 7.5 percent VAT on imported LPG in a bid to boost its revenue sources, following evident pressures through the year.

The government had in 2019 gazetted the removal of VAT on cooking gas, as a product to increase its domestic utilization.

However, the director of Depart of Petroleum Resources (DPR), Sarki Auwalu, had said the government had to re-impose VAT on imported LPG to attract investments to local gas production.

Investigation in the market shows that the price of cooking gas in Nigeria has been on an upward swing since the reimposition of VAT, with the price of LPG skyrocketing to N7,500 in October for 12.5 kilograms of LPG.

Foreign exchange scarcity/naira devaluation

BusinessDay’s findings also revealed naira devaluation and foreign exchange scarcity, to a great extent, have adversely affected LPG pricing, which is denominated in dollars.

According to Muda Yusuf, the immediate past director-general of the Lagos Chamber of Commerce and Industry (LCCI), the country’s high dependence on importation of LPG plays a major role in the latest price hike of LPG.

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He noted that as long as the dollar was appreciating against the naira, the price of cooking gas would keep increasing.

Presently, the official exchange rate of a dollar to the naira is N410.87. The rate is also within the range of N570 – N572 at the parallel market.

In May, the Central Bank of Nigeria (CBN) devalued the naira by 7.6 percent in an attempt to migrate towards a single exchange rate system.

The CBN replaced the fixed official rate of N379 to a dollar and adopted the more flexible NAFEX exchange rate of N410.25 per dollar.

Logistics hitches

Findings by BusinessDay further showed the inability of energy marketers to off-take 450,000 metric tons per annum (MTPA), of product allocated, is another major factor responsible for the supply shortages.

Nigeria LNG Limited (NLNG) marketing manager, Austin Ogbogbo, told journalists recently, that because of certain logistics, only about 375,000mt of the company’s dedicated 450,000mt LPG supply was being taken by the domestic market.

The factors, according to him, had to do with delay of the company’s LPG vessel at the Apapa Port, preference of white products for LPG by the terminal owners, and insufficient coastal storage facilities.

He said if those logistical challenges were solved, the company would supply 100 percent of its LPG production to the domestic market.

“We could go up 100 percent if coastal storage is available. Sometimes, you want to supply, LPG takes the backstage. They prefer white products in the coastal storage, or if it’s not white products, your vessel might be there for days, accumulating demurrage.

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“Immediately that is cleared and we are sure we can come in and supply, we will push that in, and hopefully, we will ramp up to the 100 percent,” Ogbogbo said.

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