Basil Ogbuanu is the President of Nigerian Association of Liquefied Petroleum Gas Marketers, NALPGAM, and also the Managing Director of Second Coming Gas Limited, a liquefied petroleum gas, LPG, company with offices in Lagos and different parts of Nigeria. In this interview with Sebastine Obasi, he talks about the challenges in the gas sub-sector and the need for government not to sell its shares in the Nigerian Liquefied Natural Gas, NLNG.
Nigeria is experiencing recession. How has it affected gas business in the country?
The cost of gas supply is where the problem lies. There is a lot of issues, even though we are paying in Naira, they are being considered in Dollars. Before now, the exchange rate was N197 to a dollar, but now, every consignment that comes is paid for at the prevailing exchange rate. As I am talking to you, the dollar exchanges for N440.
Early this year, the price of gas was about N2 million per 20 metric tonne, but today, it is about N4.2 million per 20 metric tonne, more than 100 percent increase. The increase is of course, due to scarce foreign exchange. It has affected investment in the sub-sector. For example, to set up a gas plant now of 20 metric tonne capacity takes not less than N15 million. Before now, a 20 metric tonne of tank was N3.5 million, but now, it is about N11 million.
A compressor, which used to sell at N4 million, is about N8.5 million. Everything is like triple the amount it used to be. Even to maintain the existing gas plants is becoming an issue. The cost of running the business id increasing, while the profit is shrinking. For example, a generator we used to buy at N2.2 million is now about N4.8 million and the nature of our business is such that it is mostly dependent on generators. You cannot offload gas manually. You must use energy. You cannot sell without electricity. Electricity from the distribution companies is not reliable because it is not regular.
The recession is really hitting the gas sub-sector. What actually is sustaining the business is the Nigeria Liquefied Natural Gas, NLNG. In 2007, the federal government came up with what they called domestic LPG Scheme, where LNG was mandated to make available a specific quantity of gas for Nigerian use. They allocated about 150 metric tonnes annually. It has even been increased to 250 metric tonnes because consumption has equally increased. Though we get a little from the refineries, it is not enough. NLNG, which is a Nigerian company, supplies the gas with their vessels. However, the port charge is calculated in dollars.
Why is it so?
I wouldn’t know. Even though we are expected to pay in Naira, it is calculated according to the prevailing exchange rate. That is part of the reason the price is high. The product itself is not expensive, rather the handling cost is what makes it expensive. That is the reason we have been calling on the federal government to intervene so that we can have domestic gas pricing. To what extent has NALPGAM communicated this concern to the government and what has been the government response? It is all about advocacy. We have been making representations in workshops, seminars, conferences, calling on the government to intervene.
It is aimed at protecting Nigerian business owners. If things continue the way they are, especially considering the rumoured plan to sell some government assets, such as NLNG, the LPG business will collapse. It is the LNG scheme that has sustained LPG industry in Nigeria today. Remove LNG from the LPG business in Nigeria, the industry will collapse. We will lose a lot of investments. We will lose a lot of jobs. Before LNG came into being, we had less than 100 functional gas plants in Nigeria. Now we have more than 600 gas plants. No gas plant employs less than six people.
If therefore LNG is sold and there is a reversal of the domestic gas policy, the industry will collapse. NLNG is the company feeding a lot of Nigerians today, especially in the gas sub-sector. NLNG is the only company sustaining people’s investments in LPG in this country. Remove NLNG today, 90 percent of gas plants in Nigeria will collapse. All the gains we have made in terms of deepening the usage will be wiped away. That you have people like us here is because of NLNG. I cannot remember the last time we got gas from the refineries. NLNG has been the saving grace as far as LPG business is concerned. That is why NALPGAM is strongly against selling NLNG. Lack of infrastructure appears to be a major hindrance to the gas business in Nigeria.
Why doesn’t NALPGAM collaborate with other stakeholders to put infrastructure in place?
It is not something you just go into. It is capital intensive. In fact, the problem we have is the issue of berthing. We have two functional berthings for LPG – NOG owned by government and private one owned by NAVGAS. NAVGAS always has access to their own. Anytime vessels come, they discharge without wasting time. For the LNG vessels, they have to queue at the NOG bay, because all other vessels for PMS, DPK also discharge there. It is not easy for an individual to build his own infrastructure because he would not get space. There is a lot of bottlenecks involved. However, the point is, if it is well managed, every stakeholder will benefit.
What happens is that preference is given to PMS (petrol), forgetting that gas is essential to all. Remember that gas is used to cook for our President, Ministers, Governors, Commissioners and other government officials, preference should be given instead for gas. The challenge today is that the cost of gas is too high. Outside Lagos, you cannot buy a 12.5 kilogramme of gas at less than N4,500, but in Lagos you can get it at N3,500. Early this year, it was about N2,500.
The way it is, the price may not decrease, unless government intervenes in the FOREX issue. So long as the Naira continues to depreciate, the price of gas will increase.
What is NALPGAM doing about indiscriminate siting of gas facilities considering that it is highly inflammable?
That is what we call skid plant. It refers to those ones we normally see in some filling stations. Our Association has made formal complaint to DPR. We have also written to Lagos State Safety Commission drawing their attention to the activities of such people. As an Association, we do not have the power to stop anybody.
The only thing we do is to draw the attention of the government agency that is supposed to do something about it.
What has been their reaction?
DPR, I know is doing something, but for now, they have been able to stop them. In Akowonjo and Ikorodu areas of Lagos, these skid plants are numerous. Worst of all, none of them is licensed and they are allowed to operate. On the other hand, for you to be a member of NALPGAM, you must, one, have a gas plant. Two, that gas plant must be duly licensed by DPR. For DPR to give out their license, a due diligence must have been done. So far, DPR has not compromised.
They still maintain the standard required. However, we have found out that 99 percent of the skid issue are not approved. Why they still exist is what we don’t know. It is worrisome. There have been cases of gas cylinder explosion in some parts of the country.
What is NALPGAM doing about some of these outdated gas cylinders?
To the best of my knowledge, the gas cylinders we have are of standard, where we have challenge is the duration. I am aware that we have 20-year old cylinders, which is not supposed to be so. The reason being that if you take out these cylinders, there will be no replacement.
The cost of these cylinders is high. The only two companies manufacturing cylinders are no longer in existence due to unstable energy and high cost of raw materials. We now import these cylinders from India, Korea and China. However, before they are imported, Standard Organisation of Nigeria, SON, goes to those countries to inspect the facilities, so as to ensure that standards are maintained. SON has been up and doing in that regard. Cylinders in this country are of standard, but the challenge again is what to do when these cylinders are of age. NALPGAM does not have the right to cease expired cylinders.
The only right I have is to reject expired cylinders, but if I do so, what of the other company?
What type of expectations do you have for gas usage in Nigeria by 2019 going by what you see now?
The Nigerian environment is unique. As it is now kerosene is out of reach. It is about N200 per litre. Notwithstanding the challenges in the gas sub-sector, gas is still cheaper. For example, a 12.5 kg of gas is about N3,500. You know that 21.875 litres make up this 12.5kg. This gives about N146 per litre. As it is, gas is still cheaper. Besides, it is cleaner, faster and the most efficient cooking energy. People are beginning to embrace the usage of gas.
That is why we say that LNG should not be sold, so that the product will be available to Nigerians. If NLNG is allowed as it is, there is no doubt that in the next three years, we will be talking about having 700,000 metric tonnes of gas per year marketers in Nigeria. If however government intervenes like in Indonesia and India, I tell you in the next three years, we will be talking about 3 million tonnes annually. In Indonesia, the government came up with the policy of replacing every household stove with gas cylinders.
The problem we have in Nigeria is the entry cost. If you want to use gas now, you need to buy cylinder, which is above N10,000. You need to buy cooker, which is above N10,000. You need to buy hose and regulator before you buy the gas. This means that you need to budget more than N20,000. The minimum wage in this country is N18,000. How can a worker at that level use gas? Happily enough, we have gas in abundance in Nigeria. Presently, less than 30 percent of Nigerians use gas.