NIGERIA’S status as one of the world’s top natural gas producers is not reflected tangibly in the domestic market. Since the beginning of 2021, local cooking gas consumers have endured escalating prices induced by the scarcity of the product globally. In early 2021, experts say, a very cold winter in Asia prompted a dramatic spike in liquefied natural gas spot prices. From N2,800 for 12.5 kilogrammes of gas (liquefied petroleum gas) at the beginning of the year, the same quantity has risen to between N9,500 and N11,000, a hike of nearly 400 per cent. It has upturned the economy of homes. Subsequently, many homes and small-scale businesses are finding solace in dangerously inefficient alternatives like wood, kerosene, or charcoal.
As Africa’s largest natural gas repository, Nigeria’s gas crisis is a paradox: it is like taking coal to Newcastle. The country has an undeniable reputation for buying what it has in abundance. The Chief Executive Officer of Eco Gas Energy Resources Limited, Shina Luwoye, says 60 per cent of the LPG consumed in Nigeria is imported. The Nigeria LNG Limited confirms this by saying its current maximum butane production can only meet about 40 per cent of the domestic market demand. Yet, the country leads the continent with proven gas reserves of 206.53 trillion cubic feet. This is the ninth largest reserve globally and is projected to rise to 230tcf by 2030. The International Energy Agency estimates that at the present consumption rate, Nigeria’s gas will last for the next 306 years. Ordinarily, it should benefit the economy and trickle down to the populace.
In contrast, Egypt (77.2tcf), and Algeria (159.1tcf), with lower gas reserves, lead the continent’s consumption table. While Egypt consumes 2.06 billion cubic feet (39.5 per cent of Africa’s consumption) annually, Algeria does 1.58bcf (30.1 per cent). Nigeria consumes 654 million cubic feet (12.4 per cent), the third on the continent, said data company, Statista. By gas consumption, Nigeria is 38th in the world. Now, even that low domestic consumption figure is under a severe threat of receding. The predicament underlines the gross incapacitation of the Nigerian state to accomplish basic governance tasks, wrong policy options and the refusal of the government to promote private sector participation in the oil and gas downstream.
Essentially, the gas subsector is suffering a fate like that of crude oil. Although Nigeria is the 12th largest oil producer in the world, it is a net importer of refined petroleum products simply because it has lost the capacity to refine locally. The Organisation of Petroleum Exporting Countries states that Nigeria’s refined petroleum products imports ($71.28 billion) exceeded crude exports ($27.73 billion) by $43.54 billion in 2020. This makes no sense. It sustains the ineptness of the Nigerian economy. Oil exports were $27.29 billion, $37.98 billion, $54.51 billion, and $45.11 billion in 2016, 2017, 2018 and 2019, respectively. In comparison, it imported petroleum products in 2016, 2017, 2018 and 2019 with $46.55 billion, $49.51 billion, $73.85 billion, and $93.97 billion, respectively.
A similar scenario is also playing out in the gas sector: Nigeria has huge gas reserves, yet unavailability dominates the domestic market. Unable to meet domestic demand, Nigeria has resorted to expensive imports. It puts domestic consumers at the mercy of imports. With the naira depreciating to the dollar rapidly, gas is steeply expensive.
There is also the understated problem of inadequate national storage capacity. Because of poor production capacity, Nigeria is one of the seven leading countries with high gas flaring problems, the World Bank’s 2020 Global Gas Flaring Tracker, stated. The report stated that it flared 7.31 billion cubic metres of gas in 2016, 7.65bcm in 2017, 7.44bcm in 2018, 7.83bcm in 2019, and 7.20bcm in 2020. If the gas being flared can be harnessed, there will be more gas for domestic use and export.
Amid this, the government launched a policy to encourage cooking gas consumption. Noting rightly that dirty fuels – wood (that also causes deforestation), charcoal and kerosene – negatively impact 900,000 Nigerians annually and the greenhouse gases thereof damage the climate, the government launched the National LPG Expansion Plan intending to reverse the present indices, which stands at firewood (60 per cent), kerosene (30 per cent), LPG (5.0 per cent) and charcoal (5.0 per cent). The plan is to upgrade LPG use to 90 per cent between 2021 and 2031. Consequently, Nigerians are flocking to gas. The price upsurge will destroy this, as the high poverty level will tempt this category to return to felling trees, charcoal, and kerosene. This should be avoided at all costs.
In a way, official policy is creating part of the current mess. In 2019, the Federal Government removed the 5.0 per cent value-added tax on cooking gas imports. It worked as more Nigerians abandoned dirty fuels and transited to gas. Two years on, the government reinstated VAT on imported gas. By that time, gas prices had already headed north. The exchange rate of the naira had crashed badly, and VAT had become 7.5 per cent. In the international market, the price of gas has also gone up. Combined, all this created an upsurge in prices, with the major response from the government being that the gas market has been deregulated, adding that gas prices have risen globally. This is true.
For the government to realise its goal of gas use inclusivity, it might need to review the re-imposition of VAT on imports and assess how the market reacts. A suspension is not out of place until a measure of stability returns. Apart from that, there is an urgent need to implement policies that will reduce gas flaring significantly by increasing the penalties on the oil majors.
The government should further initiate policies that will deepen the participation of the private sector, especially in investments on the domestic front since natural gas is available in huge quantities here. All the administrative bottlenecks at the Lagos seaports that add demurrage to imports should go, while storage capacity expansion should be encouraged through private sector investment.
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