How Foreigners, Middlemen Capture Nigerian Gas Market

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How Foreigners, Middlemen Capture Nigerian Gas Market

Foreign gas investors and middlemen have been accused of being the major force behind skyrocketing gas prices across the country. OPEOLUWANI AKINTAYO writes on the roles they play in hike in prices which have risen from around N3500 as of December 2020 for a 12.5kg cylinder, to around N11, 000 depending on the location

The ‘Decade of Gas’ agenda of the Federal Government that aims to encourage more use of gas in the country stands the risk of becoming an illusion if no decisive step is taken to stem the current tide of hijack in the Nigerian gas market.

The PUNCH findings revealed that foreign investors and middlemen/offtakers, who delight in incessantly inflating gas prices to the detriment of Nigerians, have hijacked the Nigerian gas market.

The prices of Liquefied Natural Gas, also known as cooking gas, have gone beyond the reach of an average Nigerian since 2020 when the COVID-19 pandemic broke out, which forced global exploration to slow down. This was coupled with the Russian/Ukraine war which caused a rise in the exchange rate, tightened supplies, and jacked up prices, among others.

Prices have skyrocketed from N3,500 for a 12.5kg gas, as of December 2019, to the region of N10,500, N11,000 and N12,000, depending on the location of purchase.

As a result, Nigerians, especially those in the rural and semi-urban areas, have been forced to abandon gas for cheaper cooking alternatives such as firewood and coal.

Investigations revealed that apart from the global unavoidable causes of supply shortage and high prices, some foreigners and local middlemen in the gas business have also been contributing largely to the hike in cooking gas prices.

The Nigeria Liquefied Natural Gas Company is currently the major gas supplier to the local market. The company supplies 100 per cent (450,000 metric tonnes) of its butane to the Nigerian market.

The arrangement for the company to dedicate 40 per cent of its products to the local market was made by former President Olusegun Obasanjo, who saw it as the best way to make the product accessible to Nigerians in order to alleviate their sufferings.

However, due to negligence on the part of successive administrations, The PUNCH findings show that foreign firms such as NIPCO and NAVGAS, in collusion with some other local depot owners, have formed themselves into cartels that dictate prices of cooking gas across the country.

The PUNCH investigation also discovered that though the NLNG sells to depot owners at N6m per 20,000 metric tonnes, they resell to plant operators at N12.8m per 20,000MT.

The latest data from the Nigerian Bureau of Statistics indicated gas has been a major contributor to the accelerating inflation rate in the country, which stood at 21.09 per cent in October.

The PUNCH learnt that though depot owners do not get the gas from the same source, they, however, sell at the same inflated price dictated by them.

“Foreign gas investors such as NIPCO and NAVGAS are among those causing the major problem in the gas market. As of today, NLNG is selling gas to all these depots such as NIPCO, NAVGAS, 11 PLC and other depots in the Niger Delta and South-South.

How Foreigners, Middlemen Capture Nigerian Gas Market - Brand Spur“They buy (20,000MT of gas) for something close to N6m. They will add some costs like storage and the rest, and at the end of the day, they will sell such products at N12.8m. The entire business is profiteering,” a source who spoke on the condition of anonymity, due to the sensitivity of the issue, told The PUNCH.

The source added, “These people call themselves offtakers. At the initial stage when the issue of offtakers came on board, it was solely for plant owners, because if you don’t have a plant to dispense, you have no business with gas as you can’t keep it in your house.

“It was Obasanjo that compelled the NLNG to sell a certain percentage of its refined products to the local market to save Nigerians at that time. Now, if you want to become an offtaker to NLNG on LPG, but you don’t have a gas plant, then you become a middleman.

“The middlemen in the distribution chain will definitely make a profit. That profit would also jack up the cost in the distribution chain and at the end of the day, they sell to plant owners. Definitely, the plant owners will also want to make a profit.

“The original design was for NLNG to sell to plant owners, but currently the people who own plants are not up to 50 per cent of those taking gas from NLNG.

“So, when you now load the cost with about N5m before it gets to the plant owners, definitely the plant owners will also add to it, considering the cost of diesel and the rest.”

Further investigation revealed that Kwale Hydrocarbon, which also refines gas, sells directly to plant owners. It sells at the same price as the offtakers. It has jacked up the price to between N12.3m to N12.8m for 20,000MT.

“Good luck with your article. A word of advice, get your data right,” the spokesperson for Kwale Hydrocarbon, Jacklyn Addy, told The PUNCH when contacted to explain why the company sells to plant owners at exorbitant prices.

It was also learnt that while the NLNG and Kwale Hydrocarbon supplied the likes of NIPCO and NAVGAS with quantities as high as 5,000MT, Nigerian offtakers were being supplied lower quantities – within the range of 120MT and 300MT, with supplies sometimes dropping to as low as 80MT and 50MT.

This, The PUNCH learnt, gives foreign gas marketers an advantage over their local counterparts to determine and inflate market prices.

The spokesperson for Algasco, the parent company for NAVGAS, Friday Agwu, debunked the allegations.

“All the claims are false and borne out of ignorance of the LPG value chain,” he told The PUNCH over the phone.

Findings showed that the foreigners had the backing of some government officials, who successfully lobbied the NLNG into releasing more volumes to foreign firms than local ones.

“The issue is that who is the government? Is it not the ministers who go there, maybe they have an interest in somebody; they go to lobby at the NLNG to dictate what quantity to give whom? So, where is the government? The powers that be are backing companies like NIPCO, otherwise, why would NIPCO get about 5,000MT while others will get 300MT, 120MT and 80MT?,” another source queried.

How Foreigners, Middlemen Capture Nigerian Gas Market - Brand SpurThe source continued, “If you say NIPCO has the depot, fine, they have depots. But if you give them equally, it is the same depots that they will offload it into. The worst part is that even if the Nigerian offtakers are ready to sell at lesser prices, the moment the foreign investors that build coastal depots set their prices since the throughput arrangement is from them, other marketers rent their depots so that when the NLNG products come, they can offload there to distribute their products out.

“Even if indigenous investors are ready to sell less, at the end of the day, the moment the foreign investors fix their prices, indigenous investors dare not sell less than the prices, because next time they will threaten that they won’t give their depot to them to offload their products from NLNG.”

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An email sent to the Assistant General Manager, Corporate Affairs, NIPCO Plc, Lawal Taofeek, was not responded to.

“Dear Ope, we will review your request and my colleague Yemi will revert with our position,” the corporate communications team for NLNG said in an emailed response. However, no official response was received from them after a reminder was sent to them.

Offtakers dilute products

The PUNCH also learnt that another major problem facing the Nigerian gas market was adulteration.

Findings revealed that after the supply of 100 per cent butane by the NLNG to the offtakers, and the products are inspected by the Nigerian Midstream and Downstream Petroleum Regulatory Authority, the offtakers, thereafter, allegedly usually dilute the commodities with propane to achieve higher volumes.

There are different types of Liquefied Petroleum Gas and they include butane, propane and others.

Although propane is being produced in Nigeria, it is not consumed in Nigeria because it burns faster due to the country’s hot weather. Propane is usually exported to Europe and other countries with cold weather. Nigeria approves butane which burns slowly and lasts longer for domestic consumption.

The investigation showed that after the NLNG have supplied butane to depot owners, they dilute it with propane for more volumes to the detriment of consumers, because of its less hour of burning.

Although one of our sources confirmed that mixing butane (85 per cent) and propane (15 per cent) is an industry practice even globally, however, some of the depot owners go beyond the 15 per cent approved propane volume.

Another source familiar with the matter said, “These people shortchange Nigerians on both sides because propane is cheaper, and it burns faster. NLNG supplies butane to depots; offtakers that are not depots owners pay NLNG for butane, but when it gets to the depot after the NMDPRA must have checked the products and certified its quality, these people usually buy propane in trucks and mixed with butane at the depots.

“There was a time they went to the NMDPRA to lobby them, and you know the government doesn’t know much because when they tell them that the mixture will increase volume. Of course, the government wants something that will increase the volume so that it will be available to Nigerians.

“But, what about the characteristics of what they mix to have more volumes? It is to the detriment of an average Nigerian. If you cook with butane, say 12.5kg, if that one lasts you 40 hours of cooking, and you mix 30 per cent of propane, that means you are now getting 15 per cent off, because it cannot last longer like butane.

“At the end of the day, when you go to gas plants to buy products, they give you 12.5kg, the calories (heat) that the 12.5kg will generate won’t be up to what 12.5kg butane will give you. So, consumers will complain that gas plant operators cheat them. Of course, not!”

The PUNCH further gathered from another source that the main problem was the depot owners.

How Foreigners, Middlemen Capture Nigerian Gas Market - Brand SpurA source said, “NAVGAS and NIPCO are the culprits. NIPCO is the worse. They lobby the government. The government gives them a certain percentage to deliver. Even the percentage they get is not done in good faith because they get 100 per cent from NLNG. But why do they still mix it?

“Is to cheat Nigerians! Our government needs to understand a lot of things before they give approvals. The mixing is what gives them the temerity to treat Nigerians the way they like. And if they are selling, the moment they are running out of products, they will bring in propane trucks in multitude to dilute the remaining quantity so that they can increase their volume. That is what they have been doing.”

Gas association declares price war

The National President, Nigerian Association of Liquefied Petroleum Gas Marketers, the umbrella body comprising owners of gas plants in Nigeria, Oladapo Olatunbosun, confirmed The PUNCH findings.

He said 20,000MT of gas is being sold to gas plant owners at N12m as against N6m that depot owners purchase it from the NLNG.

He said, “NLNG has been committed and consistent in supplying 100 per cent of their butane into the market. As of today, NLNG produces 450,000MT, while Kwale, ExxonMobil and others also refine.

All the gas is consumed in Nigeria but some marketers will lie that they import. I challenge anybody to publish how much NLNG sells gas to them. Why are they now selling to Nigerians at more than a 100 per cent margin?

“This is exploitation. If anybody further increases the price, Nigerians will resist them. My association will mobilise everybody and we will stop buying.”

Olatunbosun called on the Federal Government to step in and regulate the market.

On the allegation of the mixture of propane with butane by depot owners, Olatunbosun said there was a permissive percentage already agreed upon by the Standard Organisation of Nigeria and the NMDPRA.

He, however, added that the original purpose of the mixture which was to bring down prices had been abused.

He said, “The mixing of butane and propane is not illegal. The Standard Organisation of Nigeria agreed that the ratio should be between 86-14 per cent, but the purpose of bringing down the prices has been frustrated.

“Instead of prices being reduced, it keeps increasing. Any business that gives above 100 per cent profit margin is extortion. Government agencies should step in and protect the poor Nigerians.

“These people have strangulated the LPG market by cutting off the larger number of buyers. If we are honest, what we produce in this country is enough to cater for all without importing, but because they want to frustrate the market, they hide under importation.

“Importing from where? And if they import, what is the landing cost of their import? How much of this profit stays in Nigeria? They are taking everything out because they don’t have a stake here.”

The General Manager, Corporate Communications, NMDPRA, Kimchi Apollo, did not respond to calls and messages sent to him.

Desk Officer, LPG, SON, Engr Okpe Williams, told The PUNCH that the percentage of propane and butane allowed to be mixed is 30/70 per cent, and sometimes 40/60 per cent.

When asked whether the organisation was aware that some depot owners mix above the approved propane/butane volume, Williams said no such complaint had been lodged.

“Such complaints have not come to us. Nobody has come to complain to us that LPG is being adulterated in Nigeria. How did they come to such a conclusion? Did they take samples for analysis?” he said.

Experts’ advice

A consultant at the DFID-funded Facility for Oil Sector Transformation managed by the Oxford Policy Management, Dr Dauda Garuba, advised that the government should ensure that middlemen who inflate prices were cut off from the distribution chain to reduce prices.

“If offtakers can sell directly to the plant owners, all this nonsense will stop. Let NLNG sell directly to plant owners, not the money bags or those who know the minister. Let them sell to those who will resell directly to Nigerians. They should also make the quantity sold to them uniform,” he said.

Source: The PUNCH