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Economy | Oil & Gas

Rising Cooking Gas Price; a Cause for Alarm?

Aug 04, 2022   •   by United Capital Research   •   Source: United Capital   •   eye-icon 104 views

Liquefied Petroleum Gas (LPG), popularly known as cooking gas, has soared in price during the past year. According to the National Bureau of Statistics (NBS) Liquefied Petroleum Gas Price Watch report, the cost of refilling the 5kg cooking gas cylinder rose by 7.6% m/m to N4,218.4 in Jun-2022 from N3,921.4 and by 103.9% y/y from N2,068.7 in Jun-2021. Similarly, the average price for refilling the 12.5kg cooking gas cylinder increased by 8.7% m/m to N9,485.9 in Jun-2022 from N8,726.3 in May-2022 and 121.2% y/y from Jun-2021. However, our market survey research showed that the cost of refilling a 12.5kg cylinder prints at N10,000 as of Jun-2022.

To put things in context, the price increase in cooking gas is due to demand pressures outweighing supply due to acute production shortages. Noteworthy to mention, Nigeria imports the majority of its cooking gas consumption while the rest is mainly supplied by the Nigeria Liquefied Natural Gas company (NLNG). However, a crucial contributing factor has been the recent surge in gas prices from Europe (up 107.8% YTD). Furthermore, with the reintroduction of Value Added Tax (VAT) on imported LPG in Aug-2021, importers have had to pay more for imported cooking gas and have subsequently passed on the higher cost to consumers. Lastly, foreign exchange pressures resulting from naira devaluation and increases in the dollar cost of the commodity have worsened the situation.

On the strength of NLNG’s policy decisions to enhance production and hence improve supply to meet domestic demand, the company has commenced the construction of its Train 7 project (currently at 26.0% construction stage), which is aimed at expanding its production capacity by 35.0% to 30.0mn tonnes p.a. In addition, domestic producers like ARDOVA have ventured into construction of new LPG plants and terminals to boost domestic LPG production. Thus, we believe that the full materialisation of the various projects will contribute significantly to locally consumed LPG; hence, the FG’s move to protect domestic production may become a masterstroke. However, we note that the global energy crisis will continue to be worrisome, putting pressure on energy prices in the medium term.

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