Liquefied Petroleum Gas (LPG) operators in Nigeria have thrown their weight behind the idea to establish a local pricing index for LPG to reflect the current realities in the value chain.
This initiative is coming even as stakeholders confirmed that Argus Media Limited, an independent provider of price information and business intelligence for the global petroleum and other commodity markets, was in the process of developing a West African price index for LPG.
Addressing options available to cushion the impact of foreign exchange volatility on the pricing of LPG in Nigeria at the Nigeria LPG Assembly webinar organised by the Oil Trading and Logistics (OTL) Africa Downstream Expo during the week, Dayo Adeshina, Programme Manager, National LPG Expansion Programme said that it had become increasingly clear that Nigeria needed a pricing index that was not US based.
He said “Today, Nigeria operates an LPG pricing index that is US based because the Nigeria Liquefied Natural Gas (NLNG), whose market was predominantly US Mont Belvieu, was set up solely for export, but circumstances made it come into the domestic market and so they decided to use the same pricing index minus the freight rate from Bonny to Lagos.”
Adeshina noted that this was not the best pricing index especially for a country with frequent swings in the value of the naira. He stressed that issues around pricing could be addressed by significantly reducing exports and increasing inland production and competition among other producers as well as marginal field operators in the long run.
“For sure, devaluation from currency swings definitely affects the pricing of LPG in-country. While we try not to encourage importation, we must also accept that the current supply cannot meet the overall demand. This results in the need for a structured market where the players can see that upstream and midstream operators are looking to supply the domestic market and this will encourage competition,” he said.
Adeshina also observed that the few times Nigeria’s refineries actually came on stream and supplied LPG to the domestic market; it caused a disruption and significant reduction in price. He said that local producers need to supply more gas locally as they are starting to see that there is actually a market.
Also speaking, Nuhu Yakubu, President, Nigerian LPG Association (NLPGA) noted that the future of LPG vis-a-viz the naira-dollar exchange rate is an issue that industry has been monitoring closely.
According to him “Domestic LPG is priced in USD and the only reason there hasn’t been an escalation in current local LPG prices in naira is because there has been commensurate increase in demand and the depreciation of the naira has helped to stabilise the price.”
He acknowledged the regional pricing arrangement that is being promoted by Argus adding that “As Nigeria inches towards a one million ton per annum target, once we hit that target, we will qualify as a market that can have its own pricing platform.”
On his part, Oladapo Olatunbosun, President, Nigerian Association of LPG Marketers (NALPGAM) emphasised that Nigerian market has not quite gotten the local pricing of LPG right. He said that the price is still high and this was because the industry had not fully domesticated its gas supply.
“When all gas producing gas companies in Nigeria sell to the domestic market as against the rush to export, the price of LPG will drop significantly. The foreign exchange risk will be avoided if we domesticate our gas, availability will increase, demand will spike and employment will improve” he concluded.
Source: Marine & Petroleum