Rising Cooking Gas Price: Any Hope in Sight?


Wednesday, December 01, 2021 / 09:06 AM / by  United Capital Research / Header Image Credit: Guardian Nigeria

Liquefied Petroleum Gas (LPG), popularly known as cooking gas, has soared in price during the last four months. 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 9.6% m/m to N2,627.9 in Oct-2021 from N2,397.6 and by 34.5% y/y from N1,953.7 in Oct-2020. Similarly, the average price for refilling the 12.5kg cooking gas cylinder increased by 7.7% m/m to N6,638.3 in Oct-2021 from N6,165.0 in Sep-2021 and 62.8% y/y from Oct-2020. However, our market survey research showed that the cost of refilling a 12.5kg cylinder prints at N10,000 as of Oct-2021.

To put things in context, the price increase in cooking gas is due to demand pressures outweighing supply due to acute production shortages. The Nigeria Liquefied Natural Gas (NLNG) has denied being responsible for the shortage, citing gas marketers' inability to procure its total gas production of 450,000MT (due to logistical and infrastructural setbacks) as the cause of the supply deficit. Furthermore, the recently imposed VAT of 7.5% on imported gas in Aug-2021 contributed to the increase as imported gas accounts for the bulk of Nigeria's gas consumption. However, a crucial contributing factor has been the recent surge in gas prices from Europe (up 77.5% YTD). In addition, foreign exchange pressures resulting from naira devaluation further worsens the situation.

On the strength of NLNG's policy decisions to enhance production and hence improve supply to meet domestic demand, we expect prices of LPG to moderate in the medium and long-term. To accommodate the increased demand in the domestic market, the company recently announced that it would reduce its export of cooking gas. The NLNG has also commenced the construction of its Train 7 project, which is aimed at expanding its capacity by 35.0%. In addition, supply is expected from private gas stations which are being developed by downstream oil & gas producers such as ARDOVA.

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