Introduction
At the beginning of this month November 2021, President Buhari announced at that Nigeria has pledged to eliminate illegal gas flaring (which he said was Nigeria’s single greatest contribution to greenhouse emissions) by 2030. The President made the commitment at the UN Climate Change Conference Glasgow 2021 tagged COP26 (26th meeting of the Conference of Parties).
As the President was speaking, the prices of cooking gas also known as Liquified Petroleum Gas (LPG) has been rising in Nigeria and is now up by as much as 100% since the beginning of the year. There are trio of factors largely responsible for the skyrocketing cooking gas prices namely:
1. The Federal Government (FG) implementation of a 7.5 per cent Value Added Tax (VAT) on LPG imports
2. Rising cost of crude oil and gas in the international market where we are buying gas to supply to the domestic market
3. The fall in the exchange rate of the Naira to the dollar which has now depreciated to over N500 to a dollar.
Nigerians are now being forced as a consequence of the skyrocketing LPG prices to resort to alternative sources of fuel including firewood which in turn is harmful to the environment due to deforestation and contribution to greenhouse emissions.
To flare gas and then turn around to import it is akin to a farmer who after harvesting yams, sets fire to the yams and burns them to zero value. This same farmer then looks for money elsewhere to go and buy pounded yam for the family! No matter how this is analysed, this farmer will be condemned as a mental case! No rational human being will set the harvest on fire and then go to another producer to buy the same commodities! But this is exactly the situation of Nigeria. Not only is the country losing value in flaring her produced gas and then going to buy it at high prices, but there is also huge damage to both humans and the environment resultant from the perpetual flares dotted all over the Niger Delta! That more trees will now be felled to provide firewood for cooking exacerbates the environmental damage.
The World Bank projected in 2017 that almost 8 billion cubic meters of gas was flared annually in Nigeria according to satellite data. Nigeria’s oil Minister Chief Timipre Sylva is reported to more recently to have said about 3 billion cubic meters of natural gas was lost to gas flaring in the first five months of 2020. The loss was valued at $230 million. This is even more puzzling why a nation will decide to set fire on about a quarter of a billion dollars’ worth of a commodity annually and then turn around to import same commodity from other countries at high prices!
According to a Survey, despite the presence of the Nigeria Liquefied Natural Gas company (NLNG), which largely produces natural gas and Liquefied gas, Nigeria imports around 70 per cent of LPG for domestic use, with the balance of about 30 per cent sourced locally by dealers. Given that imports constitute such a high percentage of Nigeria’s cooking gas supply, it is unfortunate that there will not be an end in the price escalation of product for so long as the Naira’s exchange rate against the dollar is doing badly!
In his own reaction to the development, the spokesperson of the Nigerian National Petroleum Corporation (NNPC), Garba-Deen Muhammad, is reported to have said the Minister of State for Petroleum Resources, Chief Timipre Sylva, had said the commodity (LPG) was deregulated. Mr Sylva himself is reported to have said a media briefing that “We are not in position to determine gas pricing because gas is not a regulated product. But, of course, we are also very concerned that prices are rising and so I am actually doing something about it in the interest of the ordinary Nigerian.”
But the question that is left to be answered is why the FG is not regulating LPG? If the FG has been regulating the prices of petrol with trillions of Naira paid in subsidies annually, then why leave LPG unregulated?
Recommendations
1. In the short term, the FG must take immediate measures including requesting the NLNG to increase supply to the LPG market. This will ensure more supply to market with consequent fall in prices.
2. In the medium term, the FG must read the riot act to the upstream oil companies in Nigeria to harness and utilise produced gas. One gas is produced, it must be used. This will make more gas available to the Nigerian economy for cooking, electricity generation, fuel for vehicles etc.
3. In the long term, the FG must have a zero gas flares policy and impose punitive duties on imported LPG to make it uneconomical to import. This makes Nigeria self-sufficient in gas supply thus taking off the pressure on the forex market by importers who source the dollar to import gas into Nigeria.
4. The FG must regulate the LPG market. With the Petroleum Industry Act (PIA) setting up a regulator – Nigerian Midstream and Downstream Petroleum Regulatory Authority – LPG must come under a regulator to create an enabling environment for local producers to thrive.
Conclusion
Nigeria is blessed with a huge abundance of human and natural resources. Governments at all levels must work assiduously to unlock value from these resources. A situation where Nigeria is flaring a vital and valuable resource – Gas – and then importing it from other countries is an embarrassment that must not be allowed to fester into the New Year 2022!
References:
Cooking gas price up 100% as VAT on LPG import begins (sunnewsonline.com)
FG Implements 7.5% Tax On Cooking Gas Imports – Nigeria Business Information (naijabusiness.com.ng)
https://www.worldbank.org/en/news/feature/2017/03/10/nigerias-flaring-reduction-target-2020
https://guardian.ng/business-services/fg-begins-gas-flare-reduction-with-award-of-45-licences-in-june/
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