Expected impact of the last OPEC meeting on Nigeria’s Cooking Gas (LPG) Industry

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  • Author: Muyiwa Ige(LPG Stakeholder and Consultant)

The Organization of Petroleum Exporting Countries (OPEC) in its last meeting on October 5, 2020 in Vienna, the Austrian Capital, arrived at the decision to cut overall production output for OPEC and non-OPEC participating countries by a whopping 2 million barrels per day, starting from November 2022.

What is the implication of this decision for the LPG industry in Nigeria in the coming months?

OPEC’s decision to slash the total production output for its members and partners by as much as 2 million barrels per day, at a time the winter season in approaching in temperate countries of the world- usually characterized by increased demand for LPG-, does not portend well for Nigeria’s LPG industry.

The cut in production output at a time of higher demand will invariably heap tremendous pressure on the supply of LPG world-wide.

United States LPG supply to Nigeria not guaranteed

The ongoing Russia-Ukraine war has already caused LPG supply disruptions in Europe, a major consumer of LPG.

As winter approaches and kicks in, Europe having turned their backs on Russia, will rely heavily on the United States for crucial LPG supplies for their heating needs.

With the United States of America at the fore-front of the campaign for Europe to end their energy dependence on Russia, they are under a strong moral obligation to dedicate a huge chunk, if not all, its limited LPG export allocation to Europe.

It is should be noted that the LPG export allocation from the United States during winter is expected to drop since it also needs LPG for heating.

This means Nigeria will seriously struggle to source for LPG from the United States in the winter season, which has been a reliable supplier of the product to the country.

Supplies from other LPG producing countries equally not guaranteed

People may freeze to death in temperate regions like Europe, so the need for energy sources like LPG assumes a desperate dimension during the winter season.

For this reason, European countries are ready to go to any length, including using their superior economic clout and are willing to pay premium rates to secure critical LPG supplies.

Nigeria, where LPG is primarily used for cooking(in the presence of other cheaper alternatives like charcoal and firewood) cannot compete with European countries in economic clout deployment and may not be able to pay premium rates to secure LPG supplies from countries like Argentina, Trinidad and Tobago, India, Spain, Guinea and Equatorial Guinea.

LPG marketers in Nigeria are well aware that Nigerians may not buy the product if it becomes too expensive.

What this means is that Nigeria may find it very hard to import LPG to make up for the 65% shortfall in the country’s total production capacity that can only satisfy 35% of the domestic demand.

This may culminate in the scarcity of the product and trigger a dramatic rise in its price.

Short Term Solution

Nigeria’s security agencies must secure Oil and Gas pipelines to forestall pipeline vandalism that deprives LPG Production Plants in the country of feed-gas, consequently preventing them from operating at 100% capacity utilization.

Long Term Solution

More LPG Production Companies must come on stream and the country’s total coastal LPG depot storage capacity should be increased from about 85,000 metric tons to at least 250,000 metric tons, within two years.