Hike In Cooking Gas Price May Cause Socio-economic Crisis-Ex-NIMASA DG
Former Director-General of Nigerian Maritime Administration and Safety Agency (NIMASA), Dakuku Peterside has said that the hike in the price of cooking gas in the country may lead to a socio-economic crisis.
Dakuku explained that the price of cooking gas had more than doubled in the last one year.
Granted that the rising LPG prices were a part of a general escalation of other daily living costs, he noted that gasoline pump prices, electricity tariffs, basic prescription drug prices and urban mass transportation formed part of the determinants of the escalating living costs and declining living standards.
The former director-general noted that Nigerians were already facing hydra-headed challenges such as debilitating insecurity, extreme poverty, hyperinflation, high cost of food and essential consumables, diminishing trust in government and its institutions at all levels.
Dakuku said that there was no clarity on the way forward, noting that the everyday quality of existence for the average Nigerian was depreciating.
He noted that the situation was made worse by the increasing economic uncertainties, the fallout of global pandemic, and historical neglect of development antecedents by Nigerian leaders, who have failed to listen to and work for the over 90per cent of ordinary Nigerians struggling to eke a living daily, irrespective of the economic and security quagmire that have befallen the country.
He said: “In recent times, the continuous rise in the price of LPG gas (cooking gas) exemplifies everything wrong with Nigeria’s ecosystem and why our economic handlers should make a deliberate effort to create an atmosphere of optimism.
Cooking gas is symbolic because it represents a product that many Nigerians, especially those living in urban and semi-urban areas, need for everyday cooking.
“Nigeria has it in abundance – 9th largest reserve (about 207 trillion standard cubic feet as of 2019), and it is a source of clean energy that Nigeria is advocating for many of its citizens to change to. Aside from being used as cooking fuel, it is used to power appliances, power some vehicles, and some small businesses depend on gas.
Whatever happens to gas (LPG) affects almost all families one way or the other. To show the shift that has taken place, in 2008, Nigeria needed only 40-50,000metric tonnes of gas, but today the total annual requirement is about a 1.3million metric tons, a growth of over 2000 per cent.”
According to him, it would be pretentious not to acknowledge that this rise in living costs, shrinking of the purchasing power of average middle income and low-income families and constant erosion of the value of the Naira was responsible for the current atmosphere of discontent and may result in an implosion if not checked.
Dakuku said: “To establish the fundamentals that led to the increase in the price of cooking gas, I need first to set some clear facts about the micro and macroeconomics of LPG gas in Nigeria and global trends that impact the LPG sector.
First, Nigeria gets a little over 450,000 metric tonnes of LPG from its liquefaction company, the NigerianLiquefied Natural Gas (NLNG), co-owned with the nation by three international oil companies, while the actual domestic demand stands at 1.3million metric tonnes, a shortfall of 850,000 metric tonnes.
These 450,000 metric tonnes of LPG represents about 100 per cent of its Butane production (Butane gas is less volatile and is suitable for cooking).
And by committing 100per cent of its butane production, NLNG posit that it has prioritised the domestic market, thus realised its domestic supply target, whilst still focussed on the exportation of the 22 Million Tonnes Per Annum (MTPA) of Liquified Natural Gas (LNG) and 5 MTPA of Natural Gas Liquids (NGLs) it produces given its current capacity.
At the same time, several Nigerian upstream operators are setting up LPG extraction plants to cut down gas flaring and monetise gas.
“Second, NLNG supplies 40per cent of domestic demand. The balance is provided through other domestic producers or via imports. Therefore, NLNG’s production alone is not sufficient. Over one million metric tonnes of LPG were consumed by Nigerians in 2020, with over 50 per cent of the product imported by marketers.
The implication is that we are a net importer of LPG and exposed to the vagaries of market forces and traders’ insatiable appetite for profit.
“Third, LPG is a product priced in the international market. The vagaries of the price fluctuations in the global market affect the price of domestic LPG because over 50per cent of LPG sold in Nigeria is imported from abroad and priced in US Dollars.
Prices of gas keep soaring at the international market with consequential impact on the local market. Between January 2021 and August 2021, the prices of 5kg and 12kg cylinders of gas rose by nearly 300per cent.”
He stressed that the exchange rate regime and the valuation of Naira against the US Dollar had impacted directly the price of LPG in the domestic market adding that NLNG, through the export of LNG and NGL abroad, gets the much-needed foreign exchange for the country, while the import of LPG by independent marketers depletes the foreign reserve and may have a negative balance of payment implications.
According to him, a quick analysis of the above facts reveals that LPG was a product that opens itself to influences both local and international and almost had an inelastic demand structure because of its importance.
Dakuku also explained that depot owners, on their part, indirectly engaged in price-fixing as they sell the locally sourced LPG from the NLNG and the imported LPG at the same price.
He noted: “Even the locally sourced LPG from different parts of Nigeria is still sold at the international price. The cost of 20tonnes of LPG moved from N3.5million in January 2021 to N8million in August 2021. The vendors are using this opportunity to make quick money at the expense of the people.
“The Federal Government reintroduced the 7.5per cent VAT on LPG in 2021, when other factors make LPG very exorbitant. The VAT added pushed the price up even further. Finally, the local production end of LPG is not helping matters (NLNG and marginal producers prefer to export than sell to the local market). We may not blame them because Nigeria needs the foreign exchange earning to boost our foreign reserve to give the Naira a fighting chance against the Dollar.
This persistent increase in the price of LPG and other essential commodities may have dire consequences for many Nigerians. It may lead to a socio-economic crisis as people are gradually feeling frustrated over their plight.
A cloud of discontent is slowly gathering, and I hope it does not lead to significant social dislocation. The price spike must not be allowed to continue. Government should take deliberate policy and regulatory steps to check the rising cost of gas.”
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