Gas Consumers Brace for Impending Price Hikes as Marketers Cite Reasons
CrossRiverHub.ng has learned that gas consumers in Nigeria should prepare for upcoming price increases, as industry insiders suggest that prices are set to rise next week. The President of the Nigerian Association of Liquefied Petroleum Gas Marketers, Olatunbosun Oladapo, attributes this anticipated hike to a combination of factors including surging international prices, elevated tax rates, vessel costs, foreign exchange scarcity, and the devaluation of the local currency.
Oladapo noted that the rising costs are forcing consumers to turn back to traditional cooking alternatives such as firewood, charcoal, and sawdust, as they struggle to cope with the financial strain.
The situation is further exacerbated by the fact that consumers’ purchasing power has decreased, leading to widespread concerns about the affordability of gas. Marketers emphasize that the government needs to intervene by offering palliatives, reducing taxes and levies, and addressing the escalating hardships faced by the masses.
Oladapo lamented the impact of local taxes on gas prices, urging the government to focus on taxing profits rather than the products themselves. He called for marketers to consider consumers’ well-being when determining prices, especially those who have the option to procure products locally.
The predicted price surge comes on the heels of findings that vessel scarcity on the international market is expected to drive up local prices of Liquified Natural Gas (LNG), commonly known as cooking gas, in the upcoming months. Charter rates for vessels have surged ahead of the 2023 winter season, a period of peak demand for heating fuel. These higher shipping costs are likely to lead to elevated prices for buyers in both Europe and Asia.
Furthermore, the devaluation of the local currency, with the dollar exchanging for N749.62 according to the Central Bank of Nigeria, is expected to impact the domestic price of LPG. Nigerian LPG prices are closely linked to international benchmarks, subjecting them to fluctuations due to market dynamics.
For months, local consumers have enjoyed lower gas prices due to a drop in international prices. However, the recent naira devaluation has prompted an increase in the cost of LPG, leading to concerns about its affordability for households.
As gas consumers in Nigeria brace themselves for potential financial strain caused by the imminent price hikes, there is growing anticipation regarding the government’s response to these challenges and their impact on daily life.
Local gas prices in Nigeria have been significantly influenced by a combination of international and domestic factors. The Nigerian Liquefied Natural Gas (NLNG) prices are closely tied to international benchmarks and subject to changes due to market dynamics. As such, the recent surge in vessel charter rates, driven by vessel scarcity in the international market, is expected to contribute to the rising costs of Liquefied Natural Gas (LNG), commonly referred to as cooking gas.
Volatile shipping rates and increasing vessel charter costs have prompted concerns about potential margin erosion for LNG traders, ultimately leading to higher prices for buyers. The impact of these global market dynamics is now being felt by Nigerian consumers as they face the prospect of increased expenses for essential cooking gas.
Furthermore, the ongoing devaluation of the local currency, the naira, has compounded the challenges faced by gas consumers. The exchange rate of the naira against the US dollar has played a significant role in determining the prices of locally produced LPG. The devaluation has led to a rise in the cost of LPG, affecting the affordability of this essential household resource.
The Nigerian Association of Liquefied Petroleum Gas Marketers has called for government intervention to alleviate the burden on consumers. They have urged the government to reconsider its taxation strategy, focusing on taxing profits rather than the products themselves. This approach aims to cushion the impact on consumers who are already grappling with decreased purchasing power.
The immediate consequences of these price hikes are reflected in changing consumer behavior. Many households are reportedly returning to traditional cooking methods such as firewood, charcoal, and sawdust due to the increasing costs of cooking gas. This shift not only affects consumer lifestyles but also highlights the urgent need for measures to address the affordability and accessibility of essential energy resources.
As Nigerian gas consumers brace for the anticipated price hikes, the implications of these challenges extend beyond household budgets. The broader impact on local businesses, the economy, and the energy landscape underscores the importance of finding sustainable solutions to stabilize prices and ensure the availability of essential energy resources for all segments of the population.
As of August 1, 2023, charter rates surged to $284,750 per day for November and $206,750/day for October, quadrupling the current price of $70,500/day, according to data from Spark Commodities quoted by Bloomberg.
“Tanker supplies are increasingly tight because traders are using the ships as floating storage in a bet that LNG prices will rise as the weather turns colder.
“Volatile shipping rates can eat up margin for an LNG trader looking to cash in on higher winter prices, and rising transportation costs ultimately can mean higher prices for buyers in Europe and Asia.”
The number of LNG vessels floating on the water for at least 20 days also rose in late July, with 42 vessels tracked, which is about 27 per cent higher than the same time a year earlier.
Nigerian LPG prices are internationally benchmarked based on Nigerian Liquefied Natural Gas Contract prices and are always influenced by international prices.
And like other internationally traded commodities subjected to price fluctuations due to market dynamics, the NLNG CP is subject to changes and can be reviewed either upwards or downwards at least once to three times.
The devaluation of the local currency would also impact the domestic price of LPG.
The dollar exchanged for N749.62 on Wednesday, according to the Central Bank of Nigeria.
The Nigerian LNG usually sells the cooking gas it produces locally to off-takers based on the prevailing exchange rate.
The PUNCH checks showed that the prices of 20 metric tonnes of LPG at the major depots in Apapa, Lagos, between July 28 and August 7 had been between N10.7m and 11m.
Local consumers of cooking gas have for some months now enjoyed low prices due to a drop in international prices.
The price of LPG dropped from an average of N730 per kilogram in June to around N600/kg in July and increased to N750/kg in August due to the naira devaluation.
As of June, the price dropped by 76.1 per cent to 2.10 per one million British Thermal Units on May 31 from 8.78 per one million BTU, according to U.S. Energy Information Administration.
A report by the National Bureau of Statistics on retail gas prices said the average retail price for refilling a 5kg cylinder of cooking gas decreased by 6.71 per cent month-on-month from N4,360.69 recorded in May to N4,068.26 in June.
On a year-on-year basis, it decreased by 3.56 per cent from N4,218.38 in June 2022.
On state profile analysis, Kwara recorded the highest average price for refilling a 5kg cylinder with N4,750.00, followed by Niger with N4,691.16, and Zamfara with N4,683.33.
On the other hand, Ondo recorded the lowest price with N3,287.86, followed by Ekiti and Nasarawa with N3,288.46 and N3,364.62, respectively.