Cooking gas retail prices set to skyrocket, as LNG vessels grow scarce
The retail price of Liquefied Petroleum Gas (Cooking gas) in Nigeria is set to increase significantly as Liquified Natural Gas (LNG) vessels become scarce; leading to charter rate hikes, ahead of the 2023 winter when demand for the heating fuel peaks, this is according to data from Spark Commodities.
It was gathered that as of August 1, 2023, charter rates surged to $284,750 per day for November and $206,750/day for October, more than doubling from current levels of $ 70,500 / day.
Earlier in March 2023, Spark Commodities assessed the roundtrip cost of moving an April cargo from the United States to Europe at $49,500/day.
Meanwhile, the Nigerian LPG prices are internationally benchmarked based on the Nigerian Liquefied Natural Gas Contract Price (NLNG CP) which is always influenced by international prices.
Like every other globally traded commodity that is subjected to price fluctuations due to market dynamics, EnergyDay Intelligent showed that the NLNG CP changes on a monthly basis, forcing price reviews to at least once to three times per month.
Further check showed that the price of LPG at the retail level dropped from price average of N730 per kilogram in June to around N600/kg in July 2023, and increased to N750/kg in August due to the international reference price in USD/Naira exchange rate.
As of June 2023, the price of the commodity dropped by 76.1 per cent to 2.10 per one million British Thermal Units (BTU) on May 31 from 8.78 per one million BTU, according to U.S. Energy Information Administration.
According to a recent report by Bloomberg, LNG traders are poised to shell out more than $200,000 a day to ship liquefied natural gas in the coming months as tankers grow scarce ahead of winter when demand for the heating fuel peaks.
The report, which also referenced data from Spark Commodities, showing that vessels charter rates surged to $284,750 for November and $206,750 for October, more than doubling from current levels, emphasised that if those prices hold, they risk repeating last year’s rally when the global LNG market was rushing to replace Russian supply after the invasion of Ukraine.
Bloomberg said, “Tanker supplies are increasingly tight because traders are using the ships as floating storage in a bet that LNG prices will rise as the weather turns colder.
“Volatile shipping rates can eat up margin for an LNG trader looking to cash in on higher winter prices, and rising transportation costs ultimately can mean higher prices for buyers in Europe and Asia.”
The number of LNG vessels floating on the water for at least 20 days also has risen in late July, with 42 vessels tracked by Bloomberg, which is about 27 per cent higher than the same time a year earlier.
Richard Pratt, an LNG shipping consultant, told Bloomberg, “I certainly see ships being held onto. The higher incidence of floating storage should continue “through August and September barring any supply disruption.”
However, it was gathered that since the international price for LPG is priced in US dollars, the Nigerian Naira exchange rate which was N770/$(official) and N885/$(black market) on Monday, August 6, will also affect the domestic price of LPG.
The Nigerian LPG usually sells the cooking gas it produces locally to off-takers based on the exchange rate.
Based on the analysis, with the exchange -the rate of the Naira to Dollar at N770 to $1, the price of a 20tonne Truck of LPG is expected to be sold at N14,184,210.53.
Further check showed that the prices of 20 metric tonnes of LPG at the major depots in Apapa in the last seven days (July 28 – Aug 7, 2023) have been between N11 million and N10.7 million.
The Nigerian LPG industry is growing, but it is hampered by the volatility of the market, shortage of discharge terminals, storage and distribution infrastructure, and inadequate local production.
The Nigeria LNG has been the major supplier of LPG to the country, having devoted all its production to the domestic market. However, rising local demand continues to outstrip supply, necessitating new supply chains to buffer the present arrangement.
It was revealed that in the last two years, overseas shipments of LPG from Mexico (X tons), China (X tons) and Vietnam (X tons) which are the main destinations of the commodity to Nigeria, have significantly dropped with a market share of less than 40% , even as the Nigeria LNG now becomes the major supplier to the domestic market.
It was gathered that household LPG consumption, which increased from just over 400,000MT in 2016 to 1.04 million MT in 2021, declined to around 800,000 MT in 2022 and 2023, based on market survey.
Despite a decrease in domestic consumption of LPG in Nigeria to approximately 800,000MT per year, Nigeria has the lowest per capital consumption of cooking gas compared to other African countries, such as Ghana, South Africa, and Morocco.
The per capital consumption of LPG in Nigeria is only 1.1 kilograms, significantly lower than Ghana’s 3.0 kilograms and South Africa’s 5.5 kilograms.
CEO of Gas 360, Mr. Emmanuel Uwandu explained that the rise in liquefied natural gas (LNG) prices during winter has significant implications for the domestic price of liquefied petroleum gas (LPG) in Nigeria. Over the past five years, LPG prices have increased by 30-60 per cent between November and late January. However, the populace often attributes these price hikes to Christmas, when in reality, it is due to the international price of LNG and LPG.
According to Mr. Uwandu, the price hike is influenced by supply and demand dynamics. Colder weather leads to an increase in global demand for heating fuel, including LNG. Traders anticipate this higher demand and are willing to pay premium rates to secure shipments of LNG, which can result in higher shipping costs. Ultimately, these costs are passed on to consumers in the form of higher LNG prices.
Another factor that affects the price of LPG in Nigeria, according to him is the price linkage. He noted that producers like the Nigeria LNG and Chevron, as well as traders like Vitol, usually peg their prices to the Mont Belvieu Index, which is linked to the price of LNG.
He said, “As LNG prices increase due to traders’ bets on colder weather, there is upward pressure on the domestic price of LPG in Nigeria.”
Uwandu further noted that regional price dynamics play a role in determining the price of LPG. Nigeria is a major exporter of LNG, and its domestic LPG market is influenced by international pricing trends, specifically the Mont Belvieu Index.
He said, “If international LNG prices rise significantly, exporters may allocate more of their production to lucrative international markets, leading to reduced supply and potentially higher LPG prices domestically.
“Furthermore, local demand patterns, particularly for cooking purposes, affect the price of LPG in Nigeria. Winter coincides with the festive season in Nigeria, resulting in an increased need for cooking.
“This incentivises retailers and distributors to increase the price of LPG, putting additional pressure on the available supply,” the CEO of Gas 360 said.
