The retail price of Liquefied Petroleum Gas (LPG), commonly known as cooking gas, in Nigeria is expected to experience a substantial increase in the coming months due to a shortage of Liquified Natural Gas (LNG) vessels. This scarcity is leading to charter rate hikes, a situation that has significant implications for the 2023 winter season when demand for heating fuel, including LNG, peaks. This concerning revelation stems from data provided by Spark Commodities, shedding light on the interconnectedness of global energy markets.
As of August 1, 2023, charter rates for LNG vessels have surged dramatically. The rates reached $284,750 per day for November and $206,750 per day for October. This stark increase represents more than a doubling from the current levels of $70,500 per day.
Earlier in March 2023, Spark Commodities assessed the cost of transporting an April cargo from the United States to Europe, estimating it at $49,500 per day. These steep increases in charter rates highlight the growing strain on LNG vessel availability, which is projected to have far-reaching effects on global energy prices.
The Nigerian LPG prices are internationally benchmarked based on the Nigerian Liquefied Natural Gas Contract Price (NLNG CP), which is influenced by international price dynamics. This means that fluctuations in the global LNG market directly impact domestic LPG prices.
The fluctuation of the NLNG CP is a monthly occurrence, leading to price adjustments in Nigeria’s LPG market, sometimes as frequently as once to three times per month. The recent decrease in LPG prices from an average of N730 per kilogram in June to around N600/kg in July 2023 was influenced by international reference prices and the USD/Naira exchange rate.
This surge in LNG prices is not unique to Nigeria. A report by Bloomberg highlights that LNG traders are likely to pay more than $200,000 a day for shipping in the upcoming months due to limited tanker availability, a trend exacerbated by traders using these ships as floating storage in anticipation of rising LNG prices during colder months.
The interconnected nature of LNG markets is becoming more evident, with charter rates and shipping costs impacting both global traders and end consumers. The volatility of the shipping market, in turn, impacts the overall price of LNG, and by extension, domestic LPG prices.
The challenges of securing enough LNG vessels have grown more pronounced, with the number of LNG vessels floating on water for at least 20 days increasing by 27 percent compared to the same time the previous year. This further underscores the global struggle to meet demand.
The situation is compounded by the exchange rate, as the international price of LPG is denominated in US dollars. The fluctuating Nigerian Naira exchange rate, currently at N770/$ (official) and N885/$ (black market), directly affects the domestic price of LPG.
The LPG market in Nigeria faces additional hurdles such as the shortage of discharge terminals, storage and distribution infrastructure, and inadequate local production. Despite the Nigerian LPG industry’s growth, domestic consumption remains comparatively low, with Nigeria having the lowest per capita consumption of cooking gas in comparison to other African nations.
Emmanuel Uwandu, CEO of Gas 360, emphasizes that the impending rise in LNG prices during winter holds significant implications for Nigeria’s LPG prices. The connection between global LNG and domestic LPG prices means that international market dynamics directly affect the cost of LPG in Nigeria. The current scenario highlights the delicate balance between international market trends, supply and demand, and local pricing policies. As Nigeria navigates this complex landscape, policymakers, traders, and consumers alike must consider the intricate interplay of factors impacting energy prices and availability.