LPG Business Review

The largest growing LPG markets in Africa are situated on both the Eastern and Western fronts. This time round, we sit down and speak with Mr. Sunil Jhingran about the broad spectrum of countries situated in Western Africa for insight into the growing markets there.

Sunil is an LPG Professional who has been associated with the petroleum industry for more than 30 years now. He is a mechanical engineer by education and began his career at the Mumbai Refinery of Bharat Petroleum. Following this he worked with a Shell start up joint venture in India as a Sales and Technical Manager. Later on he moved to SHV Energy where he worked his way through the value chain – from sales to supply & logistics to operations, projects and even HSE. His most recent assignment was working with Oando Downstream in Nigeria which entailed strategic development and profit and loss management.

When asked what his most notable achievements have been, Sunil tells us that successfully standardizing and streamlining processes, people development, safety benchmarking and listening to customers have been some of his key focus areas that have helped the business grow immensely. One of his most notable achievements has been notching a leadership position in the intensely competitive industrial market in Western India.

Most recently however, he says, during his work at Oando in Nigeria, “I have had the satisfaction of successfully implementing a number of initiatives including a cylinder deposit system, tamper proof quality seal for cylinders, safe operating practices and micro-financing for small retailers. With an array of such ‘firsts’ in the country, we were able to achieve high level of stakeholder trust and credibility leading to a strong brand development and market leadership position.”

The West African LPG Market

We continued the interview asking Sunil about the potential of the countries located in the region that have the most widespread use. Nigeria is the largest country in the region with some 170 million people. The economy is doing relatively well barring some currency issues, he says but it is still looking up as there has been significant growth in the middle and upper income groups there. This has brought about huge potential for cleaner energy use he says. People at the top of the wealth chain are using electricity and people at the bottom are using kerosene, firewood and charcoal. LPG penetration in the country is still fairly low – and has much more room for growth.

Moving on to the rest of the countries in the region, Ghana, Senegal and Ivory Coast have managed to develop an LPG market due to government support and use of subsidies. He says that even relatively tiny countries such as Togo, Benin, Cameroon and even Burkina Faso consume respectable amounts of LPG. Nigeria consumes some 350,000 MT per annum while Senegal and Ivory Coast consume 250,000 MT per annum each and these 3 countries make up around 80% of the total consumption in West Africa.

LPG Supply

It was further explained to us that when it comes to sources of LPG, all of these countries get their LPG from a variety of sources depending on their location, size and reserves; refinery production plus imports. These imports can be either from sea bearing imports or land border imports. Smaller nations get their LPG from Nigeria or Ghana. As for Nigeria, the country has refineries but they are in not such a good state of maintenance and operations with very low production, inconsistent and suspect quality.

Sunil told us that, “LPG supplies in almost all countries in West Africa have a mixture of sources. Production from the indigenous refineries is supplemented by imports. Nigeria also has a significant and major supply source from the NLNG (Nigerian Liquefied Natural Gas Limited) liquefaction plant. Road Transportation across international borders is also common where the consumption is rather small. However, supply deficit owing to low and erratic production capacity of refineries and inadequate import and storage infrastructure are some of the biggest constraints to the growth of these markets.”

Probing further, we found out that the biggest source of West African LPG comes from NLNG’s liquefaction plant on Bonny Island in Nigeria. The NLNG plant produces 1.5 million MT of LPG each year yet only 150,000 – 200,000 MT is consumed locally with the bulk of production being exported. This dynamic is changing however, Sunil cautions, saying that due to the influx of large amounts of cheaper shale gas, Nigeria might soon struggle to lay off their LPG and is looking to ship it to Europe, the Middle East or South America.

NLNG also imports about 40,000 MT via sea imports as well as a small amount from Niger by land. These quantities entering via land however are unclear Sunil says as there are numerous steps along the distribution chain that come into play that make it difficult to keep track of exactly how much LPG enters the country through land borders.

Ghana also has a small refinery that produces LPG. The Tema Refinery (Local Gas Ghanaian Company) which has a storage capacity of 60,000 MT with only a small rate of production of 30,000 – 40,000 MT each year. A big problem in Ghana Sunil goes on to explain is that they basically only have 1 or 2 importers that cause limitations on storage which affect availability of the gas. The remainder of the smaller countries in the region get their LPG from neighboring countries through land transport networks.

Key Players in the Region

We also wanted to find out about the companies that dominate this part of Africa, who is active and who are the largest players in the market at the moment. He says that companies are primarily local, there are few large companies with an international presence and they are Total, Vivo Energy and Oryx Energies. Oryx operates quite vastly across Africa including South and East Africa, but does not have an LPG presence in Nigeria whereas Vivo Energy is a Shell licensee.  Major multinationals such as Chevron and BP have since divested from their African businesses. Sunil goes on to tell us that his former company Oando is the biggest LPG company in Nigeria and they are trying to expand elsewhere throughout West Africa. Oando is currently in the process of divesting its downstream Business into Vitol Energy.

What does West Africa Use LPG for?

We wanted to find out from Sunil just what exactly LPG was used for specifically in each country and whether these markets were making use of the gas for more than just cooking. Sunil told us that cooking is the primary use of LPG as it is in most places around the world. Lately there has been growth in the commercial segment for cooking purposes in hotels and restaurants and also to a lesser degree for industrial uses.

Interestingly enough, it was brought to our attention that some of these countries have existing auto-LPG industries. Ivory Coast, Ghana, Cameroon and Senegal actually started their LPG industries on the back of Auto-LPG. Using LPG as an automotive fuel was heavily supported by the government in these countries and gained popularity for transportation use. This did not last however as other fuels such as gasoline soon became much more attractive as Governments shifted away from LPG and removed subsidies, forcing a swing back towards petroleum fuels. Sunil also mentioned that there has been some new usage more recently in the form of generator fuel.

Government Support

From what we’ve gathered so far, we have found that government support is a key area that determines the success of any fuel. Sunil told us that, “Support in the region is relative, Governments are realising that LPG is an emerging market and it requires significant attention. The current rules and regulations are not fully in place or well defined.

In Nigeria though, he explains, the Department of Petroleum Resources and Standards of Nigeria are in the process of developing laws, regulations and standards for industry which are continuously being developed and improved all the time. He did say however, that effective enforcement is another huge issue that needs to be dealt with.

As we’ve heard from our past interviewees, enforcement is a key factor in ensuring that regulation is practiced throughout the industry. Both Jonathan Benchimol (President AIGLP) and Dayo Adeshina (President NLPGA), in previous interviews with us have also stressed that enforcement is one of the cornerstones of effective policing and that without it, all the new regulations and standards are of absolutely no use.

Governments in many countries in Africa, lack clarity and the authorities involved in enforcement and policing are made up of a few separate regulatory bodies that have overlapping jurisdiction. This means that it is not clear which agency is enforcing which area of the rules and regulations which leads to confusion and complication for companies in the value chain which more often than not leads to the whole system being corruption driven.

Challenges

Sunil goes on to explain to us that basically all of the LPG markets in Africa are in the emerging phase where they are still battling issues such as barriers to entry, supply shortages, safety issues, high prices, lack of awareness and competing fuel subsidies.

Barriers to entry in the country remain high as there are significant start-up costs to begin using LPG that consumers will have to fork out on their own. This is a major problem for users especially in rural areas who are struggling to make ends meet. For example, Nigerian LPG is very expensive; even more expensive than developed European countries. This creates a huge entry barrier. Even if consumers are able to afford the gas on refill they can’t afford initial upfront costs of a cylinder and stove.

In addition to being costly, many West African countries suffer from unpredictable supply and supply shortages. Gas becomes unavailable due to the low production which results in countries having to rely mainly on imports. The problem with this is that, imports require ports, jetties, storage and receiving facilities which is still being developed. This results in a huge bottleneck for the product. Looking to Nigeria once again for a good example, Sunil tells us, “Nigeria for example has Lagos as the only point in the country where you can bring in gas. Ships have to wait for many days sometimes to unload leading to demurrages. This means that consumers can’t depend on LPG because supply is sporadic and unreliable and will instead continue to use kerosene. Consumers become extremely susceptible to fluctuation in prices due to inconsistent availability or government support.

Sunil explains that this stems from the even bigger problem of awareness. While standards are being framed up, a large population of cylinders are very old and uncertified thus posing serious danger to users. He mentioned that using cylinders for more than 20 years without requalification is not uncommon. This improper use results in explosions and injuries that make the rural community fearful of using this gas. Looking at it from their perspective, they’ve never had kerosene or firewood blow up their homes before and the fact that LPG (when used incorrectly with poor products) has the potential to do so, only grows their fears.

Another major problem in a lot of African countries is the face there exists similar or even better subsidies for competing sources of fuel. In Nigeria for example, the subsidy for Kerosene, makes it much more attractive compared to LPG and this proves to be a huge road block for LPG development when there’s something that looks that much more attractive to use to consumers.

Future Outlook

In closing this extremely insightful interview, we asked Sunil as we ask all our interviewees their thoughts on the future outlook of the West African market. He told us that he has strong optimism that the challenges and barriers mentioned will be triumphed over. The regulatory authorities and other stakeholders are already working together to resolve these issues.

He says that it is necessary to approach these challenges with a clear and definitive purpose such that even if there are small successes along the way, it will be a true and certain way forward. He believes that the region will see a positive outlook for the LPG industry within the next decade. Adding to that Sunil told us that, “LPG is the answer for a cleaner, more effective, more efficient and cost effective fuel for West Africa and the fact that the economies are doing relatively well, it gives us all tremendous hope for the future.”

(LPG Business Review)

Sunil Jhingran