Operating-and-Setting-Up-an-LPG-Plant-in-Nigeria

Operating and Setting Up an LPG Plant in Nigeria: An interview with Teryima Denen Toryila

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Personal:

Tell us about your journey towards the LPG industry.

After the compulsory 1 year of national service, I began my career in the telecommunications industry with Celtel Nigeria, where I was involved in the coordination and supervision of retail activation programs as well as the sales and distribution of SIM cards. I moved to the air conditioning industry as a HVAC engineer for Technoton Limited where I was involved in a lot of engineering projects and gained increased knowledge on gases. Thereafter I moved to Banner Energy, where I worked as an Engineer on its LPG projects.

I joined Oando Marketing, one of Nigeria’s leading indigenous downstream companies (now known as OVH Energy Marketing) as an LPG Development Officer tasked to provide market intelligence and develop new business channels for its LPG sales. Having made significant impact in the business, I transitioned to becoming the LPG Technical and Operations Supervisor where I coordinate LPG plant projects, oversee plant operations, and monitor strict adherence to health and safety practices across the company’s 18 LPG plants nationwide.

What is your most notable experience/achievement?

I have had several notable accomplishments in my career; probably my most notable achievement was my first LPG engineering project when I had to install 10 LPG plants comprising entirely new systems (that I had little or no clue about), new (first of its kind) in Nigeria at that time. I had approximately 2 days to prepare before mobilizing to site, so I spent that entire time studying the systems and manuals amidst high expectations from my employer to deliver on the project within very close time lines. I successfully delivered on the project and have gone on to deliver on over 20 LPG projects since then.

Setting up an LPG Plant:

What is the timeline for setting up an LPG filling plant in Nige ria? (From the planning phase to operation)

The timeline for setting up LPG plants differs; it typically takes about 2 years depending on the approval process. Let me walk you through the approval process for better understanding. One needs to go through town planning approval, followed by an Environmental Impact Assessment (E.I.A.) of the site. Nigeria typically has 2 seasons in a year – the wet (rainy) season and the dry season; the EIA must be conducted for both seasons. Then you get a fire department approval, acquire a police report, and commence full engineering, design & procurement assessment which will be submitted to the Department of Petroleum Resources (DPR), along with a written application and all documents mentioned earlier. DPR will visit the site to be sure it fulfils all requirements for the construction of an LPG plant. Should the site meet these requirements, DPR will approve and issue you an Approval to Construct (ATC).

Once approval is given, you can then commence the equipment acquisition and site construction. The Department of Petroleum Resources (DPR) will visit the site once construction is complete for inspection and certify the design is consistent with proposed plans submitted. They will also witness and sign off on all integrity tests conducted at the plant; following which an operating license will be issued. The process takes about 2 years or more end-to-end. The integrity of the plant itself is a function of the competency and technical capability of both the client and the contractor.

The requirements enumerated above do not preclude foreign investors. It’s a standard operating procedure for both local and foreign investors. For investors, it is imperative they partner with local experts with good industry knowledge, technical knowhow and experience; and who is also versatile with the relevant stakeholders.

What does it cost to set up an LPG plant in Nigeria?
The standard/ stipulated fees vary depending on the size of the facility amongst other sundry expenses.
A breakdown of the estimated costs would be:

  1. Town Planning Approval : N200,000 (USD656.28)
  2. Fire Service Approval: N100,000 (USD328.14)
  3. Police Report: N50,000 (USD164.07)
  4. Environmental Impact Assessment (need to engage a consultant, depends on consultant and must be a ministry of environment certified consultant – function of location – this could typically cost you (N2 – N5 million) (USD6562 – USD16407)
  5. DPR Approval: N20,000 per 100MT capacity (e.g. 200 MT – 40 thousand Naira) (USD131.26) All in all, without the environmental impact assessment, it will cost roughly around half a million Naira for all the approvals. When looking at construction costs, the major expense comes from equipment which are imported from Europe and America, but in more recent years, a large amount comes in from Asia and this would cost something in the neighbourhood of about N250 million (USD820,347 )for everything.

What does the LPG distribution network in Nigeria look like? (Where does the plant get its gas from and how is it distributed from there) How do Secondary Distribution Points fit into the mix?

Nigeria is one of the largest producers of LPG in Africa. The NLNG plant on Bonny Island produces significant amount of LPG but was designed primarily for exports. It was expected that the local refineries would meet local demand but unfortunately, that is not the case. So, this means the NLNG plant is required to provide for local demand as well. (The NLNG plant is located off the coast of Port Harcourt Nigeria with most storage facilities in Lagos).

Currently Nigeria has an 8000 MT and 4000 MT storage (the 4000 MT has recently been expanded to 9000 MT), another 1000 MT and 4000 MT which would make it all in all about 25000 MT worth of LPG storage capacity in Lagos. Recently another 10,000 MT storage facility was completed in December 2016 in Calabar. There is also another 8,000 MT facility on verge of completion at Port Harcourt. Most of these storage facilities are coastal storage facilities, so when the vessel brings the LPG from NLNG facility, they are docked in Lagos and then from Lagos it discharges the LPG into these facilities, which are then loaded onto road tanker trucks which distribute the gas across the country.

We are thinking that the dynamics should change within a year or so with new coastal facilities that will come online in Calabar and Port Harcourt, hopefully, they will be receiving more vessels in the other parts of the country as well.

In-country distribution via the road network in Nigeria is not so ‘beautiful’, it’s not like you have in Europe and America, it’s a different terrain. Most of the LPG distributed must go by road and it is a real challenge. We have a lot of inland storage facilities in Nigeria, most of them are of 1000 MT storage capacity and not connected by pipeline. So, if you needed to move a 1000 MT from the coastal storage depots to the inland storage depots that would take about 50 trucks to fill it up. It would have been a lot easier if we had them linked up by pipeline.

There are a lot of moderately sized LPG filling plants across the country. Nigeria has about 350 of these across the country (within 50 MT – 100 MT storage capacity). From NLNG to coastal storage depots, it goes via trucks to the LPG inland storage depots and LPG filling plants and from there it goes to the secondary distributors (cylinder sellers who take from the filling plants), who then distributes to the end users and maybe to tertiary distributors.

So for the filling plants, are these all secondary distribution points? Do they do their own filling and distribution to the retailers?

Actually I would say that we have 2 kinds of secondary distribution and with regards to the filling plants, I would call them primary distributors and not secondary distributors. The filling plants are the ones who supply the secondary distributors with gas for their cylinders. The secondary distributors fill a thousand cylinders or thereabout and distribute directly to end users. There is a new set of secondary distributors in Nigeria (these guys are the second type) – they own filling plants of their own which are mini plants, these are 1 MT – 5 MT storage capacity which are typically installed in gas stations. So they normally buy in bulk from primary distributors (the filling plants) about 1 -2 MT using bobtail trucks which they in turn fuel to end users from gas stations.

The primary distributors (the gas plants themselves) also distribute to end users. So for me, if my cylinder is empty, I can take it, drive to any filling plant, walk into it, pay for the gas and get the cylinder filled – there is not much restriction in Nigeria. So you can go to a primary distributor and buy it directly from him or could give a call to a secondary distributor who would bring the gas to your home or you could even bring the cylinder to the nearest gas station where you fuel your car and buy from the new kind of secondary distributor who is filling from a small skid plant or mini plant.

What is the current penetration of filling plants across the country? Is there still much room for growth?

Well… Nigeria is on the verge of an explosive growth of the LPG industry. I don’t think there is any market in the world that has the kind of potential like you have in Nigeria. The market is thirsty for serious investment and investments are coming in gradually. Over the past year, we’ve had about 15,000 MT of new storage capacities. The per capita consumption in Nigeria is among the lowest in West Africa.

Nigeria has a population of about 170 million people according to the latest estimates and LPG penetration is only about 5%. The figures for LPG use in Nigeria in 2015 only stood at about 400,000 MT for a population of 170 million people – this is merely a scratch for a population that size. Nigeria has potential for LPG industry to 5 million MT per annum, so we are doing less than 10% of what we could be doing. So really, there is a lot of potential and room for investment. It seems to be much more saturated in places like Lagos which is a cosmopolitan city where literacy and education is high. Typically, the average person in Lagos uses LPG daily but you also have to consider looking at the rural parts of Nigeria which is completely not supplied with LPG. So, if anybody looks at that, the potential its really, really, huge, I repeat, I don’t think there is anywhere in the world that has the kind of potential for LPG goods and i nvestment like Nigeria.

Operating an LPG Plant

What are the most important health and safety issues that need to be monitored during operation of an LPG filling plant?

I think for me, from my experience, the most important part of the operations, is the operators – the people operating the filling plant. There is really, to a large extent a scarcity of qualified personnel available in Nigeria to run an LPG plant. So typically when you are hiring staff, they have little to no training or experience in running an LPG plant. So the biggest risk you face, is having an operator who is not knowledgeable enough. The need to conduct initial and ongoing trainings cannot be over emphasized to ensure one has the right operators. In my opinion, the highest risk involved and the single most important safety factor is adequate training and competence in plant operations.

For our operations we make sure that we have a series of trainings both formal and informal, both on the job and off the job, to ensure our operators are at their best – it really is safer to run a poorly constructed LPG facility with competent operators than to run a properly constructed LPG facility with incompetent operators. The operators come first and are the most important factors even before the facility itself. So just to summarise, the highest significance where safety is concerned are the operators, adequate training and then the quality/ standard of the facilities.

What sort of operation costs are involved in running an LPG plant? Would you be able to give a ballpark figure/ rough estimate of the monthly costs involved in operating a plant?

After staff costs, the most expensive part of operation is power. In Nigeria, we don’t have good public power supply so you would spend about 20 – 30% of your total cost on power which must be run on diesel – these are stand-alone generators running the plant. Let me give you an example, we have a 100 MT LPG facility that fuels about 15 MT a day. To operate the plant, we have about 14 staff members – 8 operate filling machines and the sorting / carrying cylinders, a plant manager and admin staff and about 2 security officers. The average cost of manpower is about 1.2 million Naira (USD 3937) per month.

Without staff cost, we would spend about N180,000 (USD590.65) for diesel (power), N120,000 (USD393.77) for diesel cost, N60,000 (USD196.88) public power cost (which is not reliable). LPG equipment rarely breaks down if you perform your regular maintenance, daily checks, monthly checks, and quarterly checks and with that we rarely need to buy spares, we don’t spend much on spares. So typically, it’s just the cost of servicing equipment and the generator which will amount to about N200,000 (USD656.28) in a month. Other costs would include a supply of consumables, seals, etc. – typically for a plant in Nigeria – the turnover would be about 250 MT in a month and spend about 2 million naira a month and which about N1.2 million (USD3937) goes to Staff cost. All in all, it costs about N2 million (USD6562) to fill out about 250 MT of LPG every month.

Why is diesel used for power and not LPG itself?

LPG can be used, it just has not been explored. Typically, a lot of industries in Nigeria are all powered by diesel, even our homes and our offices. Diesel is readily available. You could say an LPG generator could be easily installed and piped from your main storage to a smaller storage to supply an LPG generator but unfortunately there are not many LPG generators in the country now, they are only just starting to come in. The thing is most of these types of generators have been designed for propane and not for butane which is what is generally used in Nigeria. I am sure though that as the market grows, we may be able to explore butane powered generators and engage more manufacturers who might be able to provide butane powered generators. A big part of it, is also due to cost – the cost of diesel, slightly cheaper than cost of LPG. It might be cheaper to run on diesel than LPG.

Moving Forward

What needs to be done to improve the overall LPG distribution network and growth of the LPG industry in Nigeria?

Infrastructure – we need infrastructure across the LPG value chain. I’ll give you an example of the typical way things work in Lagos. When an LPG vessel comes into Nigeria, we only have one LPG facility with a dedicated jetty in Lagos. All other facilities (about 5 of them) are connected to a major jetty that also receives other petroleum products. Most petroleum products imported into Nigeria (other than LPG) have a higher demand than LPG, so preference is given to petrol, aviation fuel, diesel and then LPG. So, you may have an LPG bearing vessel having to wait for several days.

Jetty expansions would help facilitate demand for LPG in the country. Facilities outside Lagos could also go a long way in improving access to LPG. Also, the transition of LPG from coastal storage depots to inland storage depots which is done typically by road (which are not in good condition) forestall the distribution process. Perhaps we could consider using rail or most preferably link the inland storage depots via pipeline – it would help the supply of LPG in Nigeria. .

Most importantly, cylinders – the typical Nigerian is not able to afford the initial cost of cylinders. Investing in the provision of LPG cylinders especially for rural communities will aid the growth of LPG use in Nigeria. I think that if we take from the lesson learned from India, Indonesia, Brazil and all countries that have grown their LPG industries significantly, you will realize that the governments of these countries made significant investment in providing this infrastructure. If we can have half that level of commitment and investment from the government, I am sure Nigeria can very easily grow their LPG industry by more than a 1000% over the next 5 – 6 years. I am so confident about that because of the amount of potential we have in this country.

Despite the multi-faceted challenges in Nigeria’s LPG industry, this sector will thrive following proper assistance from the government, tactical strategies, and operational efficiencies as it’s a cleaner, healthier and more affordable energy source.

The views expressed in this publication are solely mine and does not represent the position of my employer.

(LPG Business Review)


Teryima-Denen-Toryila

Teryima Denen Toryila

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