Thursday, July 4, 2013

Between Kerosene and Cooking Gas

Nigeria has over 30 million households; 9 out of 10 of these households cook at least once everyday with dirty fuels- kerosene, firewood, animal dung etc. If these households can switch from ‘dirty’ fuels, especially kerosene to Liquefied Petroleum Gas (cooking gas) for cooking, the benefits to the nation’s health and environment would be enormous. Apart from that, LPG being a deregulated petroleum product, with huge potentials in the Nigerian market, would be a big money-spinner for LPG marketers and also help the government reduce the heavy burden of funding the subsidy on petroleum products.

Though always quick to point out the many benefits of deregulation, the downstream oil and gas players are yet to design an excellent marketing model to exploit the apparent market potentials of cooking gas, which is deregulated, in Nigeria. Hence the poor patronage of LPG as a source of domestic energy in the country.

Nevertheless, we must admit that the LPG market in Nigeria has array of challenges affecting its market growth. The greatest of it being the consumers’ general belief. Most Nigerians perceive cooking gas as a rich man’s and a dangerous fuel. Despite the fact that, such perception is deeply rooted in the minds of many Nigerians, cooking gas is still more economical for households use compared to kerosene. Kerosene is subsidized by the government at a retail price of N50 per litre, but most kerosene users in Nigeria buy the product at around N150 per litre. If an average family would use 30 litres of kerosene a month, the cost would be around N4,500. Some studies have indicated that the usage of one litre of kerosene equates to 0.39kg LPG. So, if same family would use 12kg of cooking gas in a month, it costs only N3,000.

Apart from the inadequate excellent marketing initiative by LPG marketers to win the hearts of consumers to switch to cooking gas, other problems facing the LPG market are: price is the major differentiator- the product is same. Over reliance on import, with volatile international prices and high freight cost which translated to high downstream retail price. Moreover LPG equipment and accessories needed for cooking gas usage are also imported with high tariffs. Although, the easy money downstream sector players get from subsidies on regulated products (PMS and DPK) is the major factor that has contributed to the lack of depth in the LPG market. In fact, the non-liberalization of the downstream oil and gas sector as a whole has hampered innovation in the sector. Thus, most downstream oil and gas companies do not have effective R& D department. 

What can be done by LPG marketers and indeed the government to increase Nigeria’s LPG per capita consumption and, at least achieve a remarkable market penetration? Nigeria‘s per capita consumption is abysmally 0.5kg, compared to West African regional average of 5kg per capita. Three solutions are needed: massive consumer education and advocacy by all stakeholders, government intervention and local capacity building.

A major intervention by the government is the major solution that would bring about a nationwide embrace of cooking gas. The Nigerian government and all the stakeholders in the oil and gas industry should as a matter of urgency initiate a flexible conversion program from kerosene to LPG. Nigerian can learn and copy from the Indonesian success story. According to one case study by World LP Gas Association, Indonesia was facing serious problem on subsidy on white products. Between 2001 and 2008 the cost of subsidies ranged from 9% to 18% of total state expenditures, the subsidy for kerosene was 57% of the state’s total petroleum product subsidy. In 2007 Indonesia undertook a massive energy program to convert its primary cooking fuel from kerosene to LP Gas in more than 50 million households within five years. Following a study and one-month market test, the conversion program was launched in 2007. The Indonesian government distributed free starter kits, which included a 3 kg cylinder, one burner stove, hose and regulator, and free first gas fill, to citizens meeting the program requirements. There were a few initial challenges including citizen demonstrations, illegal resale of kerosene from unconverted areas to converted areas, and the rise of LP Gas prices during the kerosene withdrawal period. However, a total of 8.2 million kiloliters of kerosene was withdrawn and replaced with 3.2 million metric tonne of LP Gas. This has translated to a gross subsidy savings of more than 6.9 billion US dollars for the government of Indonesia. If a similar program is introduced in Nigeria, certainly, the country would see a major switch from dirty fuel to LPG. To this regard, we must commend one of the six major players in the downstream petroleum industry; the company is currently operating a scheme that provides Nigerian low income households with affordable and accessible clean cooking fuels through low weight Liquefied Petroleum Gas (LPG) cylinders with integrated cooking ring. The initiative is built on two parallel value propositions - sell the integrated stove/cylinder with product and also provide financing for the initial purchase of the stove via a microfinance fund. The scheme would make a massive impact if the government actively participates. 

With hardship encountered on long queues to buy kerosene at its subsidized rate when available or its exorbitant price at black-markets, a feasible and corruption- free scheme would easily convert most Nigerian households to the use of LPG for cooking. This writer was part of a team that conducted a research on LPG consumption in Lagos and the results were interesting. Part of the findings from the research show that a large percentage of Lagosians are willing to own a gas cylinder if the opportunity is there. This is an indication of willingness among most Nigerians.And it indicates the huge benefits for players in the gas sector as an average family in Nigeria would use at least 12.5kg of LPG a month. However, lack of basic starter kits and low awareness and education remain major stumbling blocks in converting Nigerians to LPG users. May be the Indonesian model is the solution.


Zayyad I. Muhammad writes from Jimeta, Adamawa State, zaymohd@yahoo.com, 08036070980.

2 comments:

  1. Awesome post you have here. A very helpful one. Thanks for sharing! I'd like to share LPG cylinder I'm using. I'm sure this will help you in the kitchen.

    ReplyDelete