The retail price of Liquefied Petroleum Gas (also known as cooking gas) in Nigeria will increase significantly, according to data from Spark Commodities.
It stated that the expected rise in the retail price of gas is going to be caused by the scarcity of Liquified Natural Gas (LNG) vessels.
It added that this will result in charter rate hikes, ahead of the 2023 winter when demand for the heating fuel peaks.
Reports have it that as of August 1, 2023, charter rates surged to $284,750 per day for November and $206,750/day for October while the current level is $ 70,500/day.
It could also be recalled that the retail price of LPG fell from a 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.
U.S. Energy Information Administration said that as of June 2023, it reduced 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.
Spark Commodities is a technology company that provides a transactional platform for buyers and sellers in the LNG market, while 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.
NLNGCP changes on a monthly basis, causing price reviews to be at least once to three times per month, and is like every other globally traded commodity that is subjected to price fluctuations due to market dynamics.
Bloomberg reported that LNG traders are ready 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.
Data from Spark Commodities, also revealed that vessel charter rates rose to $284,750 for November and $206,750 for October,
“Tanker supplies are increasingly tight because traders are using the ships as floating storage in a bet that LNG prices will rise as the weather turns colder.
“Volatile shipping rates can eat up margin for an LNG trader looking to cash in on higher winter prices, and rising transportation costs ultimately can mean higher prices for buyers in Europe and Asia,” Bloomberg said.
Bloomberg tracked that the number of LNG vessels floating on the water for at least 20 days also has risen in late July, with 42 vessels which is about 27% higher than the same time a year earlier.
“I certainly see ships being held onto. The higher incidence of floating storage should continue “through August and September barring any supply disruption,” an LNG shipping consultant, Richard Pratt, told Bloomberg.
Another factor for the expected gas price hike is the exchange rate. The international price for LPG is priced in US dollars. The Nigerian Naira exchange rate which was N770/$(official) and N885/$(black market) on Monday, August 7, will also affect the domestic price of LPG.
This is because the Nigerian LPG usually trades the cooking gas it produces locally to off-takers based on the exchange rate.
With the rate of the Naira to Dollar at N770 to $1, the price of a 20-tonne Truck of LPG could be sold at N14,184,210.53.
It was also discovered 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.