NLNG The Magazine, 2011 H1 Edition

From the Editor-in-Chief

Ibeneche

Doingandwell doing good You are already conversant with newspaper headlines on Nigeria LNG Limited: ‘Nigeria’s world class company’, ‘Supplier of 10% of world’s LNG demand’, ‘Owner of one of world’s largest dedicated LNG fleet’, ‘Fastest growing LNG project in the world’ Nigeria’s cash cow’, ‘NLNG wins award for 50 million man-hours with no lost time injury’, etc.

What you may not be so familiar with is the story behind the headlines. Why? I will limit myself to three reasons: The reporters’ creed that bad news is good news’, a creed that makes them give a lot more space and newsprint to bad news, to the detriment oasis of good news like us.

The second part reason is that by the very nature of their business, reporters write history in a hurry and most times paint pictures only in broad strokes (please read headlines, and sound bites) missing the fine details.

The third is that we usually try not to blow our trumpet.

But the question persists: why is Nigeria LNG Limited such a great company; why is it so much in the news for good and some say, great things. We are not ready to divulge all our trade secrets, but we have decided to give you, our esteemed reader, a sneak view.

Nigeria LNG Limited has become a corporate citizen. Like citizens in the classical sense, NLNG has cultivated a broad view of its own self-interest, while instinctively searching for ways to align this self-interest with the larger good. We try, at all times, to reconcile our profit-making strategies with the welfare of society, and to search for ways to steer all parts of the company on a socially engaged course.

This paradigm enables us to play a leadership role in social problem solving by funding long-term initiatives, such as stabilizing of domestic cooking gas market, sponsorship of literature and science prizes, scholarship for students in tertiary institutions, national autism awareness campaign, provision of power, water and roads in our host communities.

In NLNG we back philanthropic initiatives with corporate muscle.

And in addition to cash, we make available to Nigeria managerial advice, technological and communications support, and teams of employee volunteers. And we are funding these initiatives not only from philanthropy budgets, but also from business units, such as marketing and Public Relations, community relations, shipping, etc.

We recently organised training for PPMC on scheduling and terminal management and we are helping the regulatory agency for shipping, NIMASA, update its shipping register, so that the country’s register would gain quality and worldwide acceptance.

In doing these, we are forming strategic alliances with nonprofits and government agencies and emerging as an important (I prefer, indispensible) partner in movements for social change, while advancing our business goals.

I know what you are thinking! This must be corporatespeak, designed to bamboozle. No its not. And I warn that it’s only a tip of the iceberg. We are indeed and in fact a good, great corporate citizen. And to prove it, we invite you to turn the pages and as they say, kick the tyres of our corporate reputation.

Compliments of the season.

Siene ALLWELL-BROWN

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Olinma

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CONTEN NLNG - The Magazine is the corporate magazine of Nigeria LNG Limited.

The views and opinions within the magazine however do not neessarily reflect those of the Nigeria LNG Limited or its management.

Editor-in-Chief: Siene Allwell-Brown Managing Editor: Ifeanyi Mbanefo Deputy Managing Editor: Mohammed Al-Sharji Editor: Yemi Adeyemi Deputy Editor: Elkanah Chawai Writers: Eva Ben-Wari, Ophilia-Tammy Aduura, Anne-Marie Palmer-Ikuku, Dan Daniel All Correspondence to: Yemi Adeyemi, Editor, NLNG The Magazine, Nigeria Limited, C & C Building, Plot 1684, Sanusi Fafunwa Street, Victoria Island, PMB 12774, Lagos, Nigeria.

Phones 234 1 2624190-4, 2624556-60. e-mail: yemi.adeyemi@nlng.com, www.nigerialng.com Editorial consultancy, design and production: Magenta Consulting Limited, 1 Joel Ogunnaike Str., GRA, Ikeja, Lagos. Tel: 234 1 7360830, 234 1 07023236001. e-mail: info@magentaconsult.com, web http: //www.magentaconsult.com

Erinne

NTS

Ekundayo

Cover

Opindi

Cylinder picture culled from Magenta Consulting’s archive.

Opportunities in Nigeria’s cooking gas industry .................................. 4 A transformation in cooking gas industry ...........................................

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Our Mission: Availability, Affordability ................................................. 12 We need more jetties, storage facilities .............................................. 19 Cylinders, the next frontier ................................................................ 22 Upfront investments needed in LPG market ........................................ 27

Photos GAN 2010 in Photos ........................................................................... 15 NLNG tours Nipco, Navgas facilities .................................................... 31 NLNG - The Magazine

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FOREWORD

Opportunities in Nigeria’s cooking gas industry - YEMI ADEYEMI & ELKANAH CHAWAI

Business men in the cooking gas (Liquefied Petroleum Gas, LPG) industry say it out loud whenever they get the chance that LPG business is tough in Nigeria. But it doesn’t change the fact that the industry is a potential N37 billion industry with a 50% rate of return on investment, according to a market research report in 2010.

A guaranteed supply of 150,000 metric tonnes of LPG (cooking gas) by Nigeria LNG Limited (NLNG) began the transformation of this industry to help it reach its potential, solving a supply challenge at the time. However, a supply of 150,000 metric tonnes brought with it new challenges and opportunities.

The past...

In the 1980s and 1990s, Nigerians consumed over a hundred metric tonnes of LPG and then the figures began to go down.

The four refineries in the country were

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desultory and could not supply the market with a combined installed LPG capacity of 360, 000 metric tonnes. The effects of this spiralled down to other things: wastage of primary and secondary storage capacity of about 37, 000 metric tonnes. The 12 storage tanks built and owned by the Nigerian National Petroleum Corporation [NNPC] were a hopeless situation for LPG at the only functioning artery of petroleum products in the country, the NOJ Jetty at Apapa; an abandoned jetty in Calabar; corroded and decrepit cylinders; deteriorating infrastructure; over 300 non-functioning filling plants; downturn in business in supply chain; dwindling investments; all time high of LPG price; and an increase in the use of kerosene and firewood, endangering health and the environment.

This situation left in its wake the dereliction of facilities used for the supply of LPG to a nonetheless growing population, making it a bourgeois affair to use LPG as cooking fuel. The industry lost a major part of its market.

In September 2006, the Board of Nigeria LNG, worried about the adversity from the scarcity of LPG in the midst plenty gas, decided to revive the LPG market and reduce the dependence on firewood fuels for cooking by majority of Nigerians.

The decision was the beginning of a fierce confrontation with infrastructural challenges that beset the industry.

A major challenge was the NOJ jetty in Apapa which was over-burdened with the mass importation of petroleum products.

Unfortunately for the LPG businesses, LPG was down the perking order of petroleum products that could run down the storage tanks owned by the Petroleum Products Marketing Company (PPMC). It was the case of inertia in Calabar where the second jetty sat. In addition to the daunting challenges, the low draught at the jetty didn’t make it possible for very large vessels to berth, the kind that would uplift from the Bonny terminal where NLNG exports gas. And so a major town hall meeting in 2006 was organised by the company to forge a way out of the quagmire. This led to a dedication of 150, 000 metric tonnes annually by the NLNG Board, selection of six lifters (offtakers) and an ingenious idea of a Ship-toShip (STS) supply of LPG to the domestic market on a Free-on-board basis (FOB). The project, christened Domestic LPG (DLPG)

by NLNG, involved lifting gas from Bonny on board a mother vessel; processing the gas for domestic consumption on the vessel; transfer of gas to a smaller ship called the Shuttle Vessel; and discharge at the jetty in Apapa. It was a brilliant idea.

NLNG picked part of the cost for the mother vessel with a commitment from the lifters that they will invest on infrastructural development to make robust the supply chain.

FOREWORD

The Present...

With as little as 150, 000 metric tonnes, the market began to open up. Even though consumption per capita remained low at about 0.5 kilograms per capita (Ghana is 3kg per capita while Morroco is 44.40) and the market could only take about 60, 000 metric tonnes from NLNG annually, the market commenced with a slow awakening.

To start with, the offtakers came together to surmount operational problems and infrastructural challenges. That included chartering the shuttle ship and using the PPMC facility in Apapa together. They also contributed enormously to bring back to life the PPMC terminal and improve load-out.

With more LPG into the terminal, comatose filling and bottling plants sprang to life to absorb the new surge of energy that had made taut the arteries of supply. More trucks shuttled between the PPMC terminal and filling plants. The price of cooking gas cylinder dropped from N7, 000 to N2, 500.

To quote the president of the Nigerian Liquefied Petroleum Gas Association, Alhaji Auwalu Ilu, in a newspaper report “the country consumes 70,000MT per annum and we have about 130 LPG plants and 7,000 retailing outlets. These numbers only grew with guaranteed supply”.

NLNG’s contribution of about 80% to LPG supplies led to millions of dollars spent to move the volume to consumers.

Consider this fact: NLNG spent over $7 million a year on the supply vessel; more upstream players are investing in gas processing plants and more gas producers are coming into the game; more investments in through-put facilities, for example, Navgas facility costing $50 million; Nipco worth N7 billion and millions of dollars of off-takers investments in the development of their supply chain.

As part of plans to develop a formidable chain of supply, many of the off-takers invested in cylinders; not only revitalising the market with new cylinders, but bringing smaller cylinders as a palliative to those who could not afford the popular 12.5 kg cylinders. The initial entry investment (the cost of cylinders, stove and accessories) reduced. Currently, more offtakers are participating in the DLPG and the programme is beginning another cycle of contract with these offtakers. The increasing demand for LPG outgrew the STS model of supply gas to the domestic market. Some of the initiatives materialised in the state-of-

the-art automated Navgas facility with a coastal storage capacity of 8, 000 metric tonnes (see interview with James Opindi) and a terminal to lift and load ships at the same time. Another positive development was the partnership between PPMC and Sahara Group to operate a 1000 metric tonnes LPG depot in Calabar Nigeria. It is being upgraded to a 2500 metric tonnes facility.

With pleasant developments like these, Nigeria LNG raised its game to deliver gas on Delivered Ex-Ship (DES) with a new

More volumes would mean need for more coastal storages (see interview with Dr John Erinne). This bit is capital intensive nevertheless necessary. These storages, with dedicated terminals, will increase capacity for lifters to be able to bring LPG onshore and distribute to inland storages and filling plants. They become fundamental part of a robust LPG circulation system. Dropping a notch down the value chain are inland storages (storage tanks) that will ensure consistent supply in the regions across the country.

Cylinders bring LPG to homes from all the storages and filling plants and therefore sacrosanct to the development of the market. A shortage of cylinders translates into inaccessibility; and that and other safety issues arising from the circulation of decrepit cylinders accounts for the slow growth in the market.

Further down the chain are filling plants.

According to Alhaji Ilu, a consumption level up to 750,000 metric tonnes per annum will translate into 250 LPG plants and 74,970 retailing outlets .” There are remarkable possibilities here. Some people have already introduced mobile filling plants (distribution vans) that can take LPG to end-user’s doorsteps, make it more accessible. There is need for more of such initiative.

vessel that will lift directly from Bonny and deliver directly to terminals and coastal storages like those in Lagos and Calabar, thus cutting out a major cost of chartering a shuttle vessel and making the supply of gas to the domestic market more efficient. The new model will kick off in the new contract starting in 2011.

Yet, the extant supplies only cater for a fraction of 150 million Nigerians.

The future (challenges-turnedopportunities)

In the Nigerian population lies a goldmine.

Another 150,000 metric tonnes to be dedicated by NLNG and more volumes from the convalescing refineries will push the supply volumes up in the coming five years but the extant challenges will become more profound.

These challenges can become opportunities for investments; gateways for investors into an undermined industry and a long term plan to accommodate future growth in demand. It is a myriad of opportunities down the value chain of the LPG market.

Another link in the chain is trucks. The trucks transport LPG from coastal storages and/or inland storages to filling plants.

Setting up a truck company would be good business. Presently, the market is being underserved with an estimate of 150 trucks.

The market needs about 2,000 trucks (see interview with Felix Ekundayo).

Every link is important. However, the most critical are the cylinders. Cylinders bring LPG to homes from all the storages and filling plants and therefore sacrosanct to the development of the market. A shortage of cylinders translates into inaccessibility; and that and other safety issues arising from the circulation of decrepit cylinders accounts for the slow growth in the market. Investments are needed in the manufacturing of cylinders either by way of importation of cylinders or better still, the importation of steel plates for cylinder manufacturing in the country. This is an investment area requiring investors’ attention. Cylinder refurbishing plants, cylinder assessories’ manufacturing plants can be set up that will also stimulate industrial and commercial activities in the market. Finding a way out of the initial entry investment gridlock can open a vista of opportunities in manufacturing, distribution and warehousing.

A lot needs to be done in the industry and it needs all stakeholders—private enterprises and government—to tighten the knots and make this drooping arm of the oil and gas industry a haven.

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I N T E R V I E W W I T H IBENECHE

A tranformation in

cooking gas industry Just two years after he took over the helm of affairs in Nigeria LNG Limited, Chima Ibeneche has become a household name in Oil and Gas industry in Nigeria. And for good reason. Chima is one of those experts you can easily describe as analytical and insightful, competent and incisively focused. He has excelled in ground-breaking ventures in different upstream projects which include a successful leadership at Shell Nigeria Exploration and Production Company (SNEPCo), the company that pioneered offshore deepwater exploration in Nigeria.

It is also to his credit that the $13 billion Nigeria LNG Limited, the single largest private sector investment in sub-Saharan Africa, remained profitable during the economic recession.

In this interview with Yemi Adeyemi and Dan Daniel, he bares his mind on the NLNG game plan in the LPG industry. Excerpts: What exactly was the objective of NLNG’s intervention from the beginning?

Nigeria LNG went into the supply of cooking gas (LPG) to the domestic market primarily to help remove an absurdity that actually exists in Nigeria. In 2007, it was clear that Nigeria’s consumption of cooking gas had been declining over the years even though there were two strong producers of LPG in the country. Nigeria LNG and Mobil were exporting the product. Chevron, also in Escravos, produces a mixture of butane and propane from which the type of cooking gas we use can be extracted.

Whilst these companies were exporting the product, there was persistent scarcity of the commodity in the Nigerian market because local consumption was premised on the effectiveness of the refineries. The LPG

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production of the refineries was actually at a level that could satisfy local consumption, even though we all know that the refineries have not been operating efficiently and that is why we still import refined products.

Given the situation, Nigeria LNG stepped in to guarantee availability of supply to the local market, irrespective of the state of the refineries. The aim is to try to salvage this trend whereby we produce and export LPG in huge volumes, yet supply to the local market is inadequate. I think it was the right decision to get involved in supplying the product to the local market. We all know the impact of deforestation that occurs when people cook with firewood. We usually see very long queues for kerosene at the fuel stations. Considering the number of generators in operation nationwide, importers of refined products probably find

it more attractive to import diesel than to import kerosene. Scarcity of kerosene is also heightened because the consumers compete with the airlines for the product. Overall, it makes sense to provide cooking gas in a country that produces oil and gas.

How would you rate NLNG’s intervention?

I think it is very successful. People now believe it is the responsibility of Nigeria LNG to supply LPG to the domestic market. Today, the availability of cooking gas in Nigeria is associated with the work of Nigeria LNG, but that doesn’t mean we are home and dry. Nigeria LNG has done what it set out to do; to guarantee availability at international competitive prices. What has been lacking in the value chain is the infrastructure that would actually make delivery of LPG

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to end-users efficient and cost effective.

For instance, all the LPG we supply to the domestic market come in through Lagos.

At the Apapa Jetty where this is done, there are limited opportunities and storage facilities to receive LPG. So right from the jetty, the product begins to add cost due to demurrage, and beyond that, after the off-take from the storage near the shore, the product has to be transported over land. We don’t have the good fortune of rail transport which would have made land transportation cheaper. We don’t have the good fortune to transport over good roads either. Imagine transporting from here to Port Harcourt. You have to pass through Ore and everybody knows the difficulty of getting through that stretch of road. All these add to the cost of delivery to the end-user. In this case, the end-user cannot expect a drastic reduction in prices because there are so many choke points that add to the cost of logistics of delivery of the product. However, what makes Nigeria LNG’s effort very successful is the guarantee of product availability.

This has encouraged investors to begin to invest in infrastructure. For instance, NIPCO along with their partners, have built additional storage in Apapa, Lagos area. It is now possible to have a lot more cooking gas available in storage in Lagos area. In recent times, investors from Port Harcourt area are understudying how they can invest in storage and jetty facilities in that part of the

country to achieve the same result. Oando and other companies are also building storage facilities.

With LPG dispensing facilities mounted on skids, which can be affixed within the four walls at the fuel stations, people can actually take their gas bottles there and observe as they are filled in their presence.

So, NLNG has created a mini revolution in this sector of the business. In the past when there was no guarantee on the viability of the business, nobody could make a five-year plan, but now we have given assurance that, if investors make a plan, even if it’s for five or 10 years, they are certain to have a supply of LPG that would meet Nigeria’s demand.

Many of these developments you have mentioned are in Lagos. What are the plans to improve the supply chain and prevent cost going up in other locations, especially further up north?

Since our production is in Bonny, one would require, as a front line infrastructure, a jetty to transport the commodity to different parts. That is why Lagos features primarily at that level, while Port Harcourt and Calabar feature at a secondary level. Following the jetties would be the storage facilities, and most big storages will be near the shore.

Going beyond that, what we require, really, would be things such as tanker trucks to transfer the product from one point to the other. Many companies have started

buying these tanker trucks. There are some inland storage facilities but there are not too many new developments and I think it is being hampered by the choke points at the jetties. When the jetty choke points are unblocked, people can move further inland to begin to develop storage tanks inland. For me, the biggest improvement that would help better distribution inland would be the construction of railways. If we could just put a tanker wagon behind a train, it can take the product to Sokoto or to Kano without substantially increasing the price of the product. Unfortunately, that is not available now, so I don’t envisage major developments in inland storage. NNPC had built certain infrastructure through their butanization programme but then again they were never put to good use because of lack of supplies. So, I think you will see a gradual improvement of the development of facilities and infrastructure from the coast towards the inland which will of course depend on the commercial viability of all the factors.

Last year, there were talks about encouraging the development of private jetties. Has there been any progress in this regard?

All the new developments I know about are happening around Lagos. Again, it is consistent with the fact that Lagos is the commercial capital of Nigeria, so people can leverage networks with other activities going on around them. There are one or two people developing jetties that are independent of the NNPC jetty and as I mentioned, NIPCO has developed quite a significant storage capacity, but not much is happening in other parts of the country. In these cases, government should actually step in either with incentives or policies to make people invest in the areas that are strategic to it.

It is often claimed that Nigeria LNG supplies about 70 percent to 80 percent of the LPG consumed domestically. Does it mean other players such as Mobil and Chevron are not playing on this scene?

You need to realize that like Nigeria LNG before December 2007, many of the facilities were built purposely for export. I mentioned initially that domestic supplies were premised on supplies from the refineries. These producers are still exporting and I don’t know whether they have taken a similar measure like Nigeria LNG to ensure that a certain percentage

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I N T E R V I E W W I T H IBENECHE

of their production is dedicated to the domestic market. But to start with, the demand of our product has not gone beyond 60 percent of the quantity we have guaranteed each year so why would Mobil or Chevron provide additional availability when the one that Nigeria LNG has provided has not been used up? The problem is not with Mobil or Chevron providing additional availability, rather, it is the lack of infrastructure to facilitate distribution of the product in-country. As a company, we have borne some costs in making this available.

Until the end of 2010, we had what we call a mother vessel which is actually a floating storage that acts as a terminal for lighter vessels to come and off-take products and bring them to the jetty. We bore the cost of that. There is a sacrifice in doing that and unless there is actually full utility of the available quantities, it doesn’t make sense for another company to bear the sacrifices for no value at all.

There are some inland storage facilities but there are not too many new developments and I think it is being hampered by the choke points at the jetties.

Where is NLNG going with this? What’s the company’s exit strategy?

Businesses are into making profit, but to make profit you have to be a corporate citizen of a place and if you are a citizen, you have responsibilities. It is something like cleaning your environment; you can leave your house in the morning without cutting the grass on your lawn but if you are a responsible citizen, you will keep your environment clean. People term what some of these businesses do as corporate social responsibility, but some of these are just the right thing to do as a citizen of a place. Businesses are citizens; they are legal citizens of the country and besides, the Nigerian Government owns 49 percent

of NLNG. I think it is in the interest of all the shareholders and the company to try, once in a while, to solve a problem in their neighborhood. That is why we get involved in such ventures.

We would continuously monitor the LPG chain and when it becomes clear that we really have no special value to add, we will return to our core business which is actually to export. We have changed the mode of supply and removed the mother vessel. So that reduces the cost of our being able to meet our commitment. The mother vessel was replaced with a lighter boat that can do a quick run between Apapa Jetty and Calabar. By the model we operate now, if anybody has a jetty that meets the technical and safety requirements that the ship can call to, the person can buy LPG from Nigeria LNG and we would deliver at that jetty. The more people join this mode of operation, the less the cost for everybody and I think, ultimately, the plan would be that people can actually buy from us on Free on Board (F.O.B) at our terminal as we do for export. The reason it doesn’t make sense to them now is that if you are buying small quantities and we have several ships coming, it increases the risks at the jetty.

But eventually I think the market will mature enough such that a few big distributors will be able to hire their own ships and then order quantities, take it off from our jetty and then store it in their tank farm for other

smaller distributors to buy from them. At that time, it would become a self- sustaining business like any other one.

Do you have other ideas or projections on how long it might take to get there?

It is difficult to predict because it all depends on the pace at which the infrastructure develops. It depends also on how the market consolidates into capable big players. One can already think of the possibility of businesses like Oando, NIPCO or African Petroleum concluding that there is viable profit to be made from this business so they can actually grow into that space where they use their own ships to buy the product. The danger in going too fast is that if it ends up too early being one entity, then you can also create a monopoly that will erode the possibility of transferring the price to the consumer at an acceptable level.

It will be beautiful if two or three of those businesses grow into that space. We will just have to wait and see to conclude that the domestic LPG business has matured. Until that happens, depending on Nigeria LNG Board’s view, my recommendation as CEO will be that we just continue what we are doing to allow the market to mature because even though we make sacrifices, I think it is something worth doing for the benefit of the Nigerian economy.

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What are the regulatory anomalies in the industry? Are there regulations you think government should put in place to help the industry to grow?

It is good that you point out the anomalies.

It’s a very strange for people to import LPG and not pay Value Added Tax (VAT), whereas if you buy from local production, you pay VAT. It’s totally nonsensical and I have had a chance to discuss this in certain fora. I think we have to continue to say this. Hopefully, the Minister of Finance can convince his colleagues to change the pattern. I mentioned that, so far, government has been fairly quiet on policies to encourage LPG utilisation. I think that is unfortunate because desertification is a genuine danger.

If people can’t buy kerosene or can’t buy LPG, they would use wood and I know that there is a fund that is set aside to fight desertification; this would be one place to apply it, not to subsidise LPG because I don’t think subsidies make people rational in their economic behavior. Instead, the fund could be used to promote distribution. Special funds can be used, for instance, to create a jetty access in Port Harcourt as a matter of urgency. That would have avoided the need for LPG transported by sea to Lagos from Bonny and then carried by road back to Port Harcourt—a situation that should be avoided immediately. If this happens, it would mean that the landing price of LPG in Port Harcourt and Lagos would be about the same. It would further reduce the cost of LPG inland. So, something can be done, policy-wise, to improve the situation. It is a little investment and in one year or 18 months, you could actually build a storage

We would continuously monitor the LPG chain and when it becomes clear that we really have no special value to add, we will return to our core business which is actually to export. We have changed the mode of supply and removed the mother vessel. So that reduces the cost of our being able to meet our commitment. The mother vessel was replaced with a lighter boat that can do a quick run between Apapa Jetty and Calabar.

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tank farm and jetty which would also ease the burden on the distributors who can lease those facilities and use the capital they can get from the bank to do other things such as buying bottles, tanker trucks and, maybe, construct smaller inland storage facilities. Without a coordinated policy, achieving success is difficult. I know that in some other places such as Indonesia, they have gone as far as subsidising the initial introduction of cheap cookers and stoves so that the population has enough demand for the product. That also will mean a lot to the distributors because if the volume is high, you can afford to take a very small margin.

But if the volume is small, you have to take a higher margin. This means if the initial introduction can be helped by policy, then it will make all these things go very well.

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I N T E R V I E W W I T H OLINMA

Our mission:

availability, affordability Patrick Olinma,General Manager for Commercial at NLNG is a soft spoken, brilliant lawyer and gentle man of the oil and gas industry.

As a principled and practical manager, Mr. Olinma combines cutting edge industry practices with innovation and a deep knowledge of the industry to give NLNG its incisiveness in commercial activities. His role as a member of the management team in helping to stir the company out of stormy waters during the economic recession in 2009 and 2010 is proof enough.

In this interview with Yemi Adeyemi and Elkanah Chawai, Mr. Olinma outlays NLNG’s role in the LPG industry and the future of DLPG programme.

How did domestic LPG supply start for NLNG? The issue was first raised at the NLNG Board. We were exporting a lot of gas at that time and there wasn’t any part of that gas going into the domestic market. It was decided that NLNG should intervene in domestic LPG supply. Prior to that time, supply of LPG into the domestic market was mainly from the refineries, supplemented by import. But then supplies from refineries became irregular with regular shut down of the refineries which led to the bulk importation of LPG consumed in the Country. And in 2007, the intervention started.

When the intervention was planned, criteria were set for lifters (off-takers) and six were picked. Was it a deliberate design to pick six offtakers?

No, it was not. What we did was to have a town hall meeting where we invited all the stakeholders. We had said at that time that

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the whole idea behind the intervention was to make sure the product is available for the end-user to buy at a reasonable price.

For that reason, we wanted lifters who had a full chain. If we have operators who have a complete chain, we can monitor what they do. That was one of the key criteria for selecting the six lifters. There were some big players who didn’t participate despite our invitation. Maybe they didn’t believe that it would work, but subsequently, we have had a number of new lifters. At the moment, we have about 10 lifters and we are registering more. Once a company meets the criteria, the company is registered as a lifter. It is not an exclusive club. We just wanted to start with a pilot team to make sure that the subsidy we were putting in got to the endusers. We are managing to achieve that.

The initial contract ended in September 2010. Is the model of lifting LPG going to be revised?

After three years of operations, we looked

at the model and looked at areas for improvement so that we can cut cost and drive the price of LPG further down. We looked at the fact that we had double costs in the mother vessel and the shuttle vessel procedure. We wanted to cut out the cost of one of the vessels and we realised that we could do away with the shuttle vessel.

The problem was that the mother vessel was too big to unload at the NOJ terminal.

We therefore decided to get a smaller vessel which can go to load LPG in Bonny and go directly to the unloading terminals to deliver for the lifters, rather than do a ship-to-ship transfer at sea. We currently have a smaller mother vessel, about 15,000 metric tonnes, which can unload directly to Navgas and NOJ terminals. That results in a saving of about $100 per tonne. For that reason, we now sell the LPG on a Delivery Ex-Ship (DES) basis using our vessel to deliver the product rather than the previous model of Free on Board ex Mother Vessel.

Has the model taken off?

Yes, indeed. We have already delivered close to 6,000 tonnes under the new DES model and more deliveries will follow in the weeks and months ahead.

How much of LPG is NLNG dedicating to the market in the new contract?

We are still dedicating 150,000 metric tonnes. The NLNG Board has always said that if the market needs more, the volume dedicated will be reviewed.

Some industry feelers have expressed concern about the process of participating in the scheme and that the process is not transparent. How do you respond to this?

I don’t think that is a fair comment because we have had meetings with various stakeholders in the LPG industry to explain our processes to them. We have explained everything we do, including the pricing mechanism and the subsidy which NLNG provides for the domestic LPG supply.

We have also decided that after all the explanations we have provided, if there are still people who believe that our process is not transparent or that our price is not competitive, then they can buy LPG from other producers, since NLNG is not the only producer in Nigeria.

Will the off-takers (lifters) continue to act as a group or a club?

No. we don’t want that. We only did that to start. We don’t want a cartel. We want a free market. We only wanted to help them stabilise. But after three years, we believe they have had enough time to operate, so

each can stand alone, and NLNG can now deal with each company individually. We do not accept any anti-competition behaviour.

We want everybody to compete and sell their product in the open market without restrictions. We, however, encourage collaboration in operations and logistics.

They can also come together to get the product delivered at the terminals. It helps in optimising the use of the vessel. It’s does not make good business sense if one buyer will make an order for 1,000 tonnes and we come all the way from Bonny just to deliver 1,000 tonnes, but if three or four buyers come together and they take 10,000 tonnes, it makes more sense.

The PMS and other fuel market are demand-driven while the LPG market is supply-driven, depending on the amount you can get into the market. What’s your take on how to make it demand driven?

I am not exactly sure that I agree that LPG is supply-driven. I think it is actually market driven. True, it was supply driven at a point, but that was a misnomer. What happened before we intervened was that there were a lot of dislocations in the market which made supply irregular and unreliable. But with the intervention of NLNG, it has become demand driven as it should be. However, the market is not growing as much as we had anticipated because of a couple of infrastructural problems. For a long time, the NOJ terminal was the only functional one and people who imported products had to wait two weeks or more before they discharged and paid demurrage that completely made nonsense of the economics of the trade. Now with the Navgas terminal,

we can only hope that things will improve.

Another problem relates to end-users’ ability to afford the initial capital investment required to move to LPG consumption.

That is a key problem. We have seen that in India and Indonesia. Unlike with LPG, people can just go to market and buy a stove for just N500, and a litre of kerosene, and they are cooking. For LPG, you need some initial capital investment to buy a cylinder and stove which is about N15,000 today. You will need the stove which is another N5,000. So you are looking at an average of N20,000 before you can convert to LPG. That is a big hurdle. In India, the government had to intervene to help people scale that hurdle. They made loans and starter-packs available to the people. For some, they gave away the packs for free and for others at a subsidized rate, pretty similar to the model the telecommunications people are running—they give you free handsets knowing that you will come back to buy the top-up. They still do that in Europe.

Those kind of things need to happen here to help people overcome the initial capital to be spent. The other big hurdle is safety.

A lot of people still have this mortal fear of LPG. They believe it is dangerous. Sure it is dangerous if not properly handled, but it is also safe and clean; very environmental friendly. There has to be an educational programme to help people understand that if LPG is properly handled, it is the best fuel to use for cooking.

How do we get government involved in these issues?

NLNG has served on a ministerial subcommittee on this and we made a couple

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I N T E R V I E W W I T H OLINMA

Unlike LPG, people can just go to market and buy a stove for just N500, and a litre of kerosene, and they are cooking. For LPG, you need some initial capital investment to buy a cylinder and stove which is about N15,000 today.

of proposals. We are still waiting for some of those proposals to be implemented.

Another point is the fact that today we have this misnomer where imported LPG has VAT waiver whereas domestic LPG has 5% VAT. That was part of our proposals to government to have the VAT on domestic LPG waived as well. This can be a quick win for government. We also believe that if some of the other proposals are implemented the market will grow very rapidly.

In your criteria for participating in the domestic LPG supply scheme, you mentioned that you are looking for companies that have a complete chain in the industry. Where do small and

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medium size enterprises come in?

I need to elaborate more on what we mean by having a complete chain. We realise that it will be difficult for one lifter to have all of these. So what we said was that we will also accept people partnering, like a joint venture, so they can control what goes on in the chain. What we don’t want to happen, especially when we are providing subsidy, is for people to inflate prices without much value added. We just want to make sure we can have a handle on the situation. If it gets to the user at a reasonable price, the turnover will be quick and the market will grow.

Please describe the chain from production to the consumer and pinpoint areas in need of investments and more participation?

A typical chain will be from production plant to LPG vessel for transportation to discharge terminal and then unto trucks for transportation to bottling plants, and ultimately to retailers and consumers. There is definitely need for more investment in infrastructure, especially LPG terminals.

In the whole of Nigeria, there is just NOJ and Navgas terminals in Lagos and a small capacity terminal in Calabar. Definitely, we need more terminals. We also need more bottling plants. You can also have small bottling plants in housing estates where people can go and refill their cylinders. We need investment in trucking to facilitate distribution of products around the country.

We don’t need to have terminals everywhere if we have an efficient network of roads and enough trucks to cover the country.

We need more distribution outlets. Today there are all sorts of improvement in technology and one can now have a small bottling facility for about $20,000. There are also trucks that now have their own mobile bottling facility and can move around to bottle the product for users. All of this calls for more investments. We need more cylinders. We need to have a factory to manufacture them. We need investment as well in stove-making factories. There are just many opportunities for investors.

When do you think the industry can run on its own without the subsidy?

It is difficult to put a timeline on this. If the market continues to grow and there are incentives and support, it is not impossible that this will happen sooner. If you look at India, after several years of government intervention and growth, there is still some subsidy. So, there will be some kind of subsidy if people are to be encouraged to move away from the use of firewood and kerosene, especially in the rural areas. It is a continuous process until we get to a point where there is enough market penetration to stop the subsidy.

From Left: Osondu Irobi, Prof Akaehomen Ibhadode, Chima Ibeneche, Yerima Ahmed and Dr Adinoyi Onukaba

2010

Alhaji Basheer Koko, Deputy Managing Director of NLNG

HRM, Robinson O. Robinson, Eze of Ekpeye Logbo II of Ekpeye Land

Professor Ayo Banjo, Chima Ibeneche, MD NLNG and his wife, Ugo Ibeneche

Jean-Eric Molinard, Mr Ibeneche and Alhaji Umaru Dahiru, members, NLNG Board of Directors

Beeta Universal Dance Group in action

Left, Chairman of NLNG Board of Directors, Dr Osobonye LongJohn and Prof Ayo-Banjo

Mr. Ibeneche delivering his keynote address Ifeanyi Umeh, Amanyanabo of Bonny, HRM, King Edward Asmini William Dappa Pepple III (Perekule XI), Belejit Ikuru

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The GAN venue at Eko Hotel and Suites

Onos Birisibi’s Band

GM External Relations at NLNG, Siene Allwell-Brown (2nd from right), Mr. and Mrs. Ernest Ndukwe and a guest.

From left, GM External Relations at NLNG, Siene Allwell-Brown and guests

Prof. Ben Elugbe, President of the Nigerian Academy of Letters decorates Ayo Bamgbose, inductee into the Hall of Fame for Letters

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Winner of 2010 The Nigeria Prize for Science, Professor Akaehomen Akii Ibhadode, displays his prize

Left, President of the Nigerian Academy of Science, Prof. Oye Ibidapo-Obe and Hall of Fame for Science inductee, Prof. Umaru Shehu

GM Production at NLNG, Mats Gjers and his wife (left) Brigitta Gjers

Some NLNG managers, Ibrahim Adekunle and Eyono Fatayi-Williams

Osondu Irobi speaks on behalf of his brother and winner of the 2010 Nigeria Prize for Literature, Late Esiaba Irobi

Chairman of the panel of judges for Literature Prize, Prof.

Dapo Adelugba, announces winner of prize. To his left are Prof Mary Kolawole and Prof Tanimu Abubakar. To his right are Prof Kalu and Prof John Ilah

Basheer Koko and Alhaji Dahiru

Salute for winners by Beeta Universal dance group Special Guest of Honour, Sam Efe Loco

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Grand entry of Amanyanabo of Bonny, HRM, King Edward Asmini William Dappa Pepple III

Prof. Ben Elugbe and Emmanuel Obiechina, inductee of the Hall of Fame for Letters

Prof Ibidapo-Obe decorates Sylvester Adegoke, inductee of the Hall of Fame for Science

Prof. Ben Elugbe congratulates Michael Echeruo, inductee of the Hall of Fame for Letters

Emeka Dike, son of Kenneth Dike, inductee of the Hall of Fame for Letters, collects medal from Prof Elugbe

Prof Ibidapo-Obe decorates Prof Idris Mohammed, inductee into the Hall of Fame for Science

Onos Birisibi entertaining guests

Prof Adenike Abiose, inductee of the Hall of Fame for Science

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Yemisi Ransome-Kuti receiving medals of Hall of Fame for Science inductee, Dr Olikoye Ransome Kuti and Hall of Fame for Letters inductee, Fela Anikulapo-Kuti

INTERVIEW WITH ERINNE

We need more

jetties, storage facilities Dr. John Erinne birthed the Domestic LPG (DLPG) programme with NLNG. Working between 2005 and 2006 as the Managing Director of Chex and Associated Limited consultants on the study for supply of LPG to the Nigerian domestic economy - his team evolved the blueprint that salvaged the industry. He is a chemical engineer with over 30 years experience in the upsteam and downstream oil and gas sector and also CEO Matrix Petro-Chem Limited. Dr. Erinne is also a Fellow of the Nigerian Society of Engineers and the Nigerian Society of Chemical Engineers.

He spoke with Yemi Adeyemi and Elkanah Chawai on the factors that gave birth to the DLPG programme and challenges facing the LPG industry. The interview: How did you get involved in NLNG’s domestic LPG supply project?

We had done a number of jobs in the industry pertaining to LPG, so we had a bit of a credential.

NLNG was interested in the project, asked around and they were given references. We were invited to participate in the bid. We were successful and we became the consultant to the project.

What is the focus of your company?

Matrix Petro-Chem Limited does two things. One, we provide consultancy and advisory services in the oil and gas industry mainly for projects related to LPG, natural gas utilisation, lubricants, projects development & management service depots and facilities as well as conduct studies and technical evaluations for clients in the industry, occasionally for government agencies. Two, we have a division that is involved in providing chemical services to the oil and gas industry. I am a chemical engineer

by training and all these services are aligned with my background in chemical engineering.

When you came onboard the DLPG, what was your mandate?

Essentially, what NLNG wanted us to do was to go out and characterize the LPG sub-sector; to establish the state of the industry at that point in time; and to know the problems. The industry was in a very bad shape at that time. It was in dire strait. They wanted to know what the problem was, what the causes were and what needed to be done in order to get the industry going once more.

So how did you do this?

We had to discuss with all stakeholders in the domestic LPG market as well as the major marketers, the independent marketers, industry associations, suppliers of equipment and

vendors in the industry, cylinder manufacturers, government regulatory agencies and all other stakeholders. We visited all the key installations in the country in order to ascertain their status at that time. It involved a lot of travelling and evaluation of infrastructure.

What was the reception like? Were stakeholders forthcoming with information?

In most cases, we enjoyed excellent cooperation from stakeholders. It was only in few cases that we were not privileged to be accorded that kind of reception. But we got enough information that was necessary for the work.

What were your findings?

The industry started growing in the early 1990s.

At that time of the study, the industry was about 50,000 tonnes per annum whereas we had hit like 130,000 tonnes per annum before that time. So

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we shrunk like almost three times and that was a problem. That was key and the trend needed to be reversed. We also established that, at that time, the industry was depending more or less on import because the refineries, despite promises, had failed to deliver LPG to the economy. Yet, we were exporting about 2.5 million tonnes of LPG from the gas plants like NLNG, Mobil in Bonny and Chevron in Escravos. But those plants were not configured for the Nigerian market; they were configured to deliver gas to the export market.

It was a major challenge to see how they can divert some production to the domestic market.

We were to establish if that was workable. Apart from being able to move that gas from the plants to the domestic market, we had a major challenge in infrastructure for reception and distribution of gas. We were able to characterize and determine the kind of shortfall that we have in the market.

What options did you explore to tackle the challenges in the industry?

One of the options we looked at was laying a pipeline from Bonny to Port Harcourt. We also looked at the option of moving gas into the refinery storage facility in Warri and Port Harcourt. That was an excellent proposal because those facilities could be modified to accept gas into the tanks from the waters and, subsequently, take from the refineries onshore. They had that flexibility but the tanks, in both cases, especially Warri, were in very bad shape. The pipelines and all the associated gadgets were also in very bad shape and they were going to require a lot of money to fix.

Anyway, it did not seem that the Nigerian National Petroleum Corporation (NNPC) was well disposed to making that kind of change. It would have entailed a change in configuration and they were not in a hurry at that time. They believed that they were likely to start producing LPG soon in the refineries. Therefore, we decided to discard that option. There were one or two other options we looked at but we had to settle with a model.

We thought that if we could station a vessel to be an intermediate storage in the waters, we could

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have coaster vessels to lift the product from it and that would solve the problem. NLNG was happy with that solution.

How long is this model expected to service the LPG industry?

We identified the model but it was also feared that it wasn’t a permanent solution. It wasn’t for us to put time limit on it because it involves NLNG making a sacrifice by providing a vessel for the industry and paying for it. So it depended on how long Nigeria LNG was going to do that.

I don’t think there is any magic about this. The most important thing is to get into a situation where we have adequate primary storages facilities and jetties.

Also, we agreed with NLNG (and I thought that was an excellent strategy) that whoever was going to participate in the scheme should be tied to developing infrastructure over a period of time. NLNG came down to three years eventually. Part of the problem we identified was the bottleneck at Apapa. Everybody was going into Apapa and all the vessels importing refined products came there, jostling for space to berth. Priority went to the refined products because if there was no petrol or diesel in the fuel stations, it could become a big problem on the streets. Consequently, LPG was lower down in priority ladder. Also, there is a limit to the size of the vessel that brings LPG to the jetty in Apapa because of the water depth. These were the problems NLNG envisaged and that was the basis for telling the offtakers to develop infrastructure like coastal storage facilities and jetties to accept and discharge LPG.

Domestic supply by NLNG has not been used up, yet importation of LPG continues to grow.

Is there anyway to make the domestic supply more attractive to discourage importation?

We don’t have too much importation now. Most of the LPG we use comes from NLNG. Importation was in two forms prior to NLNG intervention - by vessels and subsequently, overland from Cotonou, Benin Republic. Importation by vessels virtually died out. Importation from Cotonou persisted a while, but is no longer consistent because there isn’t much room for it. It is a little more expensive and has a longer supply route with a lot of risks and difficulties. Basically, the industry now relies on NLNG to supply gas.

Some experts feel that limiting the players in the project to six then hasn’t helped the market at all. At what stage was this decided?

We didn’t limit ourselves in terms of numbers.

It was based solely on how we perceived their preparedness in respect of the entire LPG supply chain. We were looking for people that would try to work in consortia to provide the complete supply chain capability. There were individual companies which had capability in some aspects such as trading, shipping, bulk storage, distribution, bottling and marketing. That wasn’t good enough. We therefore encouraged them to work together. On this basis, we were able to select the six that had met the required criteria as closely as possible. In this kind of situation, you can never satisfy everyone. There will always be some complaints, but one thing was clear: the intervention of NLNG saved the industry and marked the beginning of recovery of the LPG industry in Nigeria. Today, for the past three years, people go to the service stations and retail shops to buy LPG without hassles. Prior to that it was a big problem and prices were very unstable.

Now, it has reasonably stabilised.

Do you think the market is liberal enough?

Yes, it is. LPG market is perhaps the most liberal in the downstream segment of the oil and gas industry.

INTERVIEW WITH ERINNE

NLNG’s intervention has assured availability.

But has it really assured affordability with the dearth of infrastructure? How can we address this?

First, we have to understand that whatever price we pay for LPG has some bearing with the cost of crude oil in the world market. In the last two years, we have been almost constantly at the level of $80 to a barrel. This has to have some impact on the price of LPG on the street. Once we have that in mind, I think the prices would have to be considered to be reasonable in that context.

I think that part of the problem is not so much the cost of gas but the cost of the accessories for application of LPG. A starter has to buy a cylinder, a cooker and these things cost money. And this may not be affordable to everybody and that is part of the problem. I know the industry has looked at different ways to solve this problem to see if there can be some subsidy or structured facility that can enable new entrants to get into the market, but I don’t think anything has worked out.

What were your findings in the downstream sector, most especially the movement of the product from storage to the consumer and what was your understanding of the market at that time?

The industry was almost comatose. The infrastructure and facilities for distribution and marketing of LPG were not in good shape.

The way the industry was structured, we had primary storages that were at the coastal areas or the refineries and the product was expected to move to secondary storages inland; and from the secondary storages to the filling plants. We also had a special set of storages that were set up by NNPC in the early 1990s. The project was supposed to popularize LPG in Nigeria and they built a set of 12 depots for LPG across the country. They are in Calabar, Enugu, Makurdi, Lagos, Ibadan, Ilorin, Kano, Gusau and Gombe.

They were commissioned but never put in commercial use after completion because LPG dried out from the refineries. The idea was for refineries to supply these inland depots with storage and marketers will load from the depots to their filling plants. But it never worked. After 10 years, they were not in a good shape to be used immediately. Also, several of the bottling plants were not in use because there was no

product. They couldn’t be put back to use without considerable work. A lot of trucks had broken down and people had moved away from LPG. These were the things we discovered and we knew that it was going to take considerable investments and effort to get the industry back to work.

Most of these facilities have come back with the intervention of NLNG. Can you give an objective analysis of the usage of these facilities after the intervention?

Those NNPC strategic depots have not really bounced back as such. One or two are being put to use; they were privatized four years ago and have a major problem of not being connected by pipeline. So there is a double handling issue.

Hence, those facilities are not fully utilized. But a lot of the other small secondary storage facilities are being used. Some plants initially abandoned have been reactivated and new trucks put into the market. That is why we have moved from 50,000 tonnes per annum to about 90,000 tonnes now. That tells you that there is progress and you can’t make that kind of progress without the downstream.

Most of these facilities are investment opportunities. But why have they not got the required investments? Are the opportunities not attractive enough?

Like I said, investments are beginning to flow into the industry. A number of people have invested in trucks and filling plants. Some of the old plants have been reactivated. The major investment will be required in primary storage facilities to be able to receive bulk volume from the vessels into coastal storages. A number of the off-takers are developing their own facilities and by the time we do that, it will help open up the industry. There will be more availability of the product. Gas is still not as available as it is required because of the bottleneck in Apapa.

Cylinders have been identified as the missing link to the development of the market. What is your take on the solution?

Cylinders are very critical for LPG distribution.

I am going to talk about this from a commercial and safety angle. I was hoping that when life begins to come to the industry, owners of existing cylinder manufacturing plants in the country will be encouraged to make necessary investment to refurbish their plants and support the industry.

Unfortunately, that has not quite worked out We have two plants, one at Ibadan and the other at Abeokuta.. I am a believer in local content and I believe in the support of local manufacturing as much as possible but not to the detriment of the business. Increasingly, people have been investing in importation of new cylinders which have grown the industry. A lot more investments are still required in cylinders if the industry has to continue to grow. The industry is still not at the level we expect it to be. We expect rapid growth to be sustained. I project that Nigeria should be able to consume more than 300,000

tonnes of LPG. That will require continuous investment in facilities like these. That is on the commercial side. On the safety side, there is still no clear cut mechanism or platform for managing the cylinders and making sure they meet the technical requirement for safety. Some years ago, a study supported by the American government was done by the Federal government. The study was very extensive but, unfortunately, the report was never implemented. It appeared the report disappeared. It was going to be the basis for proper management of cylinders by the industry to ensure that the safety of consumers is properly taken care of.

Some people who wanted to invest in the industry in the past were a bit concerned about the safety issues. The industry was chaotic at the time and a lot of people refrained from putting money in. I know that the Department of Petroleum Resources (DPR) has done a lot on regulations, especially on the cylinder, but we still have a long way to go to ensure they are properly managed.

If you were asked to suggest a better model or tweak the model being used now, what would you suggest?

I don’t think there is any magic about this. The most important thing is to get into a situation where we have adequate primary storages facilities and jetties. As long as we don’t have these, we have a problem on our hands. It is clear that the refineries will not provide any strong support for the LPG industry in Nigeria.

The medium term supply, and possibly long term, is from marine vessels. So we need to have those storage facilities because that will be the emphasis.

What drives your passion for the LPG industry?

I am a chemical engineer. My first job in the Oil and Gas industry was LPG Coordinator for Texaco Nigeria Limited, as it was in those days. Essentially, they wanted someone who had a combination of technical and commercial understanding to expand the LPG market for them and that was how I was hired. As a chemical engineer, I could understand the characteristics, handling requirement and the infrastructure for handling LPG. That was on the technical side. I also showed I had a basic understanding about the market and distribution. That was how I got in. I found it very exciting and challenging. When they moved me out of the job two years later, I protested vigorously but the management thought it was time to move to the core business. That was how I got into the lubricant business. But I never took my eyes off LPG. When I left Texaco in the 1990s to set up my company, one of the things I did was to keep touch with LPG industry and I had a number of clients who came to me for studies and assistance to set up bottling plants.

From my training and experience, I developed a passion for LPG and I have a personal commitment to see that the domestic market is reasonably well developed. LPG is the most convenient fuel you can use for cooking at home and for several industrial applications.

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INTERVIEW WITH EKUNDAYO

Cylinders, the next frontier Felix Ekundayo describes his entry into the cooking gas (LPG) industry in Nigeria as “pure bold-face stupidity”. Don’t be fooled! Behind that claim is a passionate man working hard to see that the cooking gas market grows out of its inertia. Mr. Ekundayo has over 21 years experience in the Oil & Gas industry.

The UK-trained chemical engineer spent more than 11 years of engineering experience covering midstream and downstream oil and gas processes - in particular, refineries, gas treatment plants, petrochemical plants, pipelines, and offsites & utilities with a number of multinational engineering companies like Foster Wheeler, ICI, Bechtel and Stone & Webster. He was a Senior Consultant with Nexant Limited, world renowned management consultants to the energy industry. During his time with Nexant, he consulted on various multi-billion dollar refining, gas, infrastructure, LNG and petrochemical projects around the world and in 2006 founded Linetrale Gas with family and friends. He is also the Managing Director of Gas Terminalling and Distribution Limited. Linetrale Gas is one of the off-takers lifting gas from NLNG. Mr Ekundayo is currently Chairman of the Off-takers Club. In this interview with Elkanah Chawai and Yemi Adeyemi, he gives one of the most lucid exposé of the LPG industry in recent times. Excerpts: How did the domestic LPG supply business start with you?

I was privileged to work for Nexant Limited, an energy consultancy in the United Kingdom, and in 2003, we were approached by the World Bank to bid for a project to investigate why the LPG market was moribund in Nigeria. In the course of preparing that bid, I identified an opportunity in the market after looking at the entire value chain and concluded that the bottleneck then was in coastal infrastructure and logistics. That was the highest impact point of investment.

It became almost a burning passion at the time. Over the next few years, I moonlighted, developing a business plan. Sometime in 2004, we (my partners and I) requested for a meeting with Dr. Andrew Jamieson, Managing Director of NLNG at the time. We met him in the NLNG office in London in August 2004 on the day the Final Investment Decision (FID) was taken on Train 6 NLNG and made a presentation to him.

It was supposed to be an informal presentation.

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Five minutes into the presentation, Dr. Jamieson excused himself, asking us to wait (we thought we had upset him). He returned with the Deputy Managing Director and the Commercial Manager and requested that we begin the presentation again. At the end, he seemed impressed and remarked that we sounded like bona fide people whom he thought he could do business with.

Though, he felt NLNG was likely to encounter problems with its Memorandum and Articles of Association if they adopt what we proposed, but promised they would address the issue internally.

His concern at that time was that NLNG’s Memorandum and Articles of Association did not allow it to participate in the domestic market but that the company was under enormous pressure [from the Government] to participate in the local market. He bought into our idea, which gave us the early confidence we needed.

That was our introduction to NLNG, though the company wasn’t called Linetrale Gas at the time. Unfortunately, things didn’t go quite as

smoothly as we expected and a couple of months afterwards, Dr. Jamieson was transferred and we lost that continuity. But we kept pushing in the system and the preliminary Domestic LPG (DLPG) programme kicked off in 2005, which coincided with when I had decided to hand in my resignation at Nexant in order to come and start the business in Nigeria.

What did you do when NLNG threw the idea open at the stakeholders’ forum?

We had been working individually with NLNG before that town hall meeting. Our initial proposal had, in fact, been short listed along with one from Bergesen and the choice was to go with either or get us to collaborate. My partners and I travelled to Oslo and Bergesen agreed to put its mother vessel proposal in with us, a major achievement for a start-up company.

Unfortunately, as we understood it, our proposal got to the NLNG Board where it was decided, under the Chairman at that time, to throw the

process open. It was a bit of a disappointment to us. In any event, it made it more legitimate.

So, we attended the town hall meeting and resubmitted our proposal. We ended up as one of the 11 shortlisted in June 2006 and we were invited to make a series of presentations to NLNG thereafter, finally emerging as one of the four originally short listed off-takers, which subsequently became six .

These off-takers came together to form a club. What prompted that?

NLNG prompted it and that was a good thing.

The crux of the problem was infrastructure. In so far as we were not all going to go out and get individual vessels, we were going to share some facilities in common in order to save cost. In doing that, we needed a forum to come together. NLNG

brought the idea and with our own background and familiarity with the Major Oil Marketers Association of Nigeria (MOMAN) model, Linetrale Gas proposed to the others (that was actually the first time we met with them) a model where competitors work closely together on operational matters. We brought the MOMAN charter to the table. The six members of MOMAN formed a body that operates the three main marketers’ jetties in Apapa that were initially problematic in terms of bringing in white products. We were going to be using one of these jetties, NOJ. So, in effect, some of our ground work had been done for us because MOMAN already existed and we did not need to reinvent the wheel. By and large, the charter for the off-takers’ club reflected what MOMAN was already doing.

The interest that arose and the pressures we

got from all sorts of quarters, especially the legislature, was the accusation that we were a cartel. That came up every time. MOMAN constitute the bulk of hydro-carbon products coming into Nigeria and are not seen as a cartel but rather they are seen as working together to overcome infrastructural challenges. Meanwhile, the off-takers constitute less than 1% of hydrocarbon products coming into the country and we were simply doing the same thing in the gas sector. It was incredibly burdensome when we first started the NLNG programme.

How were you able to overcome that image of being a cartel?

I think the legislature did not have the facts right at first, but we managed to educate them along the line.

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INTERVIEW WITH EKUNDAYO

supply is to go out and develop the market. And quite frankly, we all have our niche in the market, so if we focus on market expansion, it can be a positive collaboration, not just one where we erode each other’s competitiveness.

How would you rate the cooperation within the club?

The cooperation within the club, as you would expect from competitors brought together by circumstances, was fraught with challenges in the early stages of the programme. We would reach an agreement but as soon as you walked out of the room, one party would not honour it because at that point in time it didn’t meet their commercial requirements. Those were teething problems you would have in any new marriage. What developed later was that people started to trust each other more. More importantly, the way we interacted with each other built that bond of trust. The club was also set up in a way where the chairman and treasure positions rotated every six months. At one point, the club decided to retain the treasurer position with one company because it wasn’t just practical to move bank accounts around. It was an indication to the fact that trust had started to build.

All the past chairmen did tremendously well in getting us here today. Towards the back end of [the DLPG programme], the global economic crises set in and some of the flaws we had seen in the [original 3 year] NLNG contract became apparent. They almost put some of us out of business; at least two of our numbers were severely damaged by the downturn. The realisation dawned on everyone that the impact of the programme could be a lot better if more effort was focused on the external and not the internal problems. We turned the internal offtaker machinery to just an operational machinery so that we could then go out and face the expansion of the market. The whole purpose of having stable

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After three years operating with NLNG on LPG, how much has the demand grown in the market?

There is a misconception about LPG. Oil products are Demand Driven because there are millions of cars on the road. So, if you bring your cargo in and the price is right, it will be bought. Gas on the other hand is Supply Driven. The supply infrastructure to push gas into the market has to be as efficient as possible to make it as cheap as possible. Gas has alternatives. I can’t run my car on water. I have to use gasoline. I am locked in and so it is demand driven. On the gas side, if it is too expensive, I can shift to kerosene or firewood. Supply of LPG has to be in a way that makes it cheap so people can access and afford to consume it.

You then have to understand that the supply chain is not simply one bottleneck but a series of bottlenecks. Imagine the LPG market as a doubleended funnel—a funnel at the entrance and another at the exit. At one end you have unlimited supply in terms of all the new producers in the last 10 years or so; at the other end you have near unlimited consumption in terms of latent demand in the domestic market. Supply was the initial bottleneck, which is where NLNG came in and made a difference. Then you go on to terminals, transportation, filling plants and cylinders. The interconnecting value chain or tube between the two funnels wasn’t particularly straight: there was under investment at the front end in terms of terminals resulting in a choke point; there was over-investment in the middle in terms of filling plants (there are over 300 filling plants in the country); and there was chronic under-investment in the last mile (cylinders and distributors) resulting in a another choke point.

NLNG came in and sorted out the supply aspect but there was insufficient terminal capacity. The offtakers spent a lot of money assisting Pipeline and Products Marketing Company (PPMC) in upgrading their facilities. Our recommendations and initial funding in terms of getting the PPMC terminal back up to improve load-out were acknowledged by PPMC. We started with one load-out bay but today, four are operational.

This means that their through-put ability has quadrupled. PPMC at that time could only manage 11 trucks (220 tonnes) a day but now they can comfortably do 40 trucks (800 tonnes) a day. Many of us also had our own investment programmes. Other (third) parties had their investment programmes as well and two of them have been successful in completing their facilities.

The terminal end has now been opened up. But the story is not complete in terms of bottlenecks.

In terms of transportation, offtakers have been bringing in trucks so this particular bottleneck is being alleviated on an ongoing basis.

Presently, there is excess capacity in terms of filling plants and we believe many less efficient filling plants will shut down in the medium term.

For example, Linetrale Gas has three modern filling plants—one in Kano, Abuja and Lagos.

They are all completed except Lagos which is 99% complete. Kano and Abuja have the capacity of 25,000 tonnes per annum each and Lagos much in excess of 50,000 tonnes per annum. Just the three filling plants have the full capacity of the country and there are 300 filling plants around.

You have got the funnel really wide open at filling plants then you come to the finally critical component - the cylinders. That is our major challenge.

You can’t underestimate the kind of problems Nigeria has with cylinders. It is a regulatory, consumer and supply problem. On the regulatory side, there is no control over the street traders and we need better controls and not just from the perspective of protectionism. You can’t channel this product to the consumer safely using bottles that are 30 years old. You can’t achieve efficiency

With the new DES model, the need for a Mother Vessel and ship-to-ship operations has been largely eliminated. in a market where NLNG spends millions a year on the supply vessel; upstream players are investing in gas processing plants; the NIPCO facility probably cost between $25m and $40m; Navgas spent $50m; Linetrale Gas has spent over $10m on infrastructure; and there is what other off-takers have spent. Yet all these investments are dependent on a man who is carrying a N2,000, thirty-year old bottle as his only asset.

If anything happens with the consumer, they are not going to hold the street guy who sold the cylinder responsible, rather the owners of plants and others along the supply chain are held responsible. For these reasons, regulation needs to be stronger.

From the commercial perspective, imagine a gas bottle as a bottle of Ragolis water. In the total value chain, NLNG and other suppliers take one-quarter; Off-takers take another quarter for logistics and distribution; then you now have the street trader who has invested little taking 50% of the market value as his margin. So when you hear that the price of a cylinder is N2, 500 in the street, you can more or less halve that number to see what the offtakers component is in terms of sale price. There is no incentive for us. We sometimes end up selling below cost just to push volumes into the market. Why then would I invest $10 million when I can just go and buy a 30-year-

INTERVIEW WITH EKUNDAYO

old bottle with a hose and sit on the street and make more money per tonne? That is the kind of problem we have today in the LPG business. That is why off-takers have to push the frontier and go and compete at the distributor level. The model in the country now where street traders come to you to fill is inefficient and is not sustainable.

We did a study at our plants and found out that almost 70% of gas goes out as 50kg cylinders.

That means we are effectively selling to our competitors who resell on the street. The concept is that we go to the next level, which is warehousing — this involves deploying 500 cylinder capacity warehouses in neighbourhoods so that the end customer knows what your price is. They [the street traders] can’t compete with you and have to reduce their margin and in turn can act as your distributors. We need a more collaborative and mutually beneficial way of developing the domestic market.

The model that is used to deploy cylinders is extremely critical. To grow this market, for every one tonne increase in market size per annum, you need 10 (12.5kg) cylinders. Therefore, if I want to grow the market by 100,000 tonnes a year, I need a million cylinders a year. Each one of those cylinders costs about N9,000; the investment requirement is, therefore, N9 billion every year.

The level of investment that is still needed in cylinders exceeds the cumulative investment that has been made to date in the market.

We are now at the last bottleneck and the one that is fraught with the most difficulty. The only entity that has the capacity to solve this problem quickly is the government and they have so far been disinterested in this sector whereas what is on the table is a win-win situation for the government and consumers. By bringing in cylinders, you reduce the amount spent on subsidizing kerosene, impact gas flaring, deforestation etc. The amount that is required is just a fraction of the N150 billion the government spends on the kerosene subsidy annually. Given the level of apathy that we have encountered on the cylinder issue, we, the industry stakeholders, have to do it ourselves.

Cylinders are the next frontier and that is where most of our investment drive is focusing on. Once that is done, a dramatic change will occur in the market and literally it is a year or two away.

Your proposed model may be to cut out a lot of people from the supply chain but would this actually benefit the end user especially the “common man”, by cutting down the cost of entry to LPG use?

First, it will lower the end consumer price. When we came into the NLNG DLPG programme in 2007, price in Lagos was N5, 000 whilst in Kano and Abuja it was N10, 000. Today we have brought it down to N2, 500 in Lagos and N3, 000 in the north. This is a huge joint achievement in terms of pricing. That has helped us move demand from 70,000 to 120,000 tonnes per annum. It’s a small number but nevertheless a significant jump.

The next step is to look at a fairer split of downstream margins, where you have downstream

players who are taking 50%. We can only pass more value to the consumer once cylinders are made widely available. This will start to utilise infrastructure more efficiently and start to push the end user price down.

To answer your second question, yes, there is presently a significant barrier to entry into the use of LPG but we speak too much on behalf of the “common man, meanwhile the common man is saying stop “talking for me make gas available and

You can’t underestimate the kind of problems Nigeria has with cylinders. It is a regulatory, consumer and supply problem.

I will choose whether to consume it or not” We talked about the common man to such an extent that we made a mess of the gasoline sector. The common man can afford to pay if he has access to it. The common man still buys petrol in times of scarcity, doesn’t he?

The question should be “how do you bring down the barriers?” You certainly are not going to sell to your low-income earners 50kg or 12.5kg cylinders. The total cost for the 12.5kg with a gas stove and all the other accessories is about N14, 000. However, if we break the cylinder size down to a 6kg unit with an integral stove on top you drive the price down to N4, 500. This is a world away from N14, 000. It opens up the market to a totally new group of people. This is what Linetrale Gas is focused on doing with our 6 kg brand. So, although I recognise what you are saying about the common man, I am saying that argument is over-laboured. We have even been told that “people can’t afford N4, 500” yet show me the average man on the street and he is probably carrying two or three mobile phones each of which costs nothing less than N3, 000.

Our own preliminary trials have shown us that there is significant pent- up demand among lower income groups for the 6 kg units and we believe this is the key to unlocking the domestic market.

The question people ask about the LPG industry is how they will come in as small and medium size enterprise. Yet you talk about unregulated distributors who are making huge profits off the major suppliers.

What is your take on how to legitimise the middle men and sanitise the supply chain?

It is a simple problem to address, limited only by the investment requirement. There are opportunities for those interested in the industry

particularly within the “last mile” e.g. distributors.

Similar to distributors in the beverage industry, each needs to invest in branded bottles and open up a mini-warehouse or outlet. They can then pick up guaranteed quantities from larger off-taker warehouses but cannot short-sell or operate unsafe practices. They will also need to sell branded products so that the consumer can always trace safety or quality issues back to a particular supplier should the need arise.

We have all seen what has happened in the water dispensing industry where every bottle is branded, sealed and capped. Today there are various firms producing different brands of water; various people delivering water across the country; and the industry has grown exponentially, with a strong oversight function from NAFDAC. This is similar to how we see the LPG industry evolving. We need to move our industry along and there are opportunities for scrupulous investors to earn a living.

There is a lot of cost around the ship-toship transfer model of supplying LPG to the domestic market. Any ideas on how to reduce that cost?

The cost element of the [ship-to-ship] operation have been eliminated to some extent through the new Delivered Ex-ship (DES) scheme commenced

by NLNG in November 2010. The cost element is actually more dependent on consistent supply.

What NLNG’s supply has achieved is that it has stabilised the market price.

With the new DES model, the need for a Mother Vessel and ship-to-ship operations has been largely eliminated. NLNG has done a fantastic job and has taken a lot of pain in the course of the DLPG programme. The off-takers have also taken tremendous pain at a different level.

Nevertheless, the partnership has worked very well and perseverance is now the issue. In my opinion, we are half way through the journey.

Once the cylinder end of the market is resolved and additional capacity comes in (may be an additional terminal facility), this market becomes totally different.

Apart from supplies from NLNG, are there any sources for LPG supply for the offtakers?

No. the primary source is NLNG. That will change over time. If the other facilities have the ability to import, because of the tax waivers given to import, it can be cheaper. But over the last three years, NLNG has accounted for somewhere between 40% and 80% of LPG supply in the country. That is changing because the refineries are working. New producers are coming inland.

All these are going to have an impact on total supply. However, if the market is locked down due to the fixed number of cylinders, it will not penetrate the market. You have to break open that last barrier. At that point, NLNG’s goal of making this 150, 000 tonnes available would be realised.

We have struggled to meet that volume because there is a bottleneck in the ability to consume.

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be able to handle the volume of LPG that we are going to be handling. These are areas people can invest in.

Linetrale is also working on a modern terminal. How is that going for you?

From a financing perspective, we have had a significant challenge on the major terminal. We had to downscale our investment requirements.

For a number of reasons, the investment climate hasn’t worked out for us. The investment requirement was some where about $80 million and we had most of that on the table prior to the global, economic meltdown. We have said to ourselves that the market needs to grow more to justify the investment. We spent over $3 million on that development but we have placed it on hold until the market grows sufficiently. However,

What’s your advise to a prospective investor in the industry?

The industry requires a lot of money. It needs backers that understand the market. Nigerians tend to like this ownership issue. They must own something. You can’t own a terminal because it is $50m so you own a filling plant. That is partly why we have excess capacity in filling plants. You need scale in LPG to compete. Ultimately, there will be only two or three companies that will be standing at the end of the day. People will consolidate and others will choose core businesses that are not LPG. It is an infrastructure industry and you need might. I say investment opportunities will focus on three things: a) Following, tracking and investing in existing companies; to start anew you will be learning anew, though it may not be palatable. b) Investing in distributorships or; c) Investing in the support industry to the LPG market e.g. cylinder, valves and stoves manufacturing.

Today, most cylinders are imported, which means that all we are doing is shipping air in cylinders across the ocean. Why don’t we import flat steel plates and make the cylinders here? It is more efficient and cheaper. Manufacturing valves here is also promising. Those are areas peripheral to oil and gas but are important to the growth of the industry. Bringing in trucks or setting up a trucking company is another one. We have 150 trucks today. We need well over 2, 000 trucks to

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to speak about this. When we started the programme, we recognised that cylinders were going to be the actual bottleneck. At the very first series of meetings, we started with a cylinder scheme which approached banks to finance. We were going to contribute profits into the cylinder scheme. It was going to be a non-profit type arrangement. The way the scheme was designed reduced risk, but the banks still didn’t take it up.

That scheme went out for tender to Chinese, Thai, Indian and Nigerian companies. Surprisingly, the Nigerian companies were the most expensive by a factor of about 20%. What we discovered was that local companies are penalised in two ways: indirectly in the form of higher energy costs with most operating their factories on diesel thus making them uncompetitive; and directly through the high import tariffs of raw material steel plates

If I want to grow the market by 100,000 tonnes a year, I need a million cylinders a year. Each one of those cylinders costs about N9,000; the investment requirement is, therefore, N9 billion every year. The level of investment that is still needed in cylinders exceeds the cumulative investment that has been made to date in the market. we are not in this business to operate a pot and pan business so our interim plan is to change the design of our Ijora facility from just a filling plant to include additional storage to enable us receive sea borne cargoes directly (to address our own needs). This adaptation is in progress.

With all the challenges in the sector, what keeps you going?

The ultimate answer is that if you have a clear vision of your destination, the route you take doesn’t really matter. None of us started this business to be doing 5, 000 tonnes per annum.

What we started this business for was to create a market that is in millions of tonnes per annum.

One has a certain vision of this market and its potential but what we find at the end of the day in a country like this is likely to surprise everyone.

That is what keeps us going.

Has it crossed your mind or occurred to the club to buy the comatose cylinder manufacturing plants in the country?

For us, the answer is no. We stick to our core business. We just need somebody who can produce it efficiently. We have people externally who say the minute domestic demand hits 100, 000 cylinders per annum, they will set up a factory. Now, what we can do is to support these people. We have used every single opportunity

due to uncoordinated and unfocused government policy where importation of steel plates is taxed to protect the rolling mills in the country when in fact, the mills the policy was designed for are not working. This problem needs to be resolved by government if it is to make gains in the LPG sector and in the overall local content drive.

What inspired you to return to the country to invest?

Pure, bold-face stupidity (he says laughing) – you think you can go out and change the world and you learn a lot in the process. But there is also a very strong conviction in there. I believe in this market and the potential therein. If I start something, I must finish it. The important thing is that you must focus on where you are going. In my previous appointment, I had the opportunity of analysing companies across the world and I got to understand the potential of LPG here in Nigeria.

There is a little known private company in Turkey that today controls 25% of the Mediterranean market, trading and distributing a million tonnes of LPG per annum with the attendant cash flow that it brings. The winning formula was sticking to a plan, investment and vision. Our perspective at Linetrale Gas is that we are building an institution as opposed to simply rent seeking. Gas is a niche and in a niche market you have the opportunity to establish yourself without getting trampled.

INTERVIEW WITH OPINDI

Upfront investments needed in LPG market A gentleman sits behind the Managing Director’s desk at Navgas Limited, one of the biggest cooking gas terminal facilities in Nigeria. His name is James Opindi - an easy-going but down-to-earth individual who commands not just the respect but the trust of his staff.

To discerning observer, Opindi comes across as a competent leader. He leaves no one in doubt that he is in control of the $50 million state-of-the-art facility which he built by the way.

Armed with 35 years experience in the Oil and Gas industry mostly garnered from Kenya, Opindi came to Nigeria in August 2007 as the Project Construction Manager, Navgas, a joint venture between Vitol and Nidogas. Thereafter in 2008, he took over as Operations Manager and was responsible for development of operations procedures, commissioning procedures and staffing of the Navgas LPG Terminal.

Safety is Opindi’s first priority. Several recognition awards for delivery of outstanding results in management of Safety, Health and Environmental Protection (SH&E) attest to this commitment.

In a chat with Elkanah Chawai and Yemi Adeyemi, Opindi gives an analysis of the place of Navgas in the Nigerian cooking gas industry.

Sometime last year, the coming of Navgas was described as the next big thing in the LPG industry in Nigeria.

How true is this?

Navgas remains the next big thing in the industry. Our storage capacity of 8,000 metric tonnes is very large and by any standard, it is arguably the largest on the West Coast of Africa. We discharge ships and load ships. Our truck loading capacity is upwards of 24 trucks in a single shift per day. I am saying upwards because there are three loading bays and it takes less than an hour to load on each. It is typical of a facility of this nature which is available 24 hours a day, and if you multiply 24 by 3 — that is, three shifts a day — then you have 72 trucks per day. Those were the design

numbers and we can go beyond that with improved efficiency. We are doing this using a world class facility with state-of-the-art fire control and other equipment. So Navgas remains the in-thing. What we now need is a fully developed distribution infrastructure downstream and we will transfer any amount of LPG from upstream to downstream.

You talked about a capacity of 72 trucks per day. Have you consistently attained this target?

Not yet. Further investment is needed to boost the infrastructure downstream, that is, trucking, cylinder filling and distribution.

There is also the need to educate the users on the benefit of LPG as a cleaner, environmentally friendly and more efficient

domestic fuel compared to kerosene or wood fuel.

What drove the partnership between Vitol and Nidogas?

The formation of Navgas was driven by the desire to take advantage of the numerous opportunities in the country’s LPG sector. It is also in line with the Federal Government’s initiative to deregulate the sector, develop downstream infrastructure and make LPG readily available. Navgas brings together Vitol’s international expertise and experience as an operator of world class storage facilities. Nidogas is a house-hold name in cylinder filling and cylinder distribution across the country. This partnership will allow efficient delivery of

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INTERVIEW WITH OPINDI

Business opportunities will spring up in the areas of cylinder manufacturing, repair and recertification, processes that are required often in order to ensure the safety of LPG usage. Many cylinders you find in the market are in dire need of repair and the fear of safety risk is real.

LPG to the customers. Navgas is therefore the correct facility to have.

We also understand you import LPG… Remember our role is to handle the product irrespective of the source.

The challenges experienced in the supply value chain are business opportunities for ancillary businesses to cash in on. What are those opportunities?

The part of the supply chain from the product source to bulk storage has now been enhanced. The challenge is how to move the product from our storage tank to the end user. There is no doubt a lot needs to be done in order to establish a truly effective distribution system further downstream. Government policies must be investor-friendly enough to attract the investment required for transportation, filling plants, cylinders and even the cookers for the end-user. One thing that is true is the phenomenal potential - with a per capita usage of less than 1kg of LPG in a gas producing country. Compare this with Ghana, a new producer at over 3.5.

The other business opportunities will spring up in the areas of cylinder manufacturing, repair and recertification, processes that are required often in order to ensure the safety of LPG usage. Many cylinders you find in the market are in dire need of repair and the fear of safety risk is real. Periodic recertification of these cylinders ought to be enforced. Likewise the right standard for trucks can only be achieved by having fit-forpurpose workshops.

In summary, there are plenty of opportunities to cash-in on. We only moved the chain up closer; we need investors for more trucks, more cylinder-filling plants and

those to develop the cylinder distribution systems up to the households. Looking back at all these, there is some level of investment upfront to which tends to cloud the advantages of promoting LPG. For example, investment in cylinder distribution requires enough inventories at filling plants, distribution centres and in the kitchens so that customers don’t have to wait for their individual cylinders to be filled when they need replenishment.

On our part, we have in place a facility that provides the flexibility of uninterrupted supply. With our two tanks, we can discharge from ships and load trucks at the same time. There is no waiting.

What amount of gas can your facility push out to the market per annum?

The 72 trucks per day I talked about will translate into well over 400,000 metric tonnes per year. That is still a long way to go and we will be happy doing 250, 000 metric tonnes.

If you have so much capacity and it is not put to use, it would be such a waste…

Put it this way, this facility is strategic for expanding the LPG market in Nigeria, considering the high potential there is, and therefore a number of stakeholders are gearing up to take advantage of it. First the government is keen to address the issue of gas flaring, reduction or removal of subsidies on kerosene and reduction of capital flight through importation of the same. I also believe high on the government’s agenda is the deforestation resulting from use of wood fuel for those who cannot access or afford kerosene. Nigeria happens to be next door to the Sahara desert and accelerating desertification by cutting trees

must be stopped. Add to that, consumers would rather have LPG as it is not a health hazard. It burns efficiently. So, even with the opportunities of business aside, there are other compelling factors for promoting widespread LPG usage in the country.

Navgas is therefore critical in enabling rapid expansion of the LPG market and I don’t feel it is a waste.

When you say government stimulates investment in this part of the world, many would think of subsidies. Are there any other commercially viable ways to go about this aside subsidy?

You are right that subsidising the price of a gas cylinder is one way of going about it. Removal of subsidies, in this case from kerosene, is also a stimulant to investment.

Making capital easily accessible to the investors and allowing an open market so that supply and demand can regulate the market are other key considerations. I hope the latter is taken into consideration when appointing off-takers.

What is your take on the model of using limited number of off-takers?

Personally I think the number of off-takers vis-a-vis the market size is small, but maybe this is good because of the early stages of expanding the market. What is important is to use selection criteria that doesn’t infringe on the spirit of open market, and for as long as the process is not only perceived to be transparent but accepted by all as being transparent. It must be devoid of being seen as favourable to a select few. In my home country, regulations for market entry into LPG market are more about safety.

Competition among the players is fierce and consumers benefit a great deal from value for their money. The margins I hear of in this market are indicative of the need to have more players than there are now.

Where do you see the LPG business in the next two years?

There are signs out there that people who want to be part of LPG market expansion are starting to do something about it, and that is good. Realistically though, these activities are just about laying the foundation, so the work in the next two years may not be obvious to observers. There are policy issues to deal with and follow up with appropriate investment. Capital flow is strained at the moment and will have its impact.

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INTERVIEW WITH OPINDI

What remains important is to focus on growth, the country’s ultimate consumption levels can grow to well over 6 million metric tonnes per year. At that time, we at Navgas will be thinking of expanding our facilities to cope.

What is the next step for Navgas in the next five years?

We are here to provide unparallel service in safely and efficiently loading our customers’ trucks.

You have a shipping arm…

Our customer has a shipping arm. We handle the product; ship discharge, storage and loading into trucks What size of ships can berth at your terminal?

The jetty here can berth ships of LOA of 90 to 186 metres and up to 30,000 metric tonnes displacement.

Why the ship-to-ship transfer model started in the first place was because of incompatibility of specifications between the terminals in Bonny and Lagos. Does your facility solve that problem?

I can’t comment on that objectively as that activity falls outside the scope of Navgas.

However, I can add that the sizes of ships that are coming alongside is just right, not just for us but for other installations in Lagos. Larger ships would not bring along any added advantage.

Are you open to business with off-takers on storage?

For as long as there is spare capacity we will welcome any suggestions for making use of it. And of course it is business driven.

Do you think there is need for investments in more throughput facilities?

I think people need to step back and rethink that strategy. The existing facilities aren’t at the level of full utilisation yet, and won’t be for some time. In Kenya’s case, the total country’s storage is less than what I have here and it handles as much quantities as Nigeria as a whole.

The scope for investments is further downstream – transportation, cylinder filling and distribution plus the maintenance and recertification services I mentioned earlier.

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There are observers who think there are too many filling plants with over 300 points across the country concentrated in very few places…

One needs to rationalise between the number of filling plants and the cylinder distribution network. Options include centralised filling with a wide distribution network of filled cylinders, or distribution of bulk product to a number of strategically positioned filling plants. I can’t tell you where the existing plants are and if they are adequate. Key consideration is if they are in full use wherever they are.

How long have you been in the Oil and Gas industry?

I have been in the industry for 32 years, or thereabouts anyway. I spent a very interesting period of five years working in LPG operations and marketing. At that time, we faced challenges doing government controls and safety. We overcame many of these and pioneered the developments that led to what the market is today. Price controls were removed and we started developing various standards that are used in the industry today.

Was the industry market-driven when your price formula was implemented?

The product was in short supply in those days, so mark ups were on the basis of what we calculated as appropriate. Right now the competition is fierce.

What challenges do you expect in the future?

Expansion of the infrastructure downstream so that existing storage facilities, such as the one we have here, can be put to full use.

The huge potential can’t make us wait, but it is also true that investment will be gradual.

The springboard for the flurry of activities that we expect is government policies that are refined to attract investment. Talk about a sleeping giant? The LPG market is one and stakeholders should be pondering the next steps to wake it up.

How long have you been in Nigeria?

I have been here three years. I was part of the construction team.

How would you compare the LPG market in Nigeria to the one in Kenya?

The fundamental difference is that Kenya

is not a gas-producing country. We import.

Adequacy of storage is clearly a constraint and this limits the parcel sizes that can be discharged in Mombasa. Incidentally, it is the only marine receipt facility we have.

Cylinder distribution networks throughout the country are very well developed. The market is fully liberalized. The criteria for licensing of LPG dealers are safety of

The springboard for the flurry of activities that we expect is government policies that are refined to attract investment.

Talk about a sleeping giant? The LPG market is one and stakeholders should be pondering the next steps to wake it up. installations and distribution network and the Kenya Bureau of Standards is very strong in enforcing these requirements. The commercial considerations are up to the individual players, and there are cases of joint ventures or throughput for storage and cylinder filling.

No doubt, LPG market has come a long way from the days of when the only supply source was the Refinery in Mombasa.

Imports came into being in the 1990’s.

Cylinders are recertified every five years, so people have invested in repair and recertification plants.

The market has developed by promoting individual brands with monopoly of their own valves. As from 2007, the government enacted legislation to standardise valves and it has put a mechanism in place for LPG companies to exchange theirs. For the customers, it makes it convenient to exchange their empty cylinders with filled cylinders at the nearest outlets without worrying about the brand.

NLNG tours

Nipco, Navgas facilities

By Anne-Marie Palmer-Ikuku & Elkanah Chawai

The Managing Director of Nigeria LNG, Chima Ibeneche, on the 28th of February, 2011, led a team on a facility tour of cooking gas (LPG) facilities at Nigerian Independent Company Plc (NIPCO) and Navgas Limited in Lagos in preparations to bringing the companies on board the Domestic LPG programme.

The NIPCO tank farm is worth N7 billion with a storage capacity of 4, 500 metric tonnes while the Navgas facility is a state-of-the-art LPG coastal terminal worth $50 million dollars, with a storage capacity of 8, 000 metric tones and a jetty to receive and load cooking gas. Here are pictures of the visit.

NLNG Manager, Sales Administration, Mrs Eyono Fatayi-Williams, listens to a brief by a Navgas staff.

A view of the 8, 000 metric tonnes twinstorage tanks at Navgas.

A visit to the control room at NIPCO.

Chima Ibeneche shakes the hand of a NIPCO engineer at the LPG facility.

The MD of NLNG, Chima Ibeneche (middle) flanked by Managing Director of NIPCO, Venkatapathy Venkatraman (left) and NIPCO’s Executive Director, Ramesh Virwani, during the tour at NIPCO. The Managing Director of Navgas, James Opindi, briefing Mr. Ibeneche at the Navgas terminal.

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