Crude Oil Market Dynamics Responsible For LPG Price Hike – Dickerman

What is responsible for the continuous rise in the price of LPG?

Forty per cent of the propane and butane, which is what Liquified Petroleum Gas, LPG or cooking gas is, there’s two products.

Propane is a three-carbon chain product and Butane is a four-carbon chain product.

They’re light ends, so they’re called. And they’re in gases because in atmospheric temperatures and pressures, they are gases.

Sixty per cent of it is imported. Guess where it comes from? Oil and gas wells. So it’s a global product, just like crude oil is, just like natural gas is, and its price follows a global market price. And when crude oil prices go up, which they have – they’re close to $100 a barrel.

RELATED

Nigeria First Policy: Customs Assures Local Vehicle Manufacturers Of Patronage

5 hours ago

Stock Market Investors Reap N1.69trn Gains In 1 Week

6 hours ago

Last time I checked, they were about $95 a barrel. So, the price of imported LPG will go up correspondingly.

The Nigeria Liquified Natural Gas, NLNG produces 40 per cent and the rest is imported.

So that’s the reason. There’s nothing sinister going on. There’s nobody planning it. And they will go up and they will go down. That’s the beautiful thing about global market prices. They don’t just go up. When there are efficiencies, high prices will create additional supply, which will then reduce prices. It’s a self-balancing system.

What are key issues in the Nigerian oil and gas downstream sector, like pricing, investment and infrastructure?

The issues are both very simple and very complex. They are very simple in that if we can get to where the developed countries are, to have a true market environment for petroleum products with market pricing, with multiple sellers and multiple buyers, there will never

be any problem with supply again and the market will sort itself out.

To get there from where we are involves economic pain. It’s a difficult political decision.

The short-term decisions that are being made often conflict with the long-term objectives. Long-term objectives are very simple and it’s not just about our industry. It’s about the country and it’s about the economy of the country.

It’s about creating jobs, it’s about creating foreign direct investment. It’s about providing the characteristics and the environment that will give investors confidence to invest in Nigeria and that includes confidence in the Naira.

The structure that we have starts with a hybrid FX structure where some entities are able to buy dollars cheaper than others.

Since we are in an import market and all products are imported because there are no operating refineries and all oil products are priced in dollars, it takes FX to buy petroleum products.

The difference between the official and the unofficial rate for example today is 250 Naira per dollar. It’s massive. That is what creates this effective continued monopoly by NNPC Limited, which isn’t healthy for a market and it’s not healthy for Nigeria. It’s not healthy for investment and it isn’t creating a marketplace.

There is no real effective marketplace at wholesale or retail until we have a deregulated market with market prices at all classes of trade.

I am talking about both trading in cargoes. I’m talking about wholesale trading in truckloads. I’m talking about retail trading at the pump.

All of those flow from market pricing. They will all come in line.

The government doesn’t need to put a hand on it.

They don’t need to touch it. They don’t need to get involved in any way.

But getting there requires us having a free-floating Naira as well. I know the economy is in tough shape. I know that the recent increase in petroleum prices that came, especially in PMS prices because AGO prices went up before and tried to crude oil, and it was a result of the reduction of subsidy and that has political implications.

Last year, Pinnacle launched its modern mooring terminal. How has that been working since the inauguration?

It’s been working beautifully. You know, we actually think of our business a little bit differently than some other people in our industry think of their business. Some people think that they’re in the business of processing or throughput or wholesale marketing or retail marketing. We’re actually in the business of efficiency in the Nigerian oil and gas downstream industry

The whole vision around not just that terminal, but our entire corporate strategy is about creating efficiencies. Where we see inefficiency, that’s where we want to make investment. Reducing inefficiency is actually our business model.

And that’s what we do. It doesn’t really matter whether Pinnacle utilises those efficiencies or other companies do or the government does. Everyone is welcome to it. It is an open system.

So, we actually have more third-party companies that are coming in to utilise our terminal than we are using for ourselves. At some point, when the Dangote refinery, which is one kilometre from our facility, starts operating, the demand is going to explode in that area, in the Ibeju-Lekki axis, the Lekki Free Trade Zone.

There will be a lot more terminals in that area, and it will displace a lot of the distribution activity that’s currently going on in Apapa and Satellite and other areas around the Lagos area that are currently very congested because of those efficiencies that will come along. We just happen to be the first ones to take advantage of it. And because we have the deep

water moorings, others can take advantage of it as well. Our business is actually doing very well, but it’s really because that’s the business that we’re in, really.

Are you looking at investing in opening more filling stations?

We are cautiously and selectively expanding our retail network.

Our retail network is not huge by Nigerian standards. The Nigerian retail market needs to develop. Again, with this market deregulation, when we see the correct price signals and when there are really market prices that drive retail, when no one has a competitive advantage, no one has a supply advantage, you’re going to see market prices.

If Nigeria looks like every other country that has deregulated gasoline.

I’ve worked in 25 countries and I’ve seen this many, many times, including my own country in 1981 where I was working for a major oil company when Ronald Reagan deregulated oil prices, the margin that comes from fuel will go almost to zero.

The value of a retail station will be simply to bring customers into that station, and then you make money off them from other ancillary services that are needed, and it will be very localised. So, one area will have a convenience store, another one will have a mechanic’s service, somebody else will have a hotel, somebody else will have a car wash, and that’s where all the value is in retail.

And there’ll be attractive stations, and you have to be in a place where there’s a high traffic count, and that will be in places that are very safe and we will probably have 24-hour filling stations and so on, and it’ll be much more convenient for the population as well. What you’ll stock in those convenience stores will be whatever people really need, whatever they actually want, and that’s where retail goes

1. So that’s going to require significant investment, and the timing is a bit uncertain, because we’re just not there yet.

So that’s why our primary focus right now is not big retail, it is more on leveraging and replicating what we’ve already done wholesale, looking for horizontal and vertical expansion opportunities.

We are getting into LPG, we are going to put in a lubes plant, we are going to get into jet fuel, we are looking at other locations to build terminals, we’re going to continue to expand, because we know that that efficiency model is successful.