THE price of cooking gas fell in May for the first time this year, and has improved further in June, compared to the price a year ago.

In its latest report, ‘Liquefied Petroleum Gas (Cooking Gas) Price Watch for May 2023’, released on June 23, the National Bureau of Statistics (NBS) stated that the average price for refilling a 5-kilogramme cooking gas cylinder fell in May by 6.07 per cent to N4,360.69 from N4,642.27 recorded in the previous month of April.

The average retail price for refilling a 12.5kg cooking gas also dropped in May by 7.61 per cent to N9,537.89 on a month-on-month (MoM) basis, from N10,323.33 in April.

A check by The ICIR this week at some gas filling stations in Ogun State revealed that cooking gas sold at N570/1kg, with the 3kg size selling for N1,700 and the 6kg cylinder going for N3,300.

Before the price dropped to N4,360.69 in May, the price for refilling a 5kg or 12.5kg cooking gas cylinder had been on the up.

For instance, the average price for refilling a 5kg cylinder rose from N4,588.75 in January this year to N4,600.57 in February, climbed to N4,610.48 in March and N4,642.27 in April, before dropping to N4,360.69 in May.

Why cooking gas price fell month-on-month

The drop being recorded in the price of cooking gas is affected mainly by the global market forecast, the head of financial institutions ratings, Agusto and Co, Ayokunle Olubunmi, told The ICIR.

As Olubunmi posited, the forces of demand and supply are at play, with the world gradually moving into the summer period, where demand for gas is expected to fall.

“What that means is that as the global demand for gas reduces, the international gas price falls.

“If you check what is happening now, the world is gradually moving into the summer and, as such, people won’t need more gas for cooking and all sorts,” he explained.

He also adduced the price drop to the Nigeria LNG Limited’s (NLNG) priority to supply more gas to the Nigerian market.

The ICIR can report that LNG is Nigeria’s second largest export commodity and accounts for 10.4 per cent of total exports, according to the Financial Derivatives Company in its latest June Monthly Economic Update.

Why cooking gas price rose year-on-year

On a year-on-year (YoY) basis, however, the average retail price for refilling a 5kg cooking gas cylinder rose by 11.20 per cent to N4,360.69 in May 2023, from N3,921.35 in the corresponding month in 2022.

The average retail price for refilling a 12.5kg cylinder also rose on a YoY basis by 9.30 per cent to N9,537.89 in May, from N8,726.30 in May 2022.

Speaking on Arise Television’s Global Business Report on Wednesday, June 28, the chief executive officer of Dairy Hills Limited, Kelvin Emmanuel, gave an insight into some of the factors affecting the price of cooking gas.

Emmanuel, an economist, noted that the LPG consumed in the country and supplied by the NLNG carries a United States dollar (USD) obligation to shareholders, driving the naira-dollar exchange rate parity.

Another challenge is the inadequacy of bulk storage terminals to handle LPG as Nigeria has less than 20,000 metric tonnes capacity as against the required 70,000 to 100,000 metric tonnes.

Nigeria has only two functional LPG landing jetties – the Navgas and New Oil Jetty (NOJ) in Lagos – and another terminal in Calabar.

“These are infrastructure challenges impacting on pricing,” the economist said.

A cursory look at the NBS report showed that cooking gas prices vary from state to state and zone to zone.

“This is because two of the three LPG landing jetties in Nigeria are located in Lagos,” Emmanuel said.

In May, Bayelsa recorded the highest average price for refilling a 5kg cylinder at N5,016.67, followed by Zamfara at N5,000.00, and Abuja at N4,900.00.

On the contrary, Ondo recorded the lowest price with N3,795.83, followed by Nasarawa and Edo with N3,800.00 and N3,837.14 respectively.

Analysing the report by zone, North-Central recorded the highest average retail price for refilling a 5kg cylinder with N4,712.85, followed by the North-West with N4,550.04, while the South-East recorded the lowest with N4,078.50.

“Between  2014 and 2023, the consumption of LPG increased nine times from about 144,000 to 1.1 million metric tonnes, despite Nigeria still having one of the lowest LPG per capita at 1.8kg, compared to Saudi Arabia, which is nearly 500kg per capita.

“If you want to look at why the price of LPG was rising, you look at the upstream processing capacity for Nigeria’s backward integration to ensure that Nigeria processes up to 90 or 95 per cent of the LPG it consumes,” the economist said.

According to him, these are the primary reasons why even though Nigeria has one of the largest gas-proven reserves in the world, the country still has LPG prices that are high, and that has affected the penetration of LPG usage in Nigeria.

“There is the tendency that macroeconomic pressure will push the price of cooking gas upward, Emmanuel said, “because there is still high volatility as the naira tries to find its footing with the dollar following the exchange rate unification,” he said.

What government could do to tame the price

Emmanuel suggested that as done by the FMDQ Group in setting up an Exchanging Traded Derivatives, the government could set up a non-exchange traded derivatives, or what is called a non-deliverable forwards in derivative trading to help importers and companies use forward contracts to hedge against currency fluctuation.

“For instance, if a company is billed to import 20 million barrels of LPG in January, what is the guarantee that by December 2023, the exchange rate wouldn’t have risen to N820 or N830? That is what forward contracts help you to do, and non-exchange derivative forwards allow you to hedge.

“In the short term, I expect few uncertainties in the market to last for three to six months, which will impact the cost of importing LPG into Nigeria considering that one metric tonne of LPG in the international market is somewhere around $280 and $300, and you still need another $135 as landing cost,” he explained.