The plan by the Federal Government through the National Liquefied Petroleum Gas (LPG) popularly called cooking gas Expansion Implementation Plan domiciled in the Office of the Vice President; to achieve a target of five million Metric Tons of LPG consumption annually by 2027 is set to open a fresh vista of opportunities for those in the gas sub-sector.
Part of the plan also includes the injection of 10 million cylinders into the market in order to discourage the use if dirty fuels which included charcoal, firewood, kerosene, among others.
Programme Manager, National LPG Expansion Implementation Plan, Mr Dayo Adeshina, had last year disclosed that all these efforts were geared at improving safety and deepening LPG utilization in the country.
“We are starting the cylinder injection under the first phase in 11 pilot states and FCT, with two states from each of the geopolitical zones. The states are Lagos, Ogun, Bauchi, Gombe, Katsina, Sokoto, Delta, Bayelsa, Ebonyi, Enugu, Niger and the Federal Capital Territory”.
The cylinders will be injected through the marketers. The marketers will be responsible for the cylinders and the exchange will take place in homes and not in filling stations. What this means is that going forward, cylinders will not be owned by individuals but by the marketers who will ensure that they are safe for usage.’’
Regrettably, Nigeria, with a proven gas reserve of 206 trillion cubic feet according to latest statistics from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) records a paltry consumption of 1.3 million metric tons per annum. The disconnect between the volume of available gas reserves and cooking gas penetration was as a result of poor investment in the LPG sector.
But to reverse this trend, investments must be encouraged in the entire gas value chain from gas production to transportation, retailing and marketing in order to grow the LPG consumption figure. The Nigeria LNG Limited (NLNG) recently disclosed that feed gas and market constraints remained an impediment towards Liquefied Petroleum Gas (LPG) popularly called cooking gas supply into the domestic market.
This was as it said the company was committed to supply 100 per cent of all its LPG production (butane and propane) to the local market. It added that there were challenges which have slowed the utilization of LPG in the country. This included the inability of the market to completely absorb NLNG’s propane production, leading to its sparse export of propane to avoid tank-top situations at its plant.
Despite the massive investment opportunities that abound in the gas sub-sector, one area that is still largely untapped is investment in LPG plant. While other areas of the value chain such as terminals, gas accessories and parts, haulage investment are getting investment opportunities, investment in cooking gas plant is still at its lowest ebb.
This development can be said to be partly responsible for the high cost of cooking gas because there are only few players in this sub-sector of the LPG arm of business, with the few operators are smiling to the banks on a daily basis as a result of huge returns on investment.
Establishing LPG plant
Cooking gas business is very profitable, and you don’t have to break the bank before you can start. With substantial startup capital you will get your business set up and ready to go with almost everything necessary in place. And this is a big business that anyone who is into it can be proud of.
But beyond the financial requirement needed to establish an LPG plant, there are statutory regulatory guidelines that must be met before license can be issued. These standards are prescribed by the downstream regulatory – The Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA), formerly known as the Department of Petroleum Resources (DPR). This post explains further on how to get your license. Also take note that we have explained that there is a deadline to consider to get said license.
Risks in LPG business
Every business has its peculiar setback and the biggest risk in cooking gas business is fire explosion, which is very common due to the high inflammable nature of liquefied natural gas. That isn’t much problem though since it can easily be mitigated or even avoided.
To be able to curtail this, you need to be alert at all times to detect when there is leakage in those cylinders as leakage is one of the major causes of fire and explosion. You also need to buy good fire extinguisher that can be very handy in time of minor fire outbreak.
Another risk in the business is the purchase of substandard product and equipments. In the event that the store set up is not up to standard, accidents will occur and be a threat to the environment and others around. Thus, it is imperative that no stone is left unturned when it comes to setting up a store that is up to standard and avoid endangering the lives of others. In fact, one can also say that the ensuing accidents or explosion can also lead to enormous financial and property loss as is the notoriety of gas explosion.
According to the Sun News to set up a 2.5 tons mini plant will cost N7.5 million while a 5 tons mini plant will cost N14.5 million. The cost of 1kg including landing cost from the depot is N600.This is now sold at N750 at the cooking gas plant. That translates to a profit margin of N150/per 1kg of gas. If one is lucky to be in a busy location and sells about 500kg of cooking per day, that translates to a profit margin of N30,000 daily.
How profitable is cooking gas business in Nigeria?
Let’s take the 12.5kg cylinder as a case study; the average profit you make from 12.5kg cylinder of cooking gas is N1,000. You buy for unit cost of N7,500 or less and sell for N8,500 or higher. If you sell 30 cylinders in a day at the average profit margin of N1,000, you will be making N30,000 daily. In a month, you will be making N30,00×30 = N900,000.
This is relatively the lowest profit you can make in cooking gas business if you are in a highbrow locality where you get good patronage. Most people make much more than what we calculated here. So, it’s not in any way by exaggeration. Gas companies, both the suppliers and retailers, are making good money in the business. You can become one of them today if you act now!
LPG in Nigeria is here to help you get started. Visit our blog and follow us on our social media platforms to keep abreast of LPG News.