By Adewale Sanyaolu
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 include 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 vale 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 feedgas 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.
He added that there were challenges which have slowed the utilisation of LPG in the country. This, he said, 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 plants 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 N7,500,000 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).
Application procedure
According to documents made available to Daily Sun by NLPGA, prospective investors shall, in accordance with Part VI, Section 87, Sub-section (2) of the Petroleum Regulation 1967, petroleum gas plant or installation shall not be constructed or modified without approval granted by NMDPRA.
Accordingly, all applications for approval to construct/modify an LPG plant or installation shall be addressed to NMDPRA, giving full details of the proposals. Each application shall be accompanied by three copies of the following:
Detailed approved plans drawings showing the existing or proposed buildings on the site and the relative distances to the roadways and adjoining properties, alongside piping and instrumentation diagram of the gas filling plant and sectional design drawings of the storage tanks shall equally be provided.
The NLPGA document stipulates that a certificate signed by the Chief Federal/State Fire Officer or an officer authorised by him in that behalf, that he is satisfied with the proposed arrangements for the prevention of fire; letter from the appropriate town planning authority authorising siting of the LPG filling plant at the proposed arrangements for the prevention of fire and an evidence that the company is duly incorporated by the Federal Ministry of Trade to deal in petroleum products.
Other requirements include current three-year tax clearance certificate, codes, standards and specifications adopted in the design of the tanks, non-destructive examination report or pressure test report of the LPG storage (pressure) tank and an application fee of N10,000 in bank draft drawn in favour of the Federal Government of Nigeria, NMDPRA payable on submission.
Risks in LPG business
According to Afolabi Ojetunde, an investment analyst, every business has its peculiar setbacks and the biggest risk in cooking gas business is fire explosion, which is very common due to the highly inflammable nature of liquefied natural gas. That isn’t much of a 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,’’ he said.
Another risk in the business is government regulation. Should government decide to increase the price of LPG today, some consumers may find it difficult to take and have to go back to using kerosene or firewood. If that happens, you lose some customers and your sales will drop.
However, government is always trying to reduce the price of cooking gas to encourage its usage and discourage deforestation.
Tools/equipment needed
Mobile Skid – LPG Gas Station
Cooking Gas Storage Tank
Cooking Gas Cylinders – may be for resal or exchange with customers or for sampling
Valves – the system requires so many valves
Valve Screwing/Unscrewing Machine
Orifice Set
Chain Conveyor & Filling Carrousel
Cooking Gas Filling Machines
Cylinder Filling Scale (digital)
Wireless GasTank Gauge (Tankloq)
Rotagauge (Tank Level Indicator)
LPG Meter
Gas Compressor
LPG Cylinder Filling Heads
Hydraulic Valves & Casing
Hydraulic Operator
Liquid LPG Gas Pumps
Filter
LPG Evaporator
Nozzles, Flanges & Pipe Attachments
LPG Transfer Hoses & Accessories
LPG Gas Dispenser
Other required tools and equipment include:
Office building
Fire resistant fence
Plinth construction
Fire proof Filling shed
General flooring
Water borehole
Electrical works
Cost/ROI
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 Ikg 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 prodit margin of N75,000 daily
Gas cylinders
How exactly can one start cooking gas business in Nigeria? Before we go into the details, let us first take a look into the profit potential in this business as well as the risks involved.
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 N2,500. You buy for unit cost of N7,500 or less and sell for N10,000 or higher. If you sell 30 cylinders in a day at the average profit margin of N2,500, you will be making N75,000 daily. In a month, you will be making N75,00×30 = N2,500,000
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 I calculated here. So, it’s not in any way by exaggeration.
For a business you started with N7.5 million, N75,000 daily profit is a super profit by all standards. Imagine if you invest more resources and take it higher, your profit will be much more mouth watering. 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!
The potential risks in cooking gas business
Every business has it’s peculiar setback and the biggest risk in cooking gas business is fire explosion, which is very common due to the high inflammable nature of liquified natural gas. That isn’t much problem 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 government regulation. Should government decide to increase the price of LPG as witnessed by the 7.5 VAT on cooking which has led to an astronomical rise and some consumers are currently finding it difficult to take and have to go back to using kerosene or firewood. If that happens, you lose some customers and your sales will drop.
However, government is always trying to reduce the price of cooking gas to encourage its use in order discourage deforestation.