The acute shortage of Low Pour Fuel Oil (LPFO) mostly used by industries and power generating plants is currently threatening the survival of many companies.
LPFO is one of the products in the fractional distillation of crude oil, which is also used to run boilers in textile and cement manufacturing industries.
Due to constant attacks on pipelines, availability of gas to the industrial sector has become a challenge, thus making the use of LPFO by industries dominant. In the absence of gas, most manufacturing outfits have found succor in the use of LPFO to power their plants.
However, due to the inability of the country’s two refineries located in Kaduna and Warri to continue with the production of LPFO, many companies are now battling with production hitches as a result of the scarcity.
In April last year, suppliers of LPFO in Nigeria decried the increase in price from N72.90k to N103.60k, saying the increment will further cripple the activities of industries in the country. It was gathered that the price of the product had increased twice within the space of six months.
One of the suppliers, Jibril Abubakar, who spoke on behalf of others, lamented that the increase in the price of LPFO was not in tune with the present government’s agenda of industralising the country, describing the increment as outrageous and pure injustice to manufacturers.
“We have been buying the product at the rate of N72.9, while we supply to industries at between N85 and N90, cost of transportation inclusive. But in April, we got a circular from the Nigerian National Petroleum Corporation (NNPC) that the price has been increased to N103.60.”
Tips on LPFO marketing
LPFO is a dark viscous liquid that may have other varying colours such as dark brown known locally as fire for fire to greenish appearance. Whatever the specification, demand is more than supply depending on the preference of the customer. It is, however, very important for a marketer to get samples to show to intending buyers.
With a population of over 180 million people, growing at the average rate of 2.7 per cent per annum and an economic growth rate of about 5.7 per cent in the past five years, coupled with industrialisation in both the rural and urban areas, the market for LPFO in Nigeria is strong, growing and sustainable. The nation’s demand for LPFO currently stands at over an estimated 20 million litres per day.
Return on Investment (RoI)
The RoI in LPFO depends on where the product was sourced and sold. The proximity in this instance will go a long way in determining the profit margin. LPFO being a product with heavy density attracts more transportation cost than other lighter petroleum products. LPFO marketers take all these factors into consideration before arriving at the final transport margin, which will be added to final cost of the product.
But irrespective of what all these factors may constitute, the RoI on the trading of LPFO ranges from 30 per cent to 50 per cent per transaction. The different grades of fuel oil depend on their volatility. LPFO is also exported in mass volumes from our refineries and due to the good grade produced as demand for it by most European and American refiners is on the increase. With the specifics we have, an exporter can make a margin of $1 million on a 60,000 metric tonnes cargo.
Power hitches as springboard for LPFO
The growth and development of any community or country is dependent on power. Self-development, sustenance and empowerment are all determined by power. A nation can only develop with power. However, the case is different in Nigeria as power is either epileptic or non-existent with the country struggling with less that 4,000 megawatts (mw) for a population of over 180 million people. This is what has caused many industries, including small, medium and large scale, to migrate to neighbouring countries where they would be able to thrive.
Hence, the only solution is for companies to create their own source of energy production in order to continue to be in business. A lot of individuals have capitalised on this area to make so much money in this regard and making a good livelihood and sustenance for themselves.
Cement manufacturers lament
Dangote Cement Plc. has consistently raised the alarm over the continued short supply of gas and LPFO in the country, saying the situation has gone from bad to worse.
Managing Director, Dangote Cement, Mr. Devakumar Edwin, had lamented the shortage of gas and LPFO supply in the country, saying that if the situation is allowed to continue much longer, it would have adverse effect on industries and the recently privatised power sector.
He said most industries that relied on gas supply and LPFO to power their plants were suffering as a result of inadequate gas and LPFO supply, causing them to produce far below their installed capacity. He said the most unfortunate of it all is the fact that LPFO, which was supplied to industries from Kaduna and Warri refineries is now being imported by companies.
Edwin said that many of the power generating companies (Gencos) are already facing difficult times as a good number that borrowed money from banks are finding it difficult to meet their obligations to the lenders because they cannot generate enough power due to lack of gas supply.
The continued shortage of LPFO took a turn for the worse in February this year, as local cement production capacity retarded to 20 million metric tonnes. The major producers are Dangote, Lafarge and BUA Group.
According to the Cement Manufacturers Association of Nigeria (CMAN), despite the massive investment in cement manufacturing by the producers in the last 12 years, local production is still peaking at 20 million metric tonnes from an initial two million metric tonnes.
CMAN said although the combined installed capacities of these plants are over 28 million tonnes, their target is to deliver 40 to 50 million metric tonnes by 2020, saying, “what can we do when there is no LFPO and gas to achieve this target?”