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Why the Price of Cooking Gas is Increasing

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cooking gas cylinder

For some time now there has been a continual surge in the price of Liquefied Petroleum Gas (LPG) popularly known as cooking gas in Nigeria. Across the country, LPG has recorded an unprecedented increase in price by about 240 percent.

Data obtained from the website of the National Bureau of Statistics (NBS) shows that in August, the average price for refilling a 5kg gas cylinder for LPG was N2,215. It rose to N2,397 in September. The price of refilling 12.5kg cylinder also increased from N4,514 in August to N6,164 in September.

The data also showed variation in the prices of the commodity in different states. The data revealed that Cross Rivers ad and Anambra selling 12.5kg at N6,897 and N6,779 respectively were the two states with the highest average price for September.

The two states with the lowest average price for September are Borno and Osun states, the product sold at N5,100 and N5,006, respectively. A visit to a few LPG stations on Tuesday in Ibadan, Oyo state capital reveals that the prices of LPG goes for between N3,050 and N3,200 for 5kg. For 12kg, it ranges between N7,150 to N7,300.

Available information has therefore revealed that the surge in price is a result of the fact that importers of the product have stopped importing it.

According to the Executive Secretary of Nigeria Association of Liquefied Petroleum gas Marketers, Mr Essien, importers stopped importing the commodity because of the introduction of custom duty and the value-added tax now imposed on imported LPG. He claimed that there are other issues and that as long as the marketers are not importing the commodity, local supply will continue to suffer a severe drop.

It is to be noted that over 60 percent of LPG used in the country is imported, less than 40 percent is locally produced. Therefore a halt in import implies that the country is left with less than 40 percent produced locally.

The NLNG supplies LPG to terminals and these terminals sell to the marketers and at times in a day the price can go up by about three times. NLNG is now selling in the region of N11m per 20 metric tones truck with a cumulative daily increase of N300,000 to N500,000 without the imposition of VAT and custom duties,” he said in an interview with Punch.

NLNG stands for Nigeria Liquefied and Natural Gas. It is an independent incorporated joint venture that harnesses Nigeria’s vast Natural Gas (LNG) and Natural gas Liquids (NGLs) for export. Last week’s Tuesday, the company announced that it had decided to cut cooking gas exports to meet domestic demand. Despite this, the price of LNG has continued to increase.

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Gas Scarcity Inevitable as NLNG Shut Operations Due to High Floodwater

Nigeria Liquefied and Natural Gas (NLNG) declared a force majeure to its partners due to widespread flooding that has disrupted supply.

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Oil and Gas

Nigeria Liquefied and Natural Gas (NLNG) declared a force majeure to its partners due to widespread flooding that has disrupted supply.

This declaration could worsen Nigeria’s revenue and foreign exchange scarcity which is already at an abysmal situation.

Force majeure is a clause in contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties happens. 

Such events or circumstances could be war, strike, riot, crime, epidemic or sudden legal changes which could prevent one or both parties from fulfilling their obligations under the contract.

Investors King had earlier reported that the production capacity of the Nigerian Liquified Natural Gas Limited (NLNG) has dropped by 40 percent. The drop was a result of overwhelming theft and the vandalism of oil and gas pipelines. 

No doubt, the subsequent cease of operation will further worsen the gas situation in Europe. Nigeria is a major supplier to some European countries, particularly Portugal. 

It will be recalled that Portugal Energy Minister, Duarte Cordeiro stated that his country could face supply problems this winter if Nigeria did not deliver all its supplies.

Europe has been in the middle of gas shortage since the European Union put an embargo on the importation of Russian gas due to its invasion of Ukraine. 

Several countries in Europe including the UK are already at serious risk of gas shortage. 

According to the chief executive of Shell, Ben van Beurden, he noted that the shortage of gas in Europe could last for several winters. 

“It may well be that we will have a number of winters where we have to somehow find solutions,” he said.

According to the spokesperson of NLNG, Andy Odeh, “The notice by the gas suppliers was a result of high floodwater levels in the operational areas, leading to a shut-in of gas production which has caused significant disruption of gas supply to NLNG,”

Odeh however stated that NLNG is in process of examining the extent of the disruption and would try to mitigate the impact of the force majeure. 

Meanwhile, before the force majeure, Investors King understands that production from NLNG’s six-train Bonny plant had dropped to 16.8 million tonnes in 2021, from 20.7 million tonnes capacity in 2020. This has caused the company to lose more than $7 billion in revenue. 

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32 Metric Tons Imota Rice Mill to Begin Operations Soon, Says Sanwo-Olu

Lagos State Government has signed a Memorandum of Understanding (MOU) with WACOT to provide technical support for Imota Rice Mill.

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Rice mill

Lagos State Government has signed a Memorandum of Understanding (MOU) with WACOT to provide technical support for Imota Rice Mill.

The much anticipated Imota Rice Mill is located in the Ikorodu area of Lagos State. It has a production capacity of 32 metric tons per hour. 

In a short ceremony which was witnessed by other government officials and representatives from Wacot Rice Limited, Lagos State Governor, Babajide Sanwolu said he will hand over the rice mill in the next few months, after which it would commence commercial operation.

Investors King learnt that ‘Wacot’ will provide operational support and manage the mill for nine months in the first instance through Joint Venture. Subsequently, the partnership could be subject to renewal. 

According to Special Adviser (SA) on Agriculture to the Governor on Rice Initiative, Mr Rotimi Fashola, the need to produce quality and competitive rice for Lagosians necessitated the partnership with Wacot Rice Limited.

Additionally, Imota Rice Mill will be completed by December 2022 as stated by the special adviser.

At full operation, Imota Rice Mill will employ and empower thousands of people both directly and indirectly. Imota Rice Mill is built to produce quality rice and also influence price mechanisms.

“There is a need for the Government to put the rice mill on the path of sustainability. We need to give it to a handler that will project quality.

We sourced to have a partnership in the rice production business that has a stable brand and an eye for efficiency. This brings forth this Joint Venture and technical support agreement with WACOT”.

Meanwhile, Group Managing Director of TGI Group, Rahul Savara, said Lagos Government found a great partner in the firm. WACOT Rice Limited is a subsidiary of TGI Group.

He pledged that the company would be deploying standard technology and services in managing the rice mill. 

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Allianz Economic Outlook: African Commodity Exporters in a Better Position

In 2023, the energy crisis and rising interest rates will drag global GDP growth down to just +1.5%, as slow as it was in 2008

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In 2023, the energy crisis and rising interest rates will drag global GDP growth down to just +1.5%, as slow as it was in 2008. It’s the latest forecasts provided by Allianz Trade, which operates through the Allianz Global Corporate & Specialty license in South Africa. 

Since June, global macroeconomic conditions have considerably worsened. Deep and long-lasting ruptures in energy markets and the negative impact on business confidence will push the manufacturing sector in most countries into recession. At the same time, rapidly rising interest rates and falling real disposable incomes will induce a housing recession in the US.

After contracting by -0.6% in the second quarter of 2022, global growth will return to negative territory in Q4 (-0.1% q/q) and is not likely to recover before mid-2023. Overall, we have cut our 2023 forecast to +1.5% (-1.0pp compared to our Q2 forecasts).

Africa: Commodity exporters in a better position

Commodity exporting countries have a more positive outlook, helped by better terms of trade prospects.  GDP forecast for 2023 is as follows: Africa (2.7% from 3.2% in 2022), South Africa (1.5% from 1.8%), Nigeria (unchanged at 2.3%), Ghana (unchanged at 2.5%), and Kenya (4.4% from 4.9%). However, domestic issues are limiting. In South Africa, energy rationing, and logistical bottlenecks – aggravated by flood damage to the port of Durban in April hamper growth while in Nigeria, the oil sector continues to struggle.

Eurozone and US forecast

Eurozone growth is likely to plunge to -0.8% in 2023 due to soaring energy prices and negative confidence effects. Consumer sentiment has already plunged to record lows and business confidence continues to deteriorate rapidly, which will hold back consumption and investment. Increased fiscal support to the tune of 2.5% of GDP on average and limited monetary easing after mid-2023 will help make the recession shorter and shallower, and limit the risks of social unrest.

The US will register a -0.7% fall in GDP, mainly due to rapidly tightening monetary and financial conditions, which will significantly cool the housing market, coupled with a negative external environment and low fiscal support after the mid-term elections.

China’s economic recovery will be difficult 

After a very low level of growth in 2022, China’s economic recovery will be difficult. We have significantly cut our growth forecasts to +2.9% in 2022 (from +4.1%) and +4.5% in 2023 (from +5.2%) based on four factors: the short-lived post-omicron reopening boost, the likely continuation of the zero-Covid policy until Q2 2023, which is weighing on business and household confidence, risks in the property sector and extreme weather currently pressuring energy supply. In addition, lower external demand will limit export growth, which had been a tailwind throughout 2020-2021.

Global inflation outlook

Inflation will remain high until Q1 2023 after energy prices have peaked, with food and services adding upside pressure. We expect global inflation to average 5.3% in 2023 (after close to 8% in 2022). Eurozone inflation should peak at 10% in Q4 2022 and then average 5.6% in 2023. In the US, inflation is likely to have peaked already but should remain above 4% until Q1 2023, falling below 2% only after Q3 2023 (averaging 2.9% in 2023).

Inflation outlook in Africa

Inflation is set to continue increasing driven by costlier food and fuel prices with Africa forecast to finish 2022 averaging 14.7% and then 9.6% in 2023, Nigeria (18% and 15%), South Africa (6.8% and 5%), Ghana (31.3% and 20.3%) and Kenya (6.5% and 5.5%). Heightened food security risks in North Africa and many parts of sub-Saharan Africa where the role of agriculture and the tendency to rely on imported food products makes the countries particularly vulnerable to the agricultural shock caused by the geopolitical conflict.

Global trade

Global trade growth in volume will also remain low at +1.2% in 2023 as advanced economies face a domestic demand-led recession. The return of credit risk is to be expected as this recession will be triaging the good, the bad and the ugly of corporate vulnerabilities. The rebound in business insolvencies gained momentum during 2022 (+18% q/q in Q2 2022, from +5% in Q1). The largest acceleration happened in Western Europe (+26% y/y YTD). Though we are still witnessing historically low numbers of bankruptcies in the US (-19% YTD as of Q2), China (-14% as of August) and Germany (-4% as of June), Spain, the UK and Switzerland already show pre-pandemic insolvency numbers. The trifecta of lower demand, prolonged production constraints (input prices, labor shortages and supply-chain matters) and increasing financing issues (access and costs) is mechanically pushing up expectations in business insolvencies, notably for European countries and sectors most exposed to energy issues. The -0.8% decline in Eurozone GDP has the potential to accelerate the rise in insolvencies by +25pp in 2023 (to more than +40%), with Germany up +16%, France up +29%, Italy up 31% and Spain up 25%. This increases the probability of seeing the extension of and new (targeted) state aid measures.

South Africa

Evidence that South Africa’s economy is faltering has continued to build. June hard activity data came in well below consensus expectations with retail sales as well as manufacturing and mining production dropping back in m/m terms. We expect the economy to have contracted sharply in Q2 as the hit to output from severe flooding was probably not recouped and as load shedding intensified once again. More timely indicators suggest that activity has remained weak in Q3. Scarce energy availability has continued to weigh on energy-intensive sectors; the manufacturing PM declined from 52.2 in June to a one-year low of 47.6 in July. And successive falls in consumer confidence probably dampened retail sales further with elevated inflation taking its toll.  Inflation rose from 7.4% y/y in June to a 13-year-high of 7.8% y/y in July on the back of mounting fuel and food price pressures. Core inflation, at 4.6% y/y, remained close to the midpoint of the 3-6% target band. Uncomfortably high inflation, currency weakness, and Fed tightening will probably keep monetary policymakers in a hawkish mood, even as the economy struggles.

Nigeria

Nigeria’s economy expanded by a better-than-expected 3.5% y/y in Q2, up from 3.1% y/y in Q1. The pick-up in headline growth was largely due to the contraction in the oil sector easing, while growth in the non-oil economy held up well. In seasonally-adjusted terms, GDP rose by around 0.9% q/q. More timely indicators suggest that activity picked up further at the start of Q3. The MI rose from 50.9 in June to 53.2 in July. And private sector credit growth reached 21.3% y/y in July. But production in the key oil sector remained very low, essentially unchanged from June at 1.18mn bpd in July. Meanwhile, the currency weakened against the US dollar, both on the Nafex exchange rate and the black market. Inflation jumped from 18.6% y/y in June to 19.6% y/y in July, the highest since September 2005. The main driver behind the increase in the headline rate was another sharp rise in food inflation, although price pressures rose in other categories too. Elevated inflation is likely to push policymakers to continue raising interest rates.

Kenya

Uncertainty surrounding elections held earlier in August has continued to linger. The official tally showed a tight victory for William Ruto, but runner-up Raila Odinga challenged the results in the courts, reversing some of the gains in Kenya’s sovereign dollar bonds since the start of the month. Nonetheless, the Supreme Court ruled the election was free and fair and William Ruto was sworn in as President on September 13. Defeated Raila Odinga did not attend the inauguration. Shoring up the economy is likely to be a key priority for the new President. The public debt burden stood at 67% of GDP as of June. And the external position is in a poor state too; in May, the trade deficit was the widest since at least 2000 as imports surged by more than exports grew. Activity probably deteriorated further since; the PMI dropped from 46.8 in June to 46.3 in July. Meanwhile, the currency has continued to weaken (-6% vs. USD as of mid-September). This has contributed to the rise in price pressures; headline inflation increased to a five-year high of 8.3% y/y in July, above the central bank’s inflation target range. After keeping interest rates unchanged in July, the central bank is likely to tighten again before long. We have penciled in a +150bps increase in the benchmark rate, to 9.00%, by year-end.

Ghana

Ghana entered talks with the IMF in July, but this has failed to soothe investors ‘concerns about the public finances. Sovereign dollar spreads have continued to widen, and the cedi has fallen further – it is now down by 37% against the dollar year-to-date. Given the large amount of sovereign FX debt, the fall in the cedi will only make the job of putting the debt position on a sustainable footing more difficult. Two credit rating agencies lowered Ghana’s long – term foreign currency rating further into junk territory.  A sovereign default is by no means imminent given that the FX debt repayment schedule is light over the next couple of years. But an IMF deal, including a firm commitment to fiscal consolidation, will need to be secured soon to soothe investors’ concerns. Meanwhile, the weaker cedi will add fuel to inflation, which came in at a stronger-than-expected 31.7% y/y in July – close to a 19-year high. All of this prompted the central bank to call an emergency meeting and hike interest rates by 300bp, to 22%, this month. Against this backdrop, economic activity is suffering. GDP growth slowed to just 3.3% y/y in Q1 and more timely indicators show that both business and consumer confidence have slumped. The risks to our below-consensus forecast for Ghana’s economy to expand by 3.0% this year lie firmly to the downside.

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