High cost of gas and kerosene is driving the use of biomass

Nigeria is the 12th largest producer of petroleum in the world and also has the largest natural gas reserves in the continent. Natural gas reserves are well over 5 trillion m³. Despite this huge availability, and the advantage of Liquefied Petroleum Gas (LPG) over conventional sources of cooking, about 9 out of 10 households cooks at least once every day with dirty fuels- kerosene, firewood, animal dung etc. The per capita consumption of LPG in Nigeria stands poorly at 0.5kg, compared to West African regional average of 5kg per capita. The hampered growth in the LPG market can also be ascribed to the exportation of LPG, which has resulted in the importation of LPG for domestic usage.

At the moment, kerosene costs between N200 and N300 per litre, while the price of cooking gas stands at N4,000 (N12.5 kg). The removal of kerosene subsidy increased the adoption of LPG. The consumption level of LPG is now well over 750,000 tonnes, which represents a 1,000 percent increase from 2007. Despite this, the high cost of kerosene and cooking gas has caused many to switch back to biomass, charcoal, wood etc. Although cooking gas is quite cheaper, challenges such as the initial high cost, safety issues and lack of awareness has prevented its wide adoption. The relatively high cost of kerosene and cooking gas is increasing the usage of firewood. Firewood and other solid fuels have been found to cause over 5,500 death daily across the globe.

According to a recent study conducted by Global Subsidies Initiative of IISD, with ENERGIA and partners, Spaces for Change, IRADe and Bangladesh Institute for Development Studies stated, “Switching back to biomass has time and health implications for women, given they were found to be the primary cooks in all three countries surveyed. Women more frequently collect the wood or dung and are exposed to the smoke. Some households also reported secondary impacts such as a reduced ability of members to undertake activities that require lighting, such as studying and leisure time (e.g. in Bangladesh linked to kerosene).”

The study was conducted among 2,400 households and focus groups in Bangladesh, India and Nigeria. It revealed that “Currently, governments globally spend the equivalent of USD400 billion on subsidies. That’s around 10 times more than is needed to plug the universal education gap (USD 39 billion), around seven times more than the global energy access gap (USD 56 billion) and more than enough to finance SDG health targets (USD 134-371 billion).”

Subsidy

The study mentioned: “Overall, the research found fuel subsidies do not work well for poor women. A large share of subsidies accrues to wealthier segments of the population because those people have higher consumption levels and better access to energy. This effect is particularly strong for liquefied petroleum gas, LPG, as the researchers found in India, and also for a ‘poor people’s fuel’ like kerosene, as observed in Bangladesh and Nigeria.

“Subsidies do not guarantee lower fuel prices—and may even create price premiums by increasing fuel scarcity. Even in countries with fixed fuel prices, households were found to pay significantly more. In Nigeria, low-income women reported paying between two to six times more than the official price for kerosene, and in Bangladesh, 14 per cent more for kerosene.

“As a result, households in these countries were often not aware of the existence of a subsidy. These findings imply that any benefits from subsidies are even lower than previously estimated.” It stated: “The burden of queuing for scarce cooking or lighting fuels frequently falls on women. In Nigeria, women reported queuing for hours and sometimes all day to get kerosene. In Lagos, Nigeria, 57 per cent of survey respondents preferred informal dealers for convenience and availability, despite higher prices and safety risks of adulterated fuel.”

Recommendations

The study also highlighted some key factors that can significantly affect switching to cleaner sources of fuel.  “Better-educated women are more likely to choose LPG (as in Nigeria). Existing patterns of decision- making and purchasing power over energy choices within the household also need to be considered (educating men as well as women around energy choices).

“Other likely important factors include improving the distribution or electricity system, especially to rural areas and to the poor, in order to provide alternatives to switch to. In India, large drives to expand LPG distribution have played an important role in enabling greater access. Culture (tastes and preferences) may still matter more (e.g. in Nigeria).”

To conclude, “Investing in subsidy alternatives could empower women more directly. In Nigeria, surveyed households did not prioritise energy subsidies over other kinds of support when asked what kind of government support households preferred – jobs, health, financial support and education to access to modern energy. While households might undervalue the benefits of modern energy, this nevertheless raises the question of whether the billions spent on an inefficient subsidy system might not be better spent on social protection programmes.”

In Nigeria, the subsidy on kerosene has been removed in Nigeria, yet the rate of adoption of LPG is not growing at an expected rate. The government and the market players should introduce initiatives that allow for easy transition from biomass to gas. Now, biomass is a closer substitute than kerosene. Except the cost of cooking gas is reduced to be in parity with that of biomass, switching will be a difficult process. The subsidy withdrawn from kerosene, should be redirected to cooking gas, to reduce or zero the initial cost of purchasing the gas cylinder. With 30 million households in Nigeria, a scheme that allows for the distribution of 6 million gas cylinders will get the job done in 5 years.

According to one case study by World LP Gas Association, Indonesia was facing serious problem on subsidy on white products. Between 2001 and 2008 the cost of subsidies ranged from 9% to 18% of total state expenditures, the subsidy for kerosene was 57% of the state’s total petroleum product subsidy. In 2007 Indonesia undertook a massive energy program to convert its primary cooking fuel from kerosene to LP Gas in more than 50 million households within five years. Following a study and one-month market test, the conversion program was launched in 2007. The Indonesian government distributed free starter kits, which included a 3 kg cylinder, one burner stove, hose and regulator, and free first gas fill, to citizens meeting the program requirements. There were a few initial challenges including citizen demonstrations, illegal resale of kerosene from unconverted areas to converted areas, and the rise of LP Gas prices during the kerosene withdrawal period. However, a total of 8.2 million kiloliters of kerosene was withdrawn and replaced with 3.2 million metric tonnes of LP Gas. This has translated to a gross subsidy savings of more than 6.9 billion US dollars for the government of Indonesia.

Initiatives like this and other innovative business model and financing techniques that have been used to make the initial high cost insignificant can also be employed. Gas is the fuel of the future however, the current challenges must be overcome to ensure its wide deployment. Despite the huge benefits accrued to deregulation of the sector in Nigeria, the market players are yet to design a sustainable business and marketing model to exploit the immense profitability of the sector. The technology is here, but without an enveloping business model to drive its massive adoption, no disruption will happen.

 

2019 LPG West Africa Forum and Exhibition

About Olumide Durotoluwa 70 Articles
Olumide writes regularly on Greenergie, with interests in clean tech, business modelling, and analytics. Contact him directly via olumide@greenergie.com.ng

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