Setting up an LPG Plant:

The timeline for setting up LPG plants differs; it typically takes about 2 years depending on the
approval process.

One needs to go through town planning approval, followed by an Environmental Impact Assessment
(E.I.A.) of the site. Nigeria typically has 2 seasons in a year – the wet (rainy) season and the dry
season; the EIA must be conducted for both seasons. Then you get a fire department approval,
acquire a police report, and commence full engineering, design & procurement assessment which
will be submitted to the Department of Petroleum Resources (DPR), along with a written application
and all documents mentioned earlier. DPR will visit the site to be sure it fulfils all requirements for
the construction of an LPG plant. Should the site meet these requirements, DPR will approve and
issue you an Approval to Construct (ATC).

Once approval is given, you can then commence the equipment acquisition and site construction.
The Department of Petroleum Resources (DPR) will visit the site once construction is complete for
inspection and certify the design is consistent with proposed plans submitted. They will also witness
and sign off on all integrity tests conducted at the plant; following which an operating license will be
issued. The process takes about 2 years or more end-to-end. The integrity of the plant itself is a
function of the competency and technical capability of both the client and the contractor.

The requirements enumerated above do not preclude foreign investors. It’s a standard operating
procedure for both local and foreign investors. For investors, it is imperative they partner with local
experts with good industry knowledge, technical knowhow and experience; and who is also versatile
with the relevant stakeholders.

What does it cost to set up an LPG plant in Nigeria?

The standard/ stipulated fees vary depending on the size of the facility amongst other sundry
expenses.
A breakdown of the estimated costs would be:

1. Town Planning Approval: N200,000 (USD656.28)

2. Fire Service Approval: N100,000 (USD328.14)

3. Police Report: N50,000 (USD164.07)

4. Environmental Impact Assessment (need to engage a consultant, depends on consultant and must

be a ministry of environment certified consultant – function of location – this could typically cost you

(N2 – N5 million) (USD6562 – USD16407)

5. DPR Approval: N20,000 per 100MT capacity (e.g. 200 MT – 40 thousand Naira) (USD131.26) All in
all, without the environmental impact assessment, it will cost roughly around half a million Naira
for all the approvals.

LPG distribution network in Nigeria

Nigeria is one of the largest producers of LPG in Africa. The NLNG plant on Bonny Island produces
significant amount of LPG but was designed primarily for exports. It was expected that the local
refineries would meet local demand but unfortunately, that is not the case. So, this means the NLNG
plant is required to provide for local demand as well. (The NLNG plant is located off the coast of Port
Harcourt Nigeria with most storage facilities in Lagos).

Currently Nigeria has an 8000 MT and 4000 MT storage (the 4000 MT has recently been expanded to
9000 MT), another 1000 MT and 4000 MT which would make it all in all about 25000 MT worth of
LPG storage capacity in Lagos. Another 10,000 MT storage facility was completed in December 2016
in Calabar. There is also another 8,000 MT facility on verge of completion at Port Harcourt. Most of
these storage facilities are coastal storage facilities, so when the vessel brings the LPG from NLNG
facility, they are docked in Lagos and then from Lagos it discharges the LPG into these facilities,
which are then loaded onto road tanker trucks which distribute the gas across the country.

In-country distribution via the road network in Nigeria is not so ‘beautiful’, it’s not like you have in
Europe and America, it’s a different terrain. Most of the LPG distributed must go by road and it is a
real challenge. We have a lot of inland storage facilities in Nigeria, most of them are of 1000 MT
storage capacity and not connected by pipeline. So, if you needed to move a 1000 MT from the
coastal storage depots to the inland storage depots that would take about 50 trucks to fill it up. It
would have been a lot easier if we had them linked up by pipeline.

There are a lot of moderately sized LPG filling plants across the country. Nigeria has about 350 of
these across the country (within 50 MT – 100 MT storage capacity). From NLNG to coastal storage
depots, it goes via trucks to the LPG inland storage depots and LPG filling plants and from there it
goes to the secondary distributors (cylinder sellers who take from the filling plants), who then
distributes to the end users and maybe to tertiary distributors.

So, for the filling plants, are these all secondary distribution points? Do they do their own filling
and distribution to the retailers?

I would say that we have 2 kinds of secondary distribution and with regards to the filling plants, I
would call them primary distributors and not secondary distributors. The filling plants are the ones
who supply the secondary distributors with gas for their cylinders. The secondary distributors fill a
thousand cylinders or thereabout and distribute directly to end users. There is a new set of
secondary distributors in Nigeria (these guys are the second type) – they own filling plants of their
own which are mini plants, these are 1 MT – 5 MT storage capacity which are typically installed
in gas stations. So, they normally buy in bulk from primary distributors (the filling plants) about 1 -2
MT using bobtail trucks which they in turn fuel to end users from gas stations.

The primary distributors (the gas plants themselves) also distribute to end users. So, for me, if my
cylinder is empty, I can take it, drive to any filling plant, walk into it, pay for the gas and get the
cylinder filled – there is not much restriction in Nigeria. So you can go to a primary distributor and
buy it directly from him or could give a call to a secondary distributor who would bring the gas to
your home or you could even bring the cylinder to the nearest gas station where you fuel your car
and buy from the new kind of secondary distributor who is filling from a small skid plant or mini
plant.

Current penetration rate of filling plants across the country?

Nigeria is on the verge of an explosive growth of the LPG industry. There is no market in the world
that has the kind of potential like you have in Nigeria. The market is thirsty for serious investment
and investments are coming in gradually. Over the past year, we’ve had about 15,000 MT of new
storage capacities. The per capita consumption in Nigeria is among the lowest in West Africa.

Nigeria has a population of about 170 million people according to the latest estimates and LPG
penetration is only about 5%. The figures for LPG use in Nigeria in 2015 only stood at about 400,000
MT for a population of 170 million people – this is merely a scratch for a population that size. Nigeria
has potential for LPG industry to 5 million MT per annum, so we are doing less than 10% of what we
could be doing. So really, there is a lot of potential and room for investment. It seems to be much
more saturated in places like Lagos which is a cosmopolitan city where literacy and education is high.
Typically, the average person in Lagos uses LPG daily but you also have to consider looking at the
rural parts of Nigeria which is completely not supplied with LPG. So, if anybody looks at that, the
potential its really, really, huge, I repeat, I don’t think there is anywhere in the world that has the kind
of potential for LPG goods and investment like Nigeria.

Operating an LPG Plant

What are the most important health and safety issues that need to be monitored during operation
of an LPG filling plant?

The most important part of the operations is the operators – the people operating the filling plant.
There is really, to a large extent a scarcity of qualified personnel available in Nigeria to run an LPG
plant. So typically, when you are hiring staff, they have little to no training or experience in running
an LPG plant. So, the biggest risk you face, is having an operator who is not knowledgeable enough.
The need to conduct initial and ongoing trainings cannot be over emphasized to ensure one has the
right operators. The highest risk involved, and the single most important safety factor is adequate
training and competence in plant operations.
What sort of operation costs are involved in running an LPG plant?

After staff costs, the most expensive part of operation is power. In Nigeria, we don’t have good
public power supply so you would spend about 20 – 30% of your total cost on power which must be
run on diesel – these are stand-alone generators running the plant. Let me give you an example, we
have a 100 MT LPG facility that fuels about 15 MT a day. To operate the plant, we have about 14 staff
members – 8 operate filling machines and the sorting / carrying cylinders, a plant manager and admin
staff and about 2 security officers. The average cost of manpower is about 1.2 million Naira (USD
3937) per month.

Without staff cost, we would spend about N180,000 (USD590.65) for diesel (power), N120,000
(USD393.77) for diesel cost, N60,000 (USD196.88) public power cost (which is not reliable). LPG
equipment rarely breaks down if you perform your regular maintenance, daily checks, monthly
checks, and quarterly checks and with that we rarely need to buy spares, we don’t spend much on
spares. So typically, it’s just the cost of servicing equipment and the generator which will amount to
about N200,000 (USD656.28) in a month. Other costs would include a supply of consumables, seals,
etc. – typically for a plant in Nigeria – the turnover would be about 250 MT in a month and spend
about 2 million naira a month and which about N1.2 million (USD3937) goes to Staff cost. All in all, it
costs about N2 million (USD6562) to fill out about 250 MT of LPG every month.

Why is diesel used for power and not LPG itself?

LPG can be used; it just has not been explored. Typically, a lot of industries in Nigeria are all powered
by diesel, even our homes and our offices. Diesel is readily available. You could say an LPG generator
could be easily installed and piped from your main storage to a smaller storage to supply an LPG
generator but unfortunately there are not many LPG generators in the country now, they are only
just starting to come in. The thing is most of these types of generators have been designed for
propane and not for butane which is what is generally used in Nigeria. I am sure though that as the
market grows, we may be able to explore butane powered generators and engage more
manufacturers who might be able to provide butane powered generators. A big part of it, is also due
to cost – the cost of diesel, slightly cheaper than cost of LPG. It might be cheaper to run on diesel
than LPG.

What needs to be done to improve the overall LPG distribution network and growth of the LPG
industry in Nigeria?

Infrastructure – we need infrastructure across the LPG value chain. When an LPG vessel comes into
Nigeria, we only have one LPG facility with a dedicated jetty in Lagos. All other facilities (about 5 of
them) are connected to a major jetty that also receives other petroleum products. Most petroleum
products imported into Nigeria (other than LPG) have a higher demand than LPG, so preference is
given to petrol, aviation fuel, diesel and then LPG. So, you may have an LPG bearing vessel having to
wait for several days.
Jetty expansions would help facilitate demand for LPG in the country. Facilities outside Lagos could
also go a long way in improving access to LPG. Also, the transition of LPG from coastal storage
depots to inland storage depots which is done typically by road (which are not in good condition)
forestall the distribution process. Perhaps we could consider using rail or most preferably link the
inland storage depots via pipeline – it would help the supply of LPG in Nigeria. .

Most importantly, cylinders – the typical Nigerian is not able to afford the initial cost of cylinders.
Investing in the provision of LPG cylinders especially for rural communities will aid the growth of LPG
use in Nigeria. I think that if we take from the lesson learned from India, Indonesia, Brazil and all
countries that have grown their LPG industries significantly, you will realize that the governments of
these countries made significant investment in providing this infrastructure. If we can have half that
level of commitment and investment from the government, I am sure Nigeria can very easily grow
their LPG industry by more than a 1000% over the next 5 – 6 years. I am so confident about that
because of the amount of potential we have in this country.

Despite the multi-faceted challenges in Nigeria’s LPG industry, this sector will thrive following proper
assistance from the government, tactical strategies, and operational efficiencies as it’s a cleaner,
healthier and more affordable energy source.