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UNCLAS SECTION 01 OF 03 LAGOS 000177 
 
SENSITIVE 
SIPDIS 
 
DEPT PASS USTR FOR AGAMA, USTDA FOR MARIN 
DOE FOR GPERSON, CHAYLOCK 
 
E.O. 12958: N/A 
TAGS: SENV ENRG EPET ECON EINV NI
SUBJECT: NIGERIA: LPG MARKET STILL DORMANT DESPITE HUGE 
POTENTIAL 
 
LAGOS 00000177  001.4 OF 003 
 
 
¶1. (SBU) Summary: Organizers and participants in the 
All-Africa Liquefied Petroleum Gas (LPG) conference held in 
Lagos 30-31 March said Nigeria has made little progress in 
introducing LPG into the domestic market since the last 
meeting in 2006.  Despite producing 2,000,000 metric tons per 
year, domestically Nigeria uses only 60,000 metric tons per 
year of LPG, by far the lowest use per capita in West Africa 
and one of the lowest in sub-Saharan Africa.  Nigerians 
continue to rely on wood, kerosene, and diesel generators for 
cooking and lighting, contributing significantly to 
greenhouse gas emissions, health problems from indoor smoke, 
and deforestation.  Participants agreed that Nigeria needs a 
better LPG regulatory environment and improved LPG 
infrastructure, but disagreed on the role of the GON in jump 
starting the market for LPG.  While better regulation, 
improved infrastructure, and more rationale fiscal terms 
would help, its not by accident that Nigeria struggles to 
start an domestic LPG market despite its enormous supply of 
the fuel; politically well-connected groups that run the 
kerosene and diesel importation businesses have no interest 
in seeing their markets undercut by the introduction of LPG 
into Nigeria.  End Summary. 
 
¶2. (SBU) The World LPG Association held its All-Africa Summit 
in Lagos on 30-31 March.  While the African attendees were 
almost exclusively Nigerian, the program brought together 
local start-up LPG companies and international LPG 
specialists.  After opening remarks by the Minister of State 
for Petroleum Resources Odein Ajumogobia, several presenters 
from local and international firms gave their assessments of 
the state of LPG in Nigeria and the problems that prevent the 
expansion of the domestic LPG market.  Various presenters 
highlighted the dismal state of LPG penetration in the 
Nigerian domestic fuel market.  Nigeria's 148 million people 
use only 60,000 metric tons of LPG per year, compared to 
420,000 metric tons consumed annually in South Africa, a 
country of 49 million people.  South Africa has an estimated 
12.5 million LPG cylinders in use in homes and small business 
while Nigeria has only 1 million cylinders.  All the 
presenters cited poor infrastructure including bad roads, 
limited wholesale storage and distribution capacity, few high 
quality filling stations, and a limited retail sales network; 
uncertain regulation and arbitrary regulators; and fiscal 
regimes that tax LPG destined for domestic consumers at a 
higher rate than LPG destined for export markets as the main 
issues that prevent Nigeria from developing a domestic LPG 
market. 
 
No Progress in Three Years 
-------------------------- 
 
¶3. (U) In a side bar conversation, a conference organizer 
with the World LPG Association said Nigeria has made almost 
no progress in the three years since the last LPG forum was 
held in Nigeria.  He expressed his disappointment in the lack 
of apparent progress in reforming regulation and building 
infrastructure.  His association plans to work with the 
nascent Nigerian LPG association to press for needed reforms 
and it still views Nigeria as one of the markets with the 
most growth potential in the world. (Note:  The USTDA did a 
study of the Nigerian LPG market for the GON in 2006.  While 
largely ignored over the past several years, we understand 
the new leadership in the Nigerian National Petroleum 
Corporation and petroleum ministry is taking a fresh look at 
the study's conclusions.  In his opening remarks, the 
Minister of State, knowingly or unknowingly, cited demand 
growth estimates that were developed in the study.  End Note.) 
 
¶4. (U) In a later presentation, a speaker from the World LPG 
association highlighted to the audience concerns that 
potential customers unfamiliar with LPG typically have with 
LPG cylinder safety.  New customers often fear the bottles 
will explode or gas will leak and poison the household. 
While simple public education campaigns can usually overcome 
these fears, a robust regulatory and cylinder inspection 
framework is needed to maintain safe practices.  He noted 
that Nigeria lacks a unified regulatory body with the 
uncontested mandate to regulate cylinder manufacturers and 
 
LAGOS 00000177  002 OF 003 
 
 
inspect household LPG cylinders for leaks, corrosion, and 
damage.  (Note: That function is currently, and not very 
clearly split, between the Department of Petroleum Resources 
and the Standards Organization of Nigeria.  Despite being 
invited, neither organization sent representatives to the 
conference.  End Note.)  The spokesman said safety is the 
most important priority in introducing LPG into a new market; 
just one accident with a substandard LPG cylinder in Nigeria 
and the resulting negative press coverage would turn off 
potential customers for years. 
 
LPG Start-Ups to Introduce Innovative Solutions 
--------------------------------------------- -- 
 
¶5. (U) Several companies highlighted efforts they were making 
to get around these problems.  Nigerian LPG start-up, 
Strategic Energy Limited, announced plans to introduce U.S. 
manufactured mobile filing stations that can be set up in 
rural locations to fill up household cylinders from 
surrounding communities.  The company also has plans to 
introduce LPG powered micro-generators that produce 
electricity for residential customers and small businesses or 
can be used by mobile phone companies to power their base 
stations and communication towers (currently virtually all 
mobile phone base stations and towers in Nigeria use diesel 
generators since electrical power from the grid is too 
unreliable).  A representative for the Norwegian company 
Ragasco demonstrated an LPG household cylinder made from 
composite materials instead of metal.  The cylinder is much 
lighter than conventional metal containers making it easier 
for people in rural communities to carry it to and from the 
filling station.  The tanks are designed so they do not 
explode in a fire and they do not corrode, making them safer 
than metal cylinders.  In addition, the composite material is 
translucent, allowing the customer to see the LPG in that 
tank to verify that he is not being short changed at the LPG 
filling station.  The downside to the composite tanks is 
their cost, typically double that of a regular metal cylinder. 
 
Determining the Level of Government Involvement 
--------------------------------------------- -- 
 
¶6. (SBU) In the final panel discussion, participants debated 
how to jump start a domestic LPG market and the role of the 
GON in establishing a domestic LPG market.  Many Nigerian 
participants, predictably those associated with the 
para-statal Nigerian National Petroleum Corporation (NNPC), 
preferred a large state role in establishing a market, 
suggesting that the GON through NNPC purchase 1 million new 
cylinders and give them free to poor Nigerians. 
International experts on the panel noted that the matter was 
far more complex than simply buying cylinders and any plan 
had to be market-based to be sustainable.  Cylinders 
introduced into the market with no clear support and 
distribution mechanism would go to waste.  More 
entrepreneurial Nigerian participants thought the GON should 
simply establish the rules and get out of the way of start-up 
LPG companies, much like it had for mobile phones which are 
now widely distributed throughout Nigeria to rich and poor 
alike.  (Note:  The GON actually tried the mass cylinder 
purchase plan in the late 1990's.  Back then NNPC purchased 
250,000 cylinders for use in a program to kick start the 
household LPG market.  The plan never took hold.  End Note.) 
 
¶7. (SBU) Comment:  The potential for LPG in Nigeria is 
staggering and the opportunities for U.S. businesses 
operating in the LPG sector are seemingly boundless.  Nigeria 
produces an abundance of LPG and could easily produce even 
more.  Foreign and domestic companies could be manufacturing 
and selling tens of millions of cylinders, building and 
equipping thousands of retail filling stations, storage 
tanks, wholesale distribution trucks, plus accessory devices 
like stoves, lights, and even electricity generators.  LPG is 
a cleaner, healthier, and cheaper alternative to the current 
sources of household fuel and a robust domestic LPG market 
could provide tens of thousands of needed jobs.  The commonly 
asked question then is why is Nigeria still not using LPG? 
Answers given at the conference, like poor infrastructure, 
 
LAGOS 00000177  003 OF 003 
 
 
dodgy regulation, and self defeating fiscal terms don't 
really get to the heart of the matter.  Other countries, 
Brazil, Turkey, South Africa for instance, easily overcame 
these obstacles.  Like is so often the case in Nigeria, the 
real question that must be answered is who is benefiting from 
the status quo?  End Comment. 
BLAIR