Starting a Liquified Petroleum Gas (LPG) Business in Nigeria

Starting a Liquified Petroleum Gas (LPG) Business in Nigeria

Introduction

The number of Nigerians who use cooking gas for various domestic cooking purposes are increasing daily. Women/mothers are gradually shifting focus from the use of kerosene stoves to the use of gas cooker or cooking gas. That will help decrease the problems of deforestation and help conserve our natural forests and prevent potential disasters that is inherent with desert encroachment such as erosion.

The increasing use of cooking gas to cook by Nigerians helps keep the environment cleaner as the waste diffused into the air from the use of firewood is being eliminated. Apart from the environmental benefits, the increase in the number of people using cooking gas especially in urban areas has created good business opportunity for smart entrepreneurs who can now trade on cooking gas and cooking gas equipment to make good profits.

Nigeria currently has a few gas projects, especially the $2.8 billion Ajaokuta, Kaduna, Kano pipeline and the Nigeria LNG Limited train seven, however, most gas projects in the country are supported by the Federal Government instead of a private sector led industry.

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

Types of Distributors in LPG Business

There are two types of distributors in LPG Business, they are:

Primary Distributor

The filling plants are primary distributors

Secondary Distributor

The secondary distributors are supplied gas and cylinders by the primary distributors (filling plants). 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.

Profitabilty of Liquified Petroleum Gas (LPG) Business

Cooking gas business is very profitable and you don’t have to break the bank before you can start. With N300,000, you will get your business setup and ready to go with almost everything necessary in place. And this is a big business that anyone who is into it can be proud of.

LPG Properties and Composition

Cooking gas can be measured in litres, kilogrammes and tonnes. 1 kilogramme is equivalent to 1.75 litres and 1 metric tonne is equivalent to 1000 kilogrammes. So 1 metric tone is equivalent to 1,750 litres. Cooking gas cylinders come in different shapes, colors and sizes. The various sizes are 3kg, 5kg, 6kg, 12.5kg, 25kg and 50kg. Also some intermediate sizes could be manufactured based on specific orders.

How to start a LPG Business

Before starting a Liquified Petroleum Gas business one needs to put some things in place and get some documents. The time it takes to set up Liquified Petroleum Gas plants differs, it could take about 2 years depending on the approval process.

The approval process for LPG business involves the following:

town planning approval

Environmental Impact Assessment (E.I.A.) of the site. The EIA must be conducted for both dry and rainy seasons

Getting a fire department approval

Getting a police report

Commencing full engineering, design & procurement assessment

The above mentioned documents would be submitted to the Department of Petroleum Resources (DPR), along with a written application. On receipt of the application, DPR will visit the site to be sure all requirements for the construction of an LPG plant has been fulfilled. Where all these requirements are met by the site, DPR will approve and issue you an Approval to Construct (ATC). This approval grants the owner the permission to start constructing a LPG plant on the identified site.

Equipment acquisition

After getting approval, one can then go ahead to acquire equipment for the liquefied petroleum gas business.

Site construction

Once the equipment has been acquired, the site construction can commence.

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.

Factors to Consider before Starting a LPG Business

Startup Capital – Before starting a LPG business, one must consider the startup capital required for that business. According to experts (people who are already in the business) with a capital of ₦300,000 you can conveniently start one and be able to buy more than 20 cylinders, rent a shop, and buy the initial products. The location however determines the cost of the shop. Locating your business in a highbrow area will cost you more money when compared to a location in a lowbrow area but the cost will be well worth it.

Training – It is important to get attached to any experienced retailers or even depots for about six months to learn the important rudiments of the LPG business. You need to learn how to refill the cylinder, how to transfer, how to change valve. And everything necessary that you must know about the business. You also need to know where and how to buy cylinders.

If you decides to learn in a smart way, you can learn from any of those retailers you see by the roadsides and if you are smart enough, you can get all the knowledge you need there. In anyway, it may take you as much as six months to complete your apprenticeship.

Rent a Shop – The next thing after training is completed and the required knowledge acquired is to go get a shop. The class of people that use cylinder gas cooker are more in the urban area. Almost every part of Lagos is good for the business but some places are better than the others.

Marketing – It is of high importance to employ appropriate marketing strategy to create awareness of your business to people and also to increase your profitability and stay afloat. A business that refuses to engage marketing strategies is doomed for failure and can fold up in no time. It is good to maintain good relationship with customers and show empathy to their needs. Know your customers and find how best to deal with each customers. It’s not just about making sales (one-off sales) but about ensuring “repeat purchases” where the customers comes back after the first time to buy and continues coming back to buy from you. This is what guarantees a business of continuous existence in perpetuity (all other things being equal).

Pricing – As much as possible, offer the lowest of prices. Do not run at a loss or add a high profit margin. Consumers seek to minimize cost as much as possible and would buy from the shop with the lower price. If your prices are too high, customers will run from you. Don’t be too greedy for gain

Competition – After the business has been set up and is running, it is necessary to keep taps on your competitors. Study their moves, and strategize on how to do better than them.

Health and Safety Precautions in LPG Business

The most important health and safety issue in the operations of LPG is the operators – these are the people operating the filling plant. Qualified gas operators are scarce to a large extent in Nigeria to run an LPG plant. Hence, staff hired have little to no training or experience in running an LPG plant. One can decide to have a series of trainings both formal and informal, both on the job and off the job, to ensure our operators are at their best – it really is safer to run a poorly constructed LPG facility with competent operators than to run a properly constructed LPG facility with incompetent operators. The operators come first and are the most important factors even before the facility itself. So just to summarise, the highest significance where safety is concerned are the operators, adequate training and then the quality/ standard of the facilities.

Precautions to be taken when handling a Gas Cylinder.

It is important for one to be very careful when handling gas as it is highly inflammable. The following precautions should be taken when handling gas cylinder:

Gas cylinders should always be placed in a vertical position, unless stated otherwise by the manufacturer.

Cylinders should be restrained securely to prevent them from falling over.

Ensure that the cylinder valves are always tightly closed.

Ensure that the valve is protected by a valve cap to prevent any damage if the cylinder is dropped.

When loading or unloading the cylinders, never drag, drop or roll the cylinder as these can cause major physical damages to the cylinders.

Ensure that the cylinders are always kept in a well-ventilated warehouse with regards to the manufacturer’s ambient temperature standard.

Ensure that the cylinders are always placed on wooden pallet and not on a bare floor.

Prevent direct physical contact among cylinders in storage.

Why one should not be scared to Owning a LPG Business

Pressure vessels (including LPG tanks) are designed and built to sustain their physical integrity under the elements of nature (rain, sunshine etc). People are often discouraged to own and operate LPG skid plants mostly due to the explosive nature of the gas which might be perceived as a threat to lives and properties. However, there are cogent and verifiable reasons why these concerns should not discourage you from owning and operating an LPG skid plant in any location of your choice.

1. Before an LPG skid plant can be sited and installed in a given location, Department of Petroleum Resources (DPR) must carry out a proper Environmental Impact Assessment (EIA) in accordance with the international best standard, followed by calibration test, pressure test and facility integrity test to ascertain the safety compliance limit of the LPG infrastructure. A DPR certificate is issued once all the necessary standards are met.

2. An LPG skid plant comes with a Pressure Relief Valve (PRV) which serves as a vent for built-up pressure. Under a high external temperature (due to a nearby fire incident for instance), the Pressure Relief Valve (PRV) releases the excess pressure fast to prevent the rupturing of the vessel (tank or cylinder).

3. An LPG skid plant has a wall thickness of about 15cm. This serves as a fire and pressure resistance, preventing the rupturing of the vessel (tank and cylinder) under a high and prolonged fire incidence.

4. In accordance with international best standard, an LPG skid plant is filled up to about 85% capacity in order to provide enough space for the thermal expansion of the contained gas when the surrounding temperature increases.

In light of the above, investment in the growing LPG market is the most prudent decision anyone can make, especially as the LPG market in Nigeria is worth over #37 billion annually with about 50% return on investment.

Risks Associated With Running an LPG Business

Having an operator

The biggest risk one would face when running a LPG business is the risk of having an operator who is not knowledgeable enough. Therefore it is of high necessity and importance to conduct initial and ongoing trainings of staff to ensure one has the right operators. Adequate training and competence in plant operations can be said to be the single most important safety factor.

Fire explosion

The highly inflammable nature of liquefied natural gas makes fire explosion a very common risk in the LPG business. However, this risk can be mitigated or even avoided by being at high alert at all times to quickly detect leakages in gas cylinders as these are the major cause of explosion. One also needs to buy good fire extinguisher that can be very handy in time of minor fire outbreak.

Government regulation

Government regulation is another risk in the LPG business. Government is not stable and their regulations and policies are subject to changes in future. Should government decide to increase the price of LPG today, some consumers may find it difficult to take and have to go back to using kerosene or firewood. If that happens, you loose some customers and your sales will drop. However, government is always trying to reduce the price of cooking gas in other to encourage the usage and discourage deforestation.

Government Policies and Incentives on LPG Business

The Federal Government of Nigeria recently declared her intention to inject up to 10 million gas cylinders into the market to help improve safety and deepen cooking gas utilization. The cylinder injection will start under the first phase in 11 pilot states and FCT, with two states from each of the geopolitical zones. The states are Lagos, Ogun, Bauchi, Gombe, Katsina, Sokoto, Delta, Bayelsa, Ebonyi, Enugu, Niger and the Federal Capital Territory. The cylinders will be injected through the marketers. The marketers will be responsible for the cylinders and the exchange will take place in homes and not in filling stations.

The implication of this is that going forward, individuals will no longer own cylinders but cylinders will be owned by the marketers who will ensure that they are safe for usage. This will better guarantee the safety of the users of gas and the society at large. Hence, an opportunity is created for smart entrepreneurs to venture into LPG business as marketers.

The government not only seeks to promote household consumption of LPG gas but to increase LPG usage in agriculture, transportation and manufacturing in order enable the country to reduce CO2 emission by about 20% and create millions of jobs for Nigerians.

The government was targeting the conversion of 45% of about 4 million vehicles in the state to autogas over a four-year period in partnership with marketers.

The government at different levels are pursuing cleaner energy sources for cooking, transportation and power generation.

The Federal Government is working towards opening micro gas distribution channels across all local governments areas in the country.

By Taiwo Olowu, ACA

To learn more how we can help you achieve your vision on starting a business like this, please reach us now on 08023200801, email enquiry@mocaccountants.com or send us a detailed request by completing our enquiry form