Nigeria will likely earn less foreign exchange as global natural gas prices have fallen by over 50% this January.
Oluwatomi Mayowa, a senior analyst at Financial Derivatives Company, made this projection on Thursday while appearing on a Channels Television programme. Â
Bear in mind that natural gas accounts for 14% of Nigeria’s exports with a value of $10 billion.
Reasons for the plunge:Â Oluwatomi said that many European countries have stockpiled natural gas for the winter. Also, the Winter turned out not to be as cold as the earlier forecast. As such, the demand for natural gas in Europe is currently low.
Impact on Nigeria’s forex: According to Oluwatomi, the low demand for natural gas will lead to a decline in Nigeria’s foreign exchange earnings because the commodity accounts for 14% of the country’s exports.
It may also be difficult for the federal government to finance the 2023 budget as a result of lower revenues. There could also be more forex restrictions and rationing, forcing many people (including manufacturers for instance) to access dollars at the parallel markets.
Cooking gas prices in Nigeria:Â Oluwatomi recommended that there should be more investments in the LPG sector, including the construction of a better supply system to ensure that Nigeria can become self-sufficient in liquefied petroleum gas (cooking gas) sector.
She projected that in the new year, more companies will go into LPG production which will increase the country’s capacity. However, she does not think that with the current numbers, Nigeria will be self-sufficient in cooking gas production in 2023 as the country will still need to rely on imports to make up for shortfalls.
The Russia –Ukraine war angle: Oluwatomi also spoke about the war as a factor which could affect gas prices. She said that if the war was to end today, sanctions placed on Russia will be lifted and the country will resume its normal exports to European countries, which will likely result in lower gas prices. Also, gas will likely thrive even in the clean energy transition because of its quality as the cleanest fossil fuel source.
In case you missed it: Analysts at Rystad Energy, ICIS and Wood MacKenzie say that China’s demand for Liquefied Natural Gas (LNG) is set to rebound to between 70 million and 72 million tons in 2023, 9% to 14% higher than in 2022. However, LNG imports to China would likely fall short of record 2021 levels, because prices would stay high and the lingering effects of the pandemic would limit demand.
