Nigeria’s radical idea for car owners facing soaring petrol prices

Welcome back to Energy Source — coming to you today from Houston and Lagos.

As Americans return from the Thanksgiving break, all eyes remain trained on Donald Trump’s preparations for his return to the White House and what his policy proposals will mean for the energy space.

The president-elect’s plan to slap hefty tariffs on Canadian imports has disconcerted oil producers, who warn it risks driving up US fuel costs.

But what of Joe Biden’s energy legacy? My colleagues Amanda Chu, Alexandra White and Ollie Roeder take a deep dive into the future of the $400bn committed to the green industries and the semiconductor sector through Biden’s Inflation Reduction Act. Will his manufacturing renaissance endure?

Meanwhile, energy bankers and lawyers here in Texas are finalising plans for an IPO by Venture Global, the liquefied natural gas developer set to be a significant beneficiary of the new administration. The flotation is set to be one of the biggest ever by a US energy company.

But the topic of today’s newsletter is a dispatch from Nigeria, where my colleague Aanu assesses the state of a novel policy push to address that perennial political bugbear: high prices at the pump.

The government is hoping that an effort to convince hard-pressed motorists to convert their vehicles to run off compressed natural gas will catch on. But obstacles to the shift abound.

Thoughts? Drop me an email: [email protected].

Thank you, as ever, for reading. — Myles

Will Nigerian car owners convert to CNG-powered vehicles?

For decades, generous government subsidies allowed Nigerians to pay some of the cheapest petrol prices globally. But since their gradual withdrawal over the past 18 months by President Bola Tinubu as part of reforms he’s betting will transform a moribund economy, petrol prices have skyrocketed more than fivefold and contributed to nearly three-decade-high inflation.

Transport costs have inevitably risen, and in a country where almost all goods, particularly farm produce, are ferried via road in the absence of an expansive rail network, food inflation is at a staggering 39 per cent.

With Nigerians facing the worst cost of living crisis in a generation, Tinubu’s government is encouraging citizens to embrace a radical new idea: converting their petrol-powered vehicles into fully or hybrid compressed natural gas-powered vehicles. CNG is a methane gas that is compressed and stored in a high-pressure storage tank inside the vehicle.

The Presidential CNG Initiative (Pi-CNG), launched in August 2023, hopes to take advantage of the country’s huge gas reserves of about 200tn cubic feet, which is Africa’s largest. The government has set ambitious targets for the conversion scheme. It hopes to convert 150,000 vehicles by the end of the year — its director Michael Oluwagbemi said 100,000 vehicle owners have already made the jump.

The Pi-CNG is eyeing the 1mn vehicle mark by 2027. Converting cars could also help lower emissions. “The converted vehicles will operate at a significant discount, remain flexible, and run cleaner, cheaper, safer and more reliably,” Oluwagbemi has said.

Converting a vehicle would eventually lower transport costs by 40 per cent for car owners, according to government estimates. Two hundred million dollars has already been invested in the initiative, with a further $450mn proposed in infrastructure investment such as conversion centres and filling stations.

CNG’s price appeal for customers is clear. It sells for N230 per litre ($0.14), significantly lower than the N1,080 ($0.64) per litre price for petrol.

The conversion process involves installing a high-pressure gas tank into the boot of a vehicle. The conversion kit is then integrated into the vehicle’s fuel system.

The government is offering subsidies to companies involved in the conversion initiative, with generous tax waivers on offer for CNG equipment. A N10bn ($6mn) credit facility has been set up for those interested in making the leap to CNG.

Yet the road to widespread adoption in a country of almost 230mn people is littered with obstacles. The most obvious problem is the sheer scale of the task. There are an estimated 12mn vehicles in Nigeria, almost certainly an undercount of the true number of cars in the country. But there are less than 150 accredited conversion centres across such a vast nation. The centres are in less than half of Nigeria’s 36 states and its capital, Abuja. And there seems to be little in the way of publicity efforts to explain the initiative, particularly outside of Nigeria’s biggest cities.

There are also safety concerns with CNG conversion. Or rather more accurately, there are widespread perceptions that CNG vehicles are walking time bombs. In an episode that made national headlines, a car exploded at a filling station in the southern city of Benin in October, severely injuring three people. 

In a low-trust country where people are often wary of what their government is telling them, it was a setback for the Pi-CNG’s efforts. The government has aggressively defended the scheme, saying the vehicle that exploded had been worked on by an unlicensed conversion mechanic and that misinformation was behind much of the safety concerns being raised.

There is little data on the number of people willing to convert their vehicles, but anecdotal evidence suggests many Nigerians are reticent and this, perhaps above all else, remains the biggest obstacle to the initiative. (Aanu Adeoye)

Power Points

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.