High gas prices a supply chain problem

In December 2021, I bought a 13kg cooking gas at Sh1,500. The other day, I did it at Sh3,500 — a massive 133 percent jump within three months. This is not a demand and supply problem. We are grappling with the uncertainties that have gripped international petroleum markets in the wake of the war in Ukraine.

The government can tinker with VAT and excise duties on this important commodity and the option of triggering or introducing subsidies remains open. But the fact of the matter is that when it comes to petroleum prices, most of us in the developing world are mere price takers.

Yet the high cooking gas prices in Kenya and indeed East Africa have deeper roots than Ukraine. In my view, many years of little investment in the supply chain has been a big problem.

For many years, oil companies were content to reap huge margins on the product because the supply side continued to be severely constrained by inadequate terminal handing facilities. It was impossible for large LPG vessels to dock at the Mombasa Port.

We did not have enough storage facilities for cooking gas in Mombasa. And it is the consumer of cooking gas who has been bearing the burden of inadequate investment in the supply chain for this commodity.

This is why we recently celebrated the launch of the brand new and State-owned Kipevu Oil Terminal that was built for us by the Chinese a cost of $385 million. Included in the terminal is a modern facility capable of handling large LPG vessels.

Still, I will be the first to admit that even before the State-owned Kipevu Terminal came into being, private investment in cooking gas handling terminals was already bubbling with activity. The private sector was way ahead of the State on this one.

I say so because I have had the opportunity of visiting both the Kipevu and the Miritini-based gas terminal owned by African Gas Oil Company Ltd (Agol). Without a doubt, the Miritini-based facility is clearly one of the most game-changing and innovative investments in the petroleum sector in East Africa in recent years.

Agol’s entry into the space started with an investment in an offshore jetty situated about four kilometres away into the sea. Struck by the spectre of disruption which this investment was bound to cause to the cooking gas supply chain, the reactions by oil companies to the advent of Agol was predictable: they initially boycotted the facility.

Undeterred, the private investor stepped on gas by not only expanding the jetty’s capacity to handle larger vessels, but building a massive storage tank farm with a capacity of storing hundreds of thousands of tons of cooking gas. Private investment is why you hardly hear of stock-outs, these days.

The investment in Miritini included building modern automated gantries with a capacity to handle multiple trucks at the same time. Because of high levels of efficiency of the Miritini facility, oil majors that had boycotted the facility in the initial stages are now some of the biggest customers of Agol.

I can’t wait to see how the entry of Kipevu into the space is going to change the competitive environment for these two large terminals and whether competition will drive consumer prices downwards.

From casual observation, it seems to me that the private sector facility still has a big advantage over the State-owned gas handling terminal. First, the Miritini-based facility, unlike Kipevu, is not dedicated to handling cooking gas ships.

Since LPG vessels at Kipevu will still be sharing berths with vessels carrying diesel and gasoline, the MIritini plant will still have a competitive edge. And- unlike Agol that has invested in massive underground storage facilities, the terminal the government has built does not include storage tanks.

I see the Miritini facility and the new Kipevu Oil Terminal catalysing the growth of a thriving LPG business in East Africa. We will remain price takers for many years to come.

But Kenya must constantly rev up both private and public investment in maritime-land interfaces, port terminal infrastructure, transport nodes and inland container depots.