Lanre Runsewe, CEO of Rungas Group, talks to The Energy Year about how the company is integrated into Nigeria’s oil and gas market, the obstacles to full LPG adoption across the country and his plans for the company’s expansion in 2020. Rungas Group is an indigenous gas trading and infrastructure company.
Rungas got its start by importing composite cylinders, but cost was an issue using imports. We decided to change the model and start producing locally to bring down our costs. By doing that, we began winning over the oil majors, and today we supply cylinders to companies such as Enyo, MRS, OVH and Forte Oil.
The beautiful thing about Nigeria is that it has a population of over 170 million. In Spain, for example, the population is just over 50 million and about 40 million cylinders are in use. In Portugal, there are about 10 million people and about 8 million cylinders in circulation. In Brazil, there are 190 million people and 100 million cylinders.
So, Nigeria is a huge potential market because we only have 2 million cylinders in circulation, and a lot of those are obsolete. The idea is to be able to help people get rid of the old steel cylinders and substitute them with new composite ones. This is also a safety issue. I have seen many dubious investors painting old cylinders and selling them as new ones.
The NCDMB [Nigerian Content Development and Monitoring Board] is going to help us with funding through equity for our Bayelsa manufacturing plant. It will have a production capacity of 400,000 cylinders per year. The Lekki facility will produce about 800,000 cylinders and the Kano facility about 200,000. We will start with the Bayelsa project, and once that kicks off it will give us the leverage to launch the Lekki project. Our Lekki project will be situated at the Free Trade Zone.
We always had a vision to use Nigeria as a hub for exports. This country on its own is big enough for the business, but we have had requests for business from six other African countries as well – Mozambique, Cameroon, Ivory Coast, Gabon, Zimbabwe and Egypt.
The Kano project is important to us because our agenda as a business is not just selling cylinders, but to get more people to use cleaner fuel for cooking. The way we can do that is by bringing distribution closer to the end user by producing the cylinders locally. That also allows our storage facilities to procure gas at a discounted rate, which allows us to pass the savings on to the end users.
We will be producing 100,000 CNG cylinders and 200,000 LPG cylinders. The CNG cylinders take about 20 months to complete, but we are the first company approved to import cylinders into Egypt. It has never been done. Egypt is very focused on local content, so I am grateful that it is happening. It is just about the right timing.
The CNG cylinders are type four cylinders, which means they are made of specific petrochemical materials. Type four has a composite inner liner and a composite exterior. Type three is what we currently have for LPG, which has a steel inner liner and a thermoplastic outer jacket. Composite cylinders are generally safer and lighter, and they do not explode in fire. They are also more durable; they last for about 30 years and they do not corrode.
Two of the biggest challenges include safety concerns and the distribution model. In Nigeria today, cylinders are owned by end users, not marketers. However, they should be owned by the marketers. There have also been issues with availability and affordability.
In terms of affordability, we know that although composite cylinders are slightly more expensive, they are safer. By bringing their production to Nigeria, the price will come down even more. In terms of availability, now that we are producing them locally, customers no longer have to place an order and wait a couple of months for our import partners abroad to produce and ship them. They now have easy access to cylinders and gas.
We want to focus heavily on domestic trading. We have very strong business relationships for our exports, so 2020 will be about our domestic operations. We already have storage capacity in Ibadan, Ilorin and Kano, and we are looking at partnering with a company in the south that will complement what we are doing in Bayelsa. Our Bayelsa facility will definitely kick off this year, and we are looking forward to that.