Starting in April 2024, the Moroccan government will end all subsidies on liquefied petroleum gas (LPG) that have been in place since the early 1940s. The North African country will gradually increase the price of butane by $1 each year until it reaches the ‘real market price.’ These price hikes aim to control excessive consumption but also ease the financial burden on the state, which spent over $2 billion subsidizing the cost of LPG last year.

Mohammed Rachid Idrissi Kaitouni, president of the Energy Federation in Morocco, spoke to OPIS about ending subsidies and the challenges ahead.

OPIS: How do butane subsidies in Morocco pose a challenge in the context of encouraging LPG consumption?

Idrissi Kaitouni: Recent statistics show a global increase in LPG consumption. However, LPG consumption rates in many sub-Saharan or North African countries, still lag behind certain countries, such as India, which has seen significant consumption growth in the past 10 years. The growth in LPG consumption in India has helped halt deforestation and put an end to the use of charcoal or wood for cooking. Unfortunately, in Africa, the per capita consumption across different African countries does not exceed 10 kilograms/year, which is very low.

Morocco ranks at the top globally with a consumption of 73 kg/year per capita, which is enormous. This is beneficial for the industry, but there’s a downside to this. In Morocco, butane LPG is subsidized, with approximately 50% of its actual price subsidized by the government.

OPIS: And are those subsidies about to end next year?

Idrissi Kaitouni: Yes, the subsidy on LPG has been a reality in Morocco for several decades and has continued to grow each year. Currently, Morocco has a population of 37 million people and consumes around 3 million metric tons of LPG. This has helped to slow down deforestation and replaced the use of firewood for heating. However, this subsidy is a  significant burden on the government, having spent $2.1 billion on the 3 million mt of LPG consumed in 2023.

Other countries, such as Chile, Brazil, or India, have faced similar issues related to subsidies. Morocco plans to gradually reduce subsidies in 2024.

To be more precise: Currently, a 12 kg bottle is sold for $4 in Morocco, whereas its actual cost price is around $10 per bottle. Next year, the price will increase by one dollar to reach $5. This increase will continue gradually until it reaches the real market price. This process will be adjusted based on market fluctuations.

OPIS: Couldn’t this potentially harm consumption since growth was supported by subsidies?

Idrissi Kaitouni: You are right. In many countries, subsidies are used to encourage consumption. However, when the quantity consumed becomes significant and the market matures, it is important to target the subsidy and analyze the
consumption. Currently, in Morocco, someone with a comfortable income, earning for example $5,000 or $10,000 per month can buy a gas bottle at a subsidized price of $4. That’s not normal. This leads to abuse and overconsumption.

To illustrate, at one time in the former Soviet Union, LPG was practically free, leading to considerable waste. People would leave stoves on to avoid using matches because matches were more expensive than gas. That’s an extreme example, but it highlights the abnormality, which should be corrected by targeting and then allocating appropriate aid to the populations who need. It’s essential to look at consumption to avoid a waste of energy and resources.

OPIS: What are the main challenges currently facing the LPG industry in Morocco and the wider African continental region?

Idrissi Kaitouni: Many African countries must encourage the use of LPG to avoid increased deforestation. That’s a big challenge for many of them with a big rate of energy consumption.

In North Africa, the main challenge for Morocco is to analyze and optimize gas subsidies in the country. This transition must be carried out while maintaining a price structure defined by the state. Once liberalization is in place, the market could more effectively adapt to consumer needs. However, this comes with challenges. There might be initial resistance. The experience of other countries which have followed a similar transition path by organizing their subsidies, show that growth stagnates for one to two years, then picks up again and resistance from consumers slows down after one or two years.

OPIS: So, despite the subsidy cuts, do you expect to see a growth in consumption next year?

Idrissi Kaitouni: Moroccan demand for LPG has seen a steady growth of around 3% every year. In 2023, we imported around 3 million mt of butane, and 75% of this amount came from the U.S. The rest came from Europe or West Africa. Next year, we expect a growth rate of approximately 3% again.

OPIS: In the context of sustainability and environmental concerns, how is the Moroccan Energy Association promoting the use of LPG as a cleaner energy alternative?

Idrissi Kaitouni: There is a big debate in America and Europe about increasing bio-LPG, including recycled-Dimethyl Ether (r-DME) production, to make LPG greener. But countries like Morocco and other African nations have other
priorities to deal with.

OPIS: So, how are plans to increase bio-LPG output affect the Moroccan energy association?

Idrissi Kaitouni: It’s more of a conversation between Americans and Europeans. However, for countries like Morocco and others in Africa, it’s a secondary issue. Right now, LPG is already cleaner and more environmentally friendly compared to coal, wood, oil, or diesel.

Our priority is to increase the consumption of regular LPG to ensure that it remains a cleaner alternative compared to other polluting fuels. Of course, Morocco is currently focusing on energy transition, particularly interested in hydrogen and renewable energies, especially wind and solar power. The country is also committed to decarbonizing industries, promoting the use of green energy rather than sources like coal or other polluting fuels.

OPIS: So, you are encouraging increased use of traditional LPG as a clean energy source?

Idrissi Kaitouni: Exactly. Our goal is to promote the use of LPG as a clean alternative to many other energy sources. The first step is to substitute coal, wood, oil, and diesel. Of course, if biofuel production in these countries becomes available on a large scale and more competitive than regular LPG, it would become interesting for Morocco and the wider region as well.