Gas Price Hike: Nigeria Nods Again to Upstream Producers’ Demand - Africa’s premier report on the oil, gas and energy landscape.

Gas Price Hike: Nigeria Nods Again to Upstream Producers’ Demand

By Lukman Abolade

Nigerian oil and gas upstream producers won the second major incentive in one month, when the government announced the establishment of a new pricing framework for natural gas for strategic sectors such as Power, Commercial, and Gas-Based industries.

The country’s Midstream & Downstream Petroleum Regulatory Authority (NMDPRA) set a new price for natural gas sale to electricity producers at 24 American cents per Million Metric British Thermal Units (MMBTU), or thousand standard cubic feet (Mscf) higher than what had obtained, since the last price regime announced by a former Deputy Minister of Petroleum in 2021.

Under the new pricing regime, the NMDPRA set the Year 2024 Domestic Base Price at (DBP) at $2.42 per Million Metric British Thermal Units (MMBTU).

This means increased price of the commodity for power Generation Companies (Gencos) to $2.42 per cubic feet. The price of gas sold to Gencos had been at $2.18 since 2021. For commercial gas, the government increased the price from $2.50 to $2.92 per cubic feet.

The gas price hike comes exactly a month after the gazetting of President Tinubu’s executive orders, granting tax credit incentives for Non-Associated Gas (NAG) greenfield developments in onshore and shallow water locations, with first gas production on or before 1st January, 2029.

As a debate erupted around the affordability of the new gas prices by electricity generation companies, who are owing gas suppliers a huge amount of debt, the government announced, the day after the gas price hike, that it had approved an increase of 300 per cent electricity tariff for Band A consumers in the country. Accordingly, power distribution companies (DisCos) will be allowed to raise electricity prices to ₦225 ($0.15) per kilowatt-hour from ₦68 for urban consumers this month effectively from April 1, 2024.

By some estimates, government and private electricity producers owe gas producers ssome $ 1.3billion.

This raft of incentives is clearly meant to boost investment in natural gas development, and unlock more from the 200Trillion cubic feet estimated reserves, stored in the prolific Niger Delta basin.

Nigeria has grappled over the years with a stubbornly low quantum of electricity supply (between 3,500MW and 5,000M for a population of 200Million people), largely attributed to challenges thrown up by the national grid. The Transmission Company of Nigeria (TCN) has identified several factors contributing to this situation, notably including reduced gas supply and incidents of vandalism.

Nigeria has 26 Grid connected electricity generating plants, with installed capacity of of 12,199MW, out of which only 3,957MW, or less than 32%, was generated in February 2024, according to the Nigeria Electricity Regulatory Commission(NERC). Although 22 gas-fired electricity plants made up 84% of the installed capacity, they delivered only 50.2% of the power generated during the month. Four hydroelectric plants, which make up just 16% of the capacity installed, produced 49.8% of the power.

Part of the reasons alluded for low generation by gas-fired plants is “shortage of gas”. Some consider this argument to be a stretch, but it is a key reason why government thinks there should be more incentives for gas production.

Farouk Ahmed, Chief Executive of  NMDPRA, explained that “The Domestic Base Price at the marketable gas delivery point under Section 167 (1) and other provisions of the PIA shall be determined based on regulations which incorporate among such other matters, the following principles: the price must be of a level to bring forward sufficient natural gas supplies for the domestic market on a voluntary basis by the upstream producers; the price shall not be higher than the average of similar natural gas prices in major emerging countries that are significant producers of natural gas; lowest cost of gas supply based on three tier cost of supply framework; market related prices tied to International Benchmarks”.

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