Sodeinde QuadriOn Monday, the Federal Government of Nigeria announced a significant increase in the price of natural gas, a vital resource for power generation in the country. The new price stands at $2.42 per metric million British thermal unit (mmbtu), marking a notable uptick from the previous rate of $2.18/mmbtu.
Nigeria heavily relies on thermal power plants fueled by gas, with over 70% of its electricity generated through this method. Consequently, the surge in gas prices could potentially trigger an escalation in tariffs for power consumers, pending a review by the Nigerian Electricity Regulatory Commission (NERC).
The announcement regarding the new domestic base price and wholesale prices of natural gas for 2024 was made by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), a federal agency. The agency revealed that the cost of commercial gas has also been adjusted to $2.92/mmbtu, up from the previous $2.5/mmbtu. This directive was issued by Farouk Ahmed, the Chief Executive of NMDPRA.
The decision to revise gas prices carries significant implications for electricity tariffs, given that the Multi-Year Tariff Order released by NERC earlier in January 2024 was based on the previous gas price. Therefore, with the updated cost of the commodity, an increase in power tariffs seems imminent, considering gas’s pivotal role in electricity production.
Gas producers, both international and domestic, have advocated for a price review, citing it as a potential incentive for boosting production. The move aligns with the Petroleum Industry Act 2021, which established a regulatory framework for a market-based pricing regime within the domestic gas market.
According to Ahmed, the latest action is in accordance with Section 167 and the schedules of the PIA 2021, which empower the regulator to determine the Domestic Base Price and wholesale prices of natural gas supplied to strategic sectors. He emphasized that the pricing regulations adhere to several principles, including ensuring adequate gas supplies, benchmarking against international prices, and considering the lowest cost of supply.
In setting the 2024 Domestic Base Price at $2.42/mmbtu and wholesale prices for natural gas in strategic sectors, the NMDPRA asserted that extensive consultations with stakeholders were conducted to ensure compliance with the PIA and Gas Pricing Regulations.
The revision in gas prices underscores the government’s efforts to streamline the energy sector’s operations and promote sustainability. However, the potential impact on electricity tariffs raises concerns about its ramifications for consumers and businesses across the country.
