A Review of the Nigerian Energy Industry

Commercial price for gas-to-power to rise in 2014

ERERA Power lines24 December 2013, Abuja – The commercial price for gas supply to Nigeria’s power sector under the federal government’s domestic gas supply obligation is expected to rise from its current value of $1.80 million British thermal unit (mBtu) to about $2mBtu in 2014, THISDAY investigation has revealed.

The projected increment is expected to equally reflect in the Multi Year Tariff Order (MYTO) methodology of the Nigerian Electricity Regulatory Commission (NERC), which is a holistic and scientific approach to correct pricing of electricity service in the country.

Minister of Power, Prof. Chinedu Nebo and NERC Chairman, Dr. Sam Amadi who both confirmed the development said the value of gas supplied to thermal power plants within the country has been planned to increase gradually.

The $2mBtu value is not considered commercially profitable following the almost $3 to $4mBtu value that is being paid for gas supplies by other users, such as cement, fertiliser and plastic industries.

Currently, the Nigerian Petroleum Development Company  (NPDC) supplies about 400 million standard cubic feet of gas per day (mmscf/d) for domestic use, making it the largest gas supplier to the domestic market.

But speaking with THSDAY on the challenges of gas-to-power in the country, Nebo noted that the incentive for continuous supply of gas to power plants has been quite low.

He however expressed hope that the situation will change for better with the privatisation of successor generation companies created from the unbundling of defunct Power Holding Company of Nigeria (PHCN).

On his part, Amadi admitted the gas shortage has taken a toll on power supply, adding that some of the power plants are lying fallow owing to inadequate gas supply.

He however noted that the amount of gas going to industries is high while gas for power is low. Amadi added: “This is for two reason, industries are paying about $3 to $4 per mBtu while the domestic supply obligation price for gas-to-power is about $1.80, but that will be going to $2 by January,” he stated.

Amadi further explained: “If you look at the simple commerciality, you will discover that the incentives is on the gas suppliers to supply more to the industries and even the fact that the government has a gas aggregator company, it does not protect that much because these are arrangements within the oil and gas industry; so we had issues such as lack of adequate gas to power and some facilities were vandalised so the output from power plants shrunk drastically.”

The commission recently adopted a holistic and scientific approach to correct pricing of electricity and to ensure a fair and cost-reflective tariff regime, which will sustain the present operators while at the same time attract investment into the sector.

The key principles of cost reflectivity and affordability were taken into consideration in evolving the new tariff regime within MYTO. It is however expected to undergo scheduled minor reviews within six months intervals taking into considerations changes in gas price and inflation amongst others.


– Chineme Okafor, This Day

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