A Review of the Nigerian Energy Industry

Nigeria’s domestic gas price to go up 50%

Gas pipeline 1Chuks Isiwu
28 January 2014, Sweetcrude, Lagos – The Federal Government may have concluded plans to raise the domestic price of natural gas to $1.5 per 1,000 standard cubic feet as it aims to ensure efficient supply of abundant natural gas to thermal power stations nationwide, representing a 50 per cent increase in the current $1 price for gas to power plants.
Group Managing Director of the Nigeria national Petroleum corporation, NNPC, Andrew Yakubu disclosed this recently in Abuja, saying the move is aimed at encouraging more gas supplies/sales to power plants
This is as against the current situation whereby they (suppliers) complain about what they describe as the “uneconomic price” of the resource.
Indications are that the development may result in an increase in electricity tariff with power producers trying to recover cost incurred.
Currently, fertiliser companies pay 90 cents for 1,000 cubic feet of gas while industrial users purchase 1,000 cubic feet of the product for above $2.50.  The price for power producers, who account for about 80 per cent of the domestic gas consumption, was increased about two years ago from $0.1 to $1.0 by the government for the same purpose of encouraging suppliers to sell to power plants.
These prices are, however, below the international market price for gas, which is about $3 per 1,000 standard cubic feet. A staff at a major gas producer who did not want her name in print said the proposed rate is below what they would consider “economic as it does not necessarily cover the cost of production”.
Indeed, there have been strong concern that inappropriate pricing for gas as seen with the existing price regime might frustrate the Federal Government’s efforts at stabilising power supply in the country.
This, experts said, was already happening as producers were shunning the power plants in favour of industries, thereby negating the government’s intention for the power sector.
Financial experts, who blamed the problem of gas scarcity on unrealistic pricing regime, had advocated a special financing mechanism for the power industry, which is what the government may have done by pegging the new price below the cost for industrial users.
Minister of Power, Prof. Chinedu Nebo, also referenced the move to raise the price when he stated that appropriate pricing of gas was a necessary factor that would guarantee improved power supply in the country.
Nebo, who spoke of the disparity in price between gas supply to the power industry and the industrial sector, also cited the inability of the defunct Power Holding Company of Nigeria, PHCN, to promptly meet its financial obligations to gas suppliers as a major reason why gas supply to power plants had been erratic, negatively affecting power supply nationwide.
“If you were a gas supplier you will first consider supplying gas to the person who pays better and pays on time than the person who pays you much less and still owes you. That has been the picture all along. The power plants were getting gas at very cheap rates because they were owned by government,” the minister said at the occasion.
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