…NERC approves new benchmark price of $3.30 for gas *CBN to pay off N25bn legacy debt to gas suppliers
02 August 2014, Sweetcrude, Abuja – The Federal Government has announced an integrated and inter-agency-driven initiative aimed at revamping its gas-to-power drive and ensuring adequate and sustainable supply of gas to improve power generation in the country.
The measures will see the Ministry of Petroleum Resources collaborate with the Ministry of Power, the Central Bank of Nigeria, CBN, the National Electricity Regulatory Commission, NERC, and the Nigerian National Petroleum Corporation, NNPC, to address outstanding issues around gas pricing, legacy debts to gas suppliers and fast-track additional gas supply, particularly in the short term.
Announcing this at a press conference in Abuja on Saturday, the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke stated, “Collectively, we have developed additional interventions that will address outstanding issues around gas pricing, including fast-tracking additional gas supply development, particularly in the short term.
“It is expected that barring unforeseen developments these interventions will add at least 370mmcf per day of gas and assure a generation capacity of at least 5000MW within four to five months.”
According to her, a review of gas pricing is now implemented to further reflect the market value. “The Ministry of Petroleum Resources and NERC are in ongoing deliberations to finalize work to ensure that the pricing mechanism of gas to power will reflect market value.
“In the short term, it is expected that this will quickly boost gas supply and in turn power output. In the medium to long term, this new price regime should trigger additional investment in the infrastructure for gas to power.”
The Minister further disclosed NERC has approved a new benchmark price of $2.50/mcf for gas supply, and $0.80/mcf as transportation cost for new capacity, from 2014. She added that the benchmark will rise with US inflation annually.
“In addition to the new price, NERC will require firm commitments from gas suppliers that they will supply the agreed quantities of gas to generation companies as long as payment terms are met.
“NERC is presently concluding the review of the Aggregate Technical Commercial and Collection, ATC&C, losses studies submitted by the distribution companies. This will be followed up by a review of the revenue requirement for the power sector that is to be covered by the revised Multi-Year Tariff Order, MYTO, path.
“While the detailed tariff is being worked out, NERC reaffirms its commitment to ensure cost recovery for all prudent and efficient operators,” the Minister added.
Furthermore, she noted, to give confidence to stakeholders in the gas sector regarding the willingness of the power sector to settle its outstanding debts for gas, the Central Bank of Nigeria (CBN) will support initiatives to clear up the most recent gas-related debts of the power sector.
“Specifically, the CBN is looking at banking sector-led measures to pay off N25bn of debts owed to gas suppliers. This will be subject to reconciliation efforts and adequate provision for this support in a revised MYTO that ensures repayment within five years.
“The Central bank will also play a key role in financial arrangements that guarantee payment for gas supply by the power sector,” she revealed.
Alison-Madueke stated that in addition to the review in pricing and debt payment, the Ministry of Petroleum Resources is focusing in a targeted manner on a number of gas supply projects that will help cushion the effect of supply shortage.
“These projects which are at various stages of maturation, but which will be concluded before the end of the year, should unlock additional 370mmcf/d assuring us of a total of 5000MW (inclusive of hydro) within the next five months,” she said.
In order to minimize disruptions to supply, she said the NNPC has also concluded a harmonization plan of the maintenance schedule of all gas plants from various suppliers, adding that all planned maintenance will be carried out between August and September this year.
She observed that currently, about 750mmscf of gas is supplied to the power sector, resulting in an aggregate generating capacity of 4000MW. “However, various outages reduce the actual availability of power,” she added.
The Minister noted that the “problem of inadequate gas supply is one that has been ongoing for almost 20 years, and was inherited by this administration. Since then, various interventions have been put in place to bridge the supply challenge.”
She added that, “Although, gas supply has grown significantly in the last two years to about 1500mmcf per day, demand growth continues to outpace supply both in the power and non-power sectors. This mis-match has created a short term gas supply crisis.”
She said some of the typical challenges that have impacted the supply of gas including rapid reservoir decline, pipeline vandalism, community disruptions of project schedules and funding are continuously and progressively mitigated through various schemes, such as a more aggressive drilling campaign to bridge decline, alternative funding schemes and a holistic government approach to pipeline security.
According to the Minister, whilst the medium term gas supply projection from the late 2015 is significantly better, the immediate focus is addressing the short term challenge, particularly as it affects the power sector.