FG Announces New Gas Price, Electricity Tariffs Expected To Rise

THE price of natural gas for power generation businesses has been set by the federal government at $2.42 per metric million British thermal units, or MMBtu. This is an increase over the previous rate of $2.18 MMBtu.

Currently, thermal power plants that burn gas provide more than 70% of Nigeria's electricity. Consequently, when the Nigerian Electricity Regulatory Commission (NERC), conducts another tariff review, the increased cost of the item can result in an increase in the rate that power users must pay.

The new domestic base price and wholesale rates of natural gas were announced to the public on Monday, April 1, by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).

Additionally, it increased the price of commercial gas from $2.5 MMBtu to $2.92 MMBtu. Farouk Ahmed, the NMDPRA Chief Executive, signed the statement.

The prior price of natural gas used as the basis for the calculations made by NERC and published in January 2024 as a Multi-Year Tariff Order for the power distribution firms.

Given that gas is a significant component in the production of electricity, there is a good chance that power tariffs will be reviewed upward based on the most recent pricing of the commodity.

Gas producers, encompassing both domestic and foreign oil and gas businesses, have consistently advocated for an increase in the product price, emphasizing that doing so would serve as a motivator for increasing production.

Ahmed stated in the announcement on Monday that a clear legal framework for deciding on a market-based pricing regime for the domestic gas market was provided by the Petroleum Industry Act 2021, which was published after being approved by the President on August 16, 2021.

The head of NMDPRA further said that the most recent action was done in accordance with section 167, the third and fourth schedules of the PIA 2021, which required the regulator to ascertain the marketable wholesale price of natural gas delivered to the strategic sectors as well as the Domestic Base Price.

Ahmed stated, “The DBP at the marketable gas delivery point under Sector 167(1) and other provisions of the PIA shall be determined based on regulations which incorporate among such other matters, the following principles.

“(a) The price must be of a level to bring forward sufficient natural gas supplies for the domestic market voluntarily by the upstream producers.

“(b) 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.

“(c) Lowest cost of gas supply based on three-tier cost of supply framework. (d) Market-related prices tied to international benchmarks.”

Therefore, the NMDPRA noted that, after consulting with stakeholders and in accordance with the PIA and Gas Pricing Regulations, it had determined the 2024 Domestic Base Price at $2.42/MMBtu and wholesale rates for natural gas in important sectors.