The Federal Government has announced an upward adjustment in the price of natural gas for power generation companies, signaling a potential increase in electricity tariffs. Effective immediately, the new price stands at $2.42 per metric million British thermal unit (mmbtu), up from the previous rate of $2.18mmbtu.
As Nigeria heavily relies on gas-fired thermal power plants for over 70% of its electricity generation, any hike in gas prices typically translates to higher tariffs for power consumers. The Nigerian Electricity Regulatory Commission (NERC) is expected to conduct another tariff review in response to the increased cost of gas.
The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), a federal agency, disclosed the revised domestic base price and wholesale rates of natural gas for 2024 in a statement on Monday. The commercial gas price has been adjusted to $2.92mmbtu, up from $2.5mmbtu previously, according to Farouk Ahmed, the Chief Executive of NMDPRA.
This development comes after the Multi-Year Tariff Order released by NERC earlier in January 2024 was based on the previous gas price. Consequently, the updated cost of gas is likely to prompt an upward revision of electricity tariffs, given gas’s significant role in power production.
Gas producers, both international and domestic, have advocated for a price increase, citing it as an incentive to boost production. The Petroleum Industry Act 2021, which was signed into law in August 2021, provides the regulatory framework for determining market-based pricing in the domestic gas market.
According to Ahmed, the latest adjustment aligns with the provisions of the Petroleum Industry Act, particularly section 167 and the associated schedules, which empower regulators to set domestic base prices and wholesale rates for natural gas.
He emphasized that the pricing principles include ensuring adequate gas supply, competitiveness with international benchmarks, and cost-effectiveness. The 2024 Domestic Base Price has been set at $2.42/mmbtu, and wholesale prices for natural gas in strategic sectors have been determined through consultations with stakeholders, in compliance with the PIA and Gas Pricing Regulations.
The announcement underscores the government’s efforts to streamline the gas market and incentivize investment in gas production, albeit with potential implications for electricity consumers in Nigeria.
