Business Day
Nigeria has Africa’s biggest gas reserves and though 75 percent of its electricity is generated from gas-fired thermal plants, over 80 million people lack access to electricity.
Industry operators say a key reason for this development is the Federal Government’s stranglehold on regulating gas prices, which is disrupting the market and ruining business assumptions of investors. Ironically, improving energy access is the government’s argument against a liberalised gas-pricing regime.
In July, the Federal Government cut gas prices from $2.50/MMBtu to $2.18/MMBtu after it adopted the recommendation of the technical ad hoc committee that involved organised labour to reduce the price of gas to power, ostensibly to prevent a higher electricity tariff increase.
By lowering the price of natural gas, a critical feedstock in the production of electricity, the FG was counting on reducing the price at which it is sold to Power generating companies (GenCos) and thereby affecting how electricity is priced.
The Federal Government placed on gas producers, a domestic gas supply obligation, which mandates them to sell a certain percentage of the gas produced to legacy power plants at a controlled price regardless of their cost of production and business assumptions. Gas producers often didn’t keenly follow through and traded in the international market based on investment-friendly terms.
However, the idea is haunting the market. For investors, it has removed the motivation for new investments as projects continue to suffer delays. It is having a negative impact on the business of gas producers supplying to the domestic market and partly accounts for the soaring price of cooking gas.
Electricity generation companies buying gas under (willing seller willing buyer) arrangements were forced to cut prices and gas producers responded by lowering volumes supplied to the local market, some operators told BusinessDay.
This has made the international market more attractive as GenCos, industries and even homes largely reliant on cooking gas, scamper for scarce volumes. Prices have now gone through the roof as cooking prices saw over 60 percent price increase according to NBS data in less than one year.
According to data from the NNPC’s financial and operations report, total gas supply for the period April 2020 to April 2021 stood at 3,081.77 Billion Cubic Feet (BCF) out of which 548.34 BCF was commercialized for domestic use while 1,398.78 BCF were exported.
