New tariff for Nigerian gas begins January 1, 2015

Gas-pipelines

The new price regime for domestic gas approved by the Nigerian Electricity Regulatory Commission, NERC, for power generation in the country would become operational from January 1, 2015.

The takeoff of the new price regime was confirmed by the Group Executive Director, GED, in charge of Gas and Power directorate of the Nigerian National Petroleum Corporation, NNPC, David Ige.

The Commission recently approved an upward review of the gas price from $1.5 per thousand cubic feet, MCF, to $2.5 per MCF.

The Commission had described the review as a “pragmatic and creative” short term approach to address the challenge of inadequate gas supply to thermal power generation plants across the country.

The new gas-to-power pricing benchmark also included 80 cents as transportation cost per MCF for new electricity generation capacity.

The approval of the price review had triggered fears about the plan by government to increase electricity tariffs by about 40 per cent.

The new pricing regime and other measures adopted by government were expected to help raise national power generation capacity to at least 5,000 megawatts, MW, within four months. But the power producers are yet to adjust to the new arrangement more than two months after it was approved.

Operators in Nigeria’s gas sector have always preferred the export of gas against domestic distribution as the former does not require huge investments in gas infrastructure.

To encourage investment in domestic gas facilities, the price of gas-to-power was raised from five cents per MCF to $1 in 2010. It was further raised to $1.50 by 2011 and $2 by the end of 2013,
before the latest increment to $2.5 in 2014.

But the gas producers are still demanding a further increment to $5 to $7 to bring the domestic price at par with the Henry Hub price in the United States.

The Minister of Petroleum Resources, Diezani Alison-Madueke, had equally said that the new price benchmark would bring the gas price at par with the United States annual inflation statistics.

The minister said at a joint media briefing by the ministries of Petroleum Resources and Power, as well as NERC, Central Bank of Nigeria (CBN) and NNPC that the decision was a collective responsibility to find a lasting solution to perennial shortages in gas supply to power plants in the country.


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