Announcement of New Gas Prices
The Federal Government of Nigeria announced on Monday a significant increase in natural gas price for power generation companies. The new price is set it at $2.42 per metric million British thermal unit (mmbtu). This new rate marks a notable rise from the previous price of $2.18 per mmbtu.
Impact on Electricity Generation and Tariffs
Nigeria heavily relies on thermal power plants fueled by gas for over 70 percent of its electricity generation. Consequently, the uptick in gas prices is likely to result in a potential hike in tariffs payable by power consumers, pending a tariff review by the Nigerian Electricity Regulatory Commission (NERC).
Regulatory Authority’s Role
The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), a federal government agency, announced the new domestic base price and wholesale prices of natural gas for 2024.The Chief Executive of NMDPRA, Farouk Ahmed, signed the announcement, disclosing the revised prices.
Price Adjustment for Commercial Gas
The cost of commercial gas was also adjusted to $2.92 per mmbtu, up from its previous rate of $2.5 per mmbtu. This increase in gas prices has significant implications for various sectors, particularly the power sector, which heavily relies on natural gas for electricity generation.
Implications for Multi-Year Tariff Order
Notably, based on the previous price of natural gas, the Nigerian Electricity Regulatory Commission (NERC) formulated the Multi-Year Tariff Order for electricity distribution companies in January 2024. With the latest revision in gas prices, there is a strong likelihood of an upward review in power tariffs, given that gas constitutes a major component in power production.
Position of Gas Producers on Price Revisions
Gas producers, including both international and domestic oil and gas companies, have consistently advocated for an upward revision in gas prices. They argue that such a move would serve as an incentive to ramp up gas production in the country.
Regulatory Framework and PIA 2021
In his statement, Farouk Ahmed highlighted the regulatory framework provided by the Petroleum Industry Act 2021, which mandates a market-based pricing regime for the domestic gas market. He emphasized that the action taken by NMDPRA aligns with the provisions of the PIA 2021, particularly Section 167 and the third and fourth schedules.
Determining the New Prices
Ahmed further elucidated that following consultations with stakeholders and in compliance with the PIA and Gas Pricing Regulations, they determined the Domestic Base Price and wholesale prices of natural gas.
Broader Impact on Nigeria’s Energy Sector
The announcement underscores the evolving regulatory landscape governing the pricing of natural gas in Nigeria. Moreover, It also highlights its far-reaching implications for various sectors, particularly power generation. Consequently, as stakeholders digest the ramifications of the price adjustment, attention will be closely focused on its impact on electricity tariffs and the broader energy landscape.
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