Power Generation Costs Surge as Federal Government Raises Gas Prices

The Federal Government of Nigeria has announced a significant increase in the price of natural gas for power generation from $2.18 per metric million British thermal unit (mmbtu) to $2.42 mmbtu.

This move, unveiled by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), is poised to have profound implications for the nation’s energy landscape.

Nigeria heavily relies on thermal power plants fueled by natural gas, with over 70 percent of its electricity generated through this method.

Consequently, any alteration in gas prices invariably reverberates through the entire power sector, potentially leading to adjustments in electricity tariffs.

The adjustment in gas prices is particularly significant in light of the Multi-Year Tariff Order released by the Nigerian Electricity Regulatory Commission (NERC) earlier this year, which was calculated based on the previous gas price.

With the new, higher cost of gas, there is a palpable expectation for a subsequent review of electricity tariffs, a move that could impact millions of consumers across the country.

Gas producers, both international and domestic, have long advocated for an upward revision of gas prices, citing the need for incentives to ramp up production.

The latest decision by the government aligns with the provisions of the Petroleum Industry Act 2021, which established a framework for a market-based pricing regime in the domestic gas market.

Farouk Ahmed, the Chief Executive of NMDPRA, emphasized that the decision was made in compliance with the regulations outlined in the Petroleum Industry Act, ensuring that the pricing structure reflects principles such as incentivizing gas supply, aligning with international benchmarks, and considering the lowest cost of gas supply.

As the nation braces for the economic implications of this adjustment, stakeholders across the energy sector are closely monitoring developments.

The surge in power generation costs underscores the intricate interplay between energy pricing, market dynamics, and regulatory frameworks, highlighting the ongoing challenges and opportunities within Nigeria’s energy landscape.