For the power distribution businesses, the Multi-Year Tariff Order that was issued in January 2024 by NERC was based on the natural gas price that was in effect at the time. Given the crucial role of gas in power generation, the latest commodity pricing indicates a likely upward review of power tariffs. International and domestic oil and gas producers, as well as gas producers, have long advocated for a price hike, arguing that doing so would encourage an increase in output.
On April 1, 2024, the Nigerian government, through the Chief Executive of the Nigerian Mainstream and Downstream Petroleum Regulatory Authority (NMDPRA), Farouk Ahemd, declared the new price of natural gas from $2.18 per metric million British thermal unit to $2.42 per metric million British thermal unit.
For more than 70% of Nigeria’s power needs, gas-fired thermal power facilities are considered mandatory. Consequently, next time the Nigerian Electricity Regulatory Commission conducts a rate review, power consumers may see a spike in their payments due to the commodity’s increased cost.
Farouk stated that the most recent move was made in accordance with the provisions of the PIA 2021, namely sections 167 and the third and fourth schedules, which required the regulator to establish the Domestic Base Price and the wholesale marketable price of natural gas delivered to strategic sectors.
He mentioned, “The DBP at the marketable gas delivery point under Sector 167(1) and other provisions of the PIA shall be determined based on regulations which incorporate among such other matters, the following principles.
“(a) The price must be of a level to bring forward sufficient natural gas supplies for the domestic market on a voluntary basis by the upstream producers.
“(b) The price shall not be higher than the average of similar natural gas prices in major emerging countries that are significant producers of natural gas.
“(c) Lowest cost of gas supply based on three-tier cost of supply framework. (d) Market-related prices tied to international benchmarks.”
In furtherance, the NMDPRA established that the “2024 Domestic Base Price at $2.42/MMBTU and wholesale price for natural gas in strategic sectors, following consultations with stakeholders and in compliance with the PIA and Gas Pricing Regulations.”
Following the announcement on Monday, Ahmed said the Petroleum Industry Act 2021, assented to by the President on August 16, 2021, and gazetted in August 2021, provided a clear regulatory framework for the determination of a market-based pricing regime for the domestic gas market.
By Chidimma NWAFOR
