Electricity Tariff Increase Likely as FG Raises Gas Price

The Federal Government disclosed on Monday a new pricing regime for natural gas used by power generation companies, now set at $2.42 per metric million British thermal unit, up from the previous rate of $2.18/mmbtu.

Given that Nigeria relies heavily on thermal power plants fueled by gas for over 70% of its electricity generation, the uptick in gas prices could potentially trigger an increase in tariffs for power consumers following a tariff review by the Nigerian Electricity Regulatory Commission (NERC).

The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), a federal agency, revealed the updated domestic base price and wholesale rates for natural gas for the year 2024 in an announcement made on Monday, signed by its Chief Executive, Farouk Ahmed.

The NMDPRA also adjusted the cost of commercial gas to $2.92/mmbtu, up from the previous $2.5/mmbtu.

It’s worth noting that the Multi-Year Tariff Order issued by NERC in January 2024 for electricity distribution companies was based on the previous gas price. Thus, with the new pricing, there’s a strong likelihood of an upward adjustment in power tariffs as gas constitutes a significant component in power generation.

Gas producers, both international and domestic, have advocated for a hike in gas prices, citing it as an incentive for increased production.

Ahmed highlighted that the Petroleum Industry Act 2021 provided a regulatory framework for market-based pricing for the domestic gas market. This latest move, in accordance with the Act, aims to ensure a balance between encouraging gas supply and maintaining reasonable pricing.

The NMDPRA outlined principles guiding the determination of gas prices, including ensuring adequate gas supply, pricing comparable to similar markets globally, and a three-tier cost of supply framework.

In compliance with the Petroleum Industry Act and Gas Pricing Regulations, the NMDPRA set the 2024 Domestic Base Price at $2.42/mmbtu and wholesale prices for natural gas in strategic sectors after consultations with stakeholders.