Lack of Formal policy on domestic gas pricing structure hinders Power Generation and supply in Nigeria

gas power plant
gas power plant

The revelation that the lack of formal policy on domestic gas pricing structure is the hindrance to power generation and supply in Nigeria is gravely disturbing, the review of the controversial gas price regime announced in August 2014 by Diezani Aliso-Madueke, former minister of Petroleum Resources has turned out to be a ruse, as it is now revealed that there was no supporting document signed by the past government, the Nigerian National Petroleum Corporation (NNPC) , and the international oil companies (IOCs) to back the policy, BusinessDay news reveals

Consequently, some analysts say that the development has led to waning interest of local producers of gas, particularly to the power sector, due to non-competitive nature of the pricing.

In line with the Federal Government’s aspiration to set domestic gas price at parity with export price, in order to boost gas supply for power generation and other domestic uses, it embarked on an upward review of domestic gas price which was the fourth in the series.

Alison-Madueke, then announced the review of gas price from $1.50mcf to $2.50/mcf for gas supply, and $0.80/mcf as transportation cost.

But, the power sector pays $1.50 for the gas it takes, which they say does not make the production of the commodity commercially viable.

Over the years, the International Oil Companies (IOCs) have however shown a preference to export the gas they produce in Nigeria to the international market because the domestic price does not guarantee returns on investment.

Frank Edozien , a former technical assistant to the minister of power, Chinedu Nebo, said that neither the NNPC nor the IOCs that are producing the gas have been formally advised on the purported upward review of the gas price.

Nigeria needs about four billion standard cubic feet of gas per day (scf/d) to service the power sector but it is currently producing only two billon standard cubic feet per day ( SCF/d) to meet her power needs.

Adding to the non-attractiveness of the gas to power framework the Nigeria government had also not implemented as well as it could, the domestic gas supply obligation, which had succeeded elsewhere in the world.
The domestic gas supply obligation is the amount of gas that companies that produce it must give to the Nigerian economy because they are producing Liquefied Natural Gas, which they sell to other countries.
“We have domestic gas obligations from all the gas producers in Nigeria. For example, this year the domestic gas obligation is 4.9 billion scf and we are getting 1.9 billion, which means we don’t even have the domestic gas obligation,” a former Minister of Power, Prof. Bart Nnaji, said at a conference in Lagos  June 2015.

Frank Edozien who spoke on “Tackling gas supply challenges to arrest power crisis in Nigeria” at a conference organised by the National Association of Energy Correspondents (NAEC) said another obstacle to gas supply is the non-passage of the Petroleum Industry Bill (PIB) which has stalled investments in the gas sector.

He said many of the gas producing companies sit on leases that are nearing their end of life, stressing that leases which were given over 20 years ago, have just about three years to expire.

According to him, no investors would want to make investments which require 15 years to recover in such leases, “We must do things that would ensure that the right environment for investment in the oil and gas industry is created”.

He suggested that it makes sense for the country to look into total gas portfolio to encourage diversification in the gas supply sources of the country. Nigeria, he said, is blessed with many marginal fields, as well as inland basins which hold natural gas resources that can support 20 megawatts power plants, adding that regulations and policies to encourage investors in this area are needed.

“If this is done, we would remove the stronghold single pipeline structure which are often faced with vandalism”


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