Electricity tariff hike looms as FG raises gas price

The price of natural gas for power generating firms has increased to $2.42 per metric million British thermal unit (mmbtu) from the previous rate of $2.18mmbtu, according to an announcement made by the Federal Government on Monday.

Gas-fired thermal power facilities in Nigeria produce more than 70% of the country's electricity. The Nigerian Electricity Regulatory Commission may therefore raise the rate that electricity users must pay after conducting a new tariff review as a result of the rising cost of the product.

In a statement on Monday, the Federal Government of Nigeria's Midstream and Downstream Petroleum Regulatory Authority revealed the new domestic base price and wholesale rates for natural gas in 2024.

The price of commercial petrol was also set by the NMDPRA at $2.92mmbtu, up from $2.5mmbtu. Farouk Ahmed, the CEO of the NMDPRA, signed the notification.

It should be noted that the Multi-Year Tariff Order, which was issued by NERC in January 2024 for the distribution businesses of electricity, was computed using the historical price of natural gas.

Given that gas is a primary component in the production of electricity, there is a strong likelihood that power tariffs will be reviewed upward based on the most recent pricing of the commodity.

Gas producers, encompassing both domestic and foreign oil and gas businesses, have consistently advocated for an increase in the product's price, highlighting the fact that doing so would serve as an inducement to increase output.

The Petroleum Industry Act 2021, which was approved by the President on August 16, 2021, and gazetted in August of the same year, according to Ahmed's declaration on Monday, established a precise regulatory framework for determining a market-based pricing regime for the domestic gas market.

According to the head of NMDPRA, the most recent action was also carried out in accordance with section 167, the third and fourth schedules of the PIA 2021, which required the regulator to ascertain the marketable wholesale price of natural gas delivered to the strategic sectors as well as the Domestic Base Price.

In line with Sector 167(1) and other PIA requirements, he stated, "The DBP at the marketable gas delivery point will be established by regulations that take into account, among other things, 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."
(a) The price cannot surpass the mean of comparable natural gas prices in prominent developing nations that are substantial producers of natural gas.

(c) The gas supply with the lowest cost, determined by a three-tier cost of supply structure. (d) Prices influenced by the market and linked to global benchmarks.

Following stakeholder engagements and in accordance with the PIA and Gas Pricing Regulations, the NMDPRA underlined that it had determined the “2024 Domestic Base Price at $2.42/MMBTU and wholesale prices for natural gas in strategic sectors”.