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Hike in electricity tariffs likely as NMDPRA announces increase in natural gas prices

The Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA) has announced an increase in the price of natural gas for strategic sectors, potentially affecting electricity tariffs and the energy sector as a whole.

In a statement signed by its Chief Executive, Farouk Ahmed, the NMDPRA revealed a new tariff regime for gas, with the price for power Generation Companies (Gencos) rising to $2.42 per cubic feet from the previous rate of $2.18 since 2021. Additionally, the price of commercial gas has increased from $2.50 to $2.92 per cubic feet.

This adjustment has significant implications for the electricity sector, potentially rendering the Multi-Year Tariff Order (MYTO) calculated for Distribution Companies (Discos) by the Nigerian Electricity Regulatory Commission (NERC) in January obsolete. The MYTO calculations were previously based on the $2.18 rate per cubic feet of gas sold to Gencos.

Farouk Ahmed referenced the Petroleum Industry Act (PIA) 2021 as the framework guiding the determination of market-based pricing for the domestic gas market. According to Section 167 and the Third and Fourth Schedule of the PIA 2021, the NMDPRA is mandated to determine the Domestic Base Price (DBP) and wholesale prices of natural gas supplied to strategic sectors.

The NMDPRA stated that the increase was determined after consultations with stakeholders and in compliance with the provisions of the PIA and gazetted Gas Pricing and Domestic Demand Regulations. The Year 2024 Domestic Base Price is established at $2.42 / MMBTU, with wholesale prices set at $2.92 for commercial gas.

Part of the statement further read: “The Domestic Base Price at the marketable gas delivery point under Section 167 (1) and other provisions of the PIA shall be determined based on regulations which incorporate among such other matters, the following principles: 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; 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; lowest cost of gas supply based on three tier cost of supply framework; market related prices tied to International Benchmarks.

“Accordingly, after due consultation with key stakeholders and taking into cognisance the provisions of the PIA, as well as the gazetted Gas Pricing and Domestic Demand Regulations, the NMDPRA hereby establishes the Year 2024 Domestic Base Price as $2.42 / MMBTU and wholesale prices of natural gas in the strategic sector, and $2.92 for commercial gas,” the statement said.

This move underscores efforts to align domestic gas pricing with international benchmarks and ensure sufficient natural gas supplies for the domestic market. However, it may lead to adjustments in electricity tariffs and impact various sectors reliant on natural gas for their operations.

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