‘Why gas pricing is critical to power sector growth’

The growth of the power sector may remain elusive, if the Federal Government fails to address the challenges facing gas pricing in Nigeria, the power distribution companies have said.

According to the utility companies, since the cost of gas remains one of the key determinants of the electricity tariff in Nigeria, it is high time the government found a way to reduce the price for the sustainability of the power sector.

Recall that the Federal Government, through the Ministry of Petroleum Resources, had disclosed plans to review the prices of gas consumed across the country.

Minister of State for Petroleum Resources, Timipre Sylva, had earlier said the move would help deepen the use of Liquefied Petroleum Gas, popularly called cooking gas, as well as Compressed Natural Gas

But Executive Director, Research and Advocacy, Association of Nigerian Electricity Distributors (ANED), Sunday Oduntan, said natural gas supplied for electricity generation needed price review.

“Most of Nigeria’s power generating plants are thermal plants. They use gas as their fuel and as long as the price of gas is high, the cost of generation – and the eventual tariff to the end user will also be high.

“At present, the energy generation mix is around 80 per cent thermal and 20 per cent hydro. More so, the cost of gas is also affected by fluctuations in forex. So while the cost of gas (and generation) will rise due to forex fluctuations, the tariff is fixed in Naira and may not account for this difference especially because of the absence of a commitment to adhering to periodic tariff reviews.

“As we all know, today, the price of gas for local power production is a little over three dollars for one million British Thermal Units (mmbtu). Meanwhile, in this same country, the cost at which LNG exports gas is less than half the same amount. If you also consider that some of these IOCs are still flaring this much-needed gas into the atmosphere, you will realise that there are many options available to the government to intervene in the quest to make electricity more affordable,” he stated.

Oduntan noted that the cost of gas presently accounts for almost 70 per cent of all the input the plants utilise to generate power, stressing that unless the country considers solutions from gas perspective, making headway in providing cheap electricity may remain elusive.

According to him, the absence of a market-reflective tariff has continued to bedevil the sector and is presently responsible for most of the N1.5tn liquidity gap that has been threatening to derail the power sector reforms for years.

Oduntan added that with effect from July 1, a new performance driven increased tariff structure would set for implementation as a step towards narrowing the liquidity gap.