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NERC seeks firm commitment from gas producers with $2.50/mcf revised price

By BusinessNews Staff on August 11, 2014

The Nigerian Electricity Regulatory Commission (NERC) has said that it expects gas producers in Nigeria to improve their supply of gas to thermal power plants in the country following its recent approval of a revised price regime for the gas-to-power sector.

NERC also expressed its expectation of improved electricity generation profile from the generation companies, stating that the gas market which remains somewhat out of its control can now leverage on the new price review to boost electricity production in Nigeria.

The Chairman of NERC, Dr. Sam Amadi, who spoke from the background of a recent inter-agency press briefing on the status of the gas-to-power sector by the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, Minister of Power, Prof. Chinedu Nebo, and Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, stated that NERC will from the recent development, seek for compact gas supply commitment from gas producers.

Alison-Madueke had stated at the press briefing in Abuja that following the challenges of adequate gas supply, successes had been recorded in sorting out outstanding issues around current gas pricing regime as well as fast-tracking additional development of gas supply sources which will in the short term result to an addition of at least 370 metric million cubic feet per day (mmscf/d) of gas to the power plants.

She said that as part of new intervention measures initiated by government to address the challenges, the CBN with the Bankers’ Committee have agreed to setup a Special Purpose Vehicle (SPV) to offset about N25 billion outstanding legacy gas related debts owed to gas suppliers by defunct Power Holding Company of Nigeria (PHCN).

The CBN, Alison-Madueke noted, will also work out further financial aids to the power sector while NERC as part of its mandate to give confidence to stakeholders in the gas sector, regarding their willingness to supply gas to power plants, approved a new gas-to-power pricing benchmark from what used to be about $1.50 per million cubic feet per day (mcf) of gas supplied to $2.50/mcf and $0.80/mcf as transportation costs for new capacity.

The benchmark as disclosed reflects a realistic gas market parity which will equally rise with the United States annual inflation statistics. In addition to the new gas-to-power price, Alison-Madueke said that NERC would now require from suppliers, firm commitments that they will supply the agreed quantities of gas to generation companies as along as payment terms are met.
But at a recent meeting in Abuja, Amadi, who buttressed Alison-Madueke’s stance on firm gas supply commitment from producers, said: “I think we should understand that why we don’t have enough power today is because we don’t have enough gas supplied to power plants.”

“If an increase in the price of gas makes gas more available and if you listen to the minister of petroleum, she made it clear that NERC is demanding firm commitment on more quantity.
What that means is that we can grow more capacity and with more capacity the average cost of power will be lower and consumers will have a better deal,” he said.

Amadi further explained that: “The point is we want to have gas price at a commercially viable pricing. What stops us from hitting very reasonable level of capacity growth is gas and NERC has done everything it ought to do; we have delivered on all our commitments but we don’t control gas but now the working group’s feedback is that if we want to have enough gas, then we have to make it commercially viable.

And as a regulator who cares that consumers have adequate and reliable electricity, we have to make sure that there is enough gas and so the so called increase in gas price does not suggest that there is increase in electricity price. But we are actually making gas more available by incentivising the downstream so that there will be more investments for more molecules to come in.”
He stated that the new gas price review was not arbitrarily done but through due consideration and that the commission will diligently pass the cost across board.
“For instance, some people supply gas in Lagos at $4-$8 per mcf, the netback value of gas at the export market in Europe could be around $14 and so what we have done is to look at the mode and review it and we thought that $2.50 is a good enough price for investment to come and $0.80 posted to NGC to carry gas to destinations.

We are saying that we want to see the financial model which NNPC has told us was prepared by Stanbic but the $0.80 is contingent on NERC’s satisfaction with the financial model because we do not want manipulation and unwholesome profit. But we want reasonable profit that is why we want to see the financial model before we pass the cost,” he noted.

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