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19 August 2024

Fuelling Nigeria's Future: A Roadmap For Domestic Gas Pricing And Regulation (Part 1)

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Tope Adebayo LP

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The Nigerian natural gas sector is a critical component of Nigeria's energy mix and has significant potential to drive economic growth and development. Nigeria is blessed with abundant gas resources
Nigeria Environment

Introduction

The Nigerian natural gas sector is a critical component of Nigeria's energy mix and has significant potential to drive economic growth and development. Nigeria is blessed with abundant gas resources, standing at 209.26 trillion cubic feet (TCF) of Associated and Non-Associated gas as of January 2024, with reserves reported at 102.59 TCF.1 In light of Nigeria's abundant gas resources, the Federal Government has prioritised the rapid advancement of the domestic gas sector as a key strategy to drive substantial GDP growth. While gas exports yield significant financial returns to the government in the form of tax revenue and equity dividends, the government acknowledges that there are broader strategic advantages to be gained from enhancing domestic utilization and value addition of natural gas. Hence, the Petroleum Industry Act (PIA) of 2021 appropriately mandates all lessees to adhere to the Domestic Gas Delivery Obligations (DGDO) before the 1st of March each year. These obligations are tailored to meet the domestic gas demand requirements specified by regulators, necessitating lessees to supply volumes of marketable natural gas (MNG) to the domestic market, either through the regulated or free market channels.

The escalation of gas prices in major global markets has incentivized increased exports, leading gas suppliers within the country to heavily prioritize liquefied natural gas (LNG) projects. Consequently, this has created a substantial shortage in gas availability for domestic use. Recognizing the pressing need to address this shortfall and establish a pricing mechanism that fosters the active involvement of all gas suppliers in ensuring a consistent gas supply to the domestic market, the Petroleum Industry Act (PIA) empowers the Nigerian Midstream and Downstream Petroleum Regulatory Authority ("the Authority")to formulate the Gas Pricing and Domestic Demand Regulations (GPDDR) 2023. The GPDDR aims to oversee the pricing of Marketable Natural Gas (MNG) within the strategic sectors of the nation and delineate the unregulated markets. It revoked the National Gas Supply Pricing Regulations, 2008 but preserved the gas pricing framework under the defunct regulations till April 1st, 2023. This two-part series will explore Nigeria's gas pricing framework and the Authority oversight of both regulated and unregulated gas pricing in strategic sectors. Moreover, it will elucidate the principles guiding the Domestic Base Price (DBP) of Marketable Natural Gas (MNG), explore compliance requirements for gas distribution licenses, and outline the criteria for strategic sectors to achieve a 'Free Market Status'.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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