Three hurdles halting Nigeria’s gas to power dream – NRGI

Nigeria’s ambition to leverage its vast natural gas reserves to deliver reliable electricity might remain out of reach unless deep structural flaws that are preventing the power sector from performing optimally are tackled, a new energy report has shown.

The report titled ‘Nigeria’s Gas-to-Power Ambitions: Limits, Opportunities and Alternatives’, launched at the Natural Resource Governance Institute (NRGI) dialogue on Monday, highlights that while natural gas will continue to play a critical role in the country’s energy mix, increasing gas production alone will not translate into more electricity unless long standing commercial, infrastructure and financial bottlenecks across the electricity value chain are resolved.

“Gas power’s systemic problems have no easy fixes,” the report noted, underscoring that more than two decades after power sector reforms began, Nigeria has yet to build a functioning market capable of delivering reliable and affordable electricity.

Instead, the sector continues to rely heavily on government subsidies, bailouts and donor financing to remain afloat.

The NRGI report disclosed that with annual subsidy costs approaching N2 trillion, accumulated liabilities and periodic bailout programmes now run into trillions of naira. International lenders, including the World Bank, have also provided financial support, but these interventions have not addressed the sector’s deeper technical and commercial challenges.

It identifies three systemic barriers preventing Nigeria from fully harnessing gas for electricity generation.

Read also: Why Nigeria’s Electricity Act 2023 matters

GenCos cannot buy enough gas

The first challenge lies in securing adequate gas supplies for power generation.

Although Nigeria holds one of Africa’s largest proven gas reserves of 2.71 trillion cubic feet as of 2025, many generation companies (GenCos) struggle to procure sufficient gas because regulated domestic gas prices remain too low to encourage investment in production and supply.

Gas producers often find other markets more commercially attractive, reducing incentives to supply power plants. This points to inadequate gas processing facilities and transportation infrastructure, and to the need for new investments to expand pipelines and processing capacity.

However, attracting private capital has proven difficult because investors remain concerned about weak returns and broader liquidity challenges within the electricity market.

Pipeline vandalism also continues to disrupt supplies to power plants, forcing generating units to operate below capacity or shut down entirely.

While enhanced security measures and compensation programmes have been proposed, the report says such interventions have historically produced only temporary improvements.

GenCos cannot dispatch power

Even when power plants can generate electricity, much of it cannot be transmitted due to weaknesses in Nigeria’s transmission network.

The report identifies the fragile national grid and recurring system collapses as another major obstacle to expanding gas-fired electricity.

It recommends rehabilitating and modernising transmission infrastructure but notes that financing such investments remains a major hurdle as the government lacks the fiscal capacity to fund the required upgrades, while private investors have shown limited interest because of persistent liquidity problems across the power sector.

GenCos are not paid for dispatched power

The biggest structural weakness identified in the report is the sector’s chronic debt crisis.

DisCos continue to struggle with poor billing collection, widespread metering gaps and commercial losses, preventing them from recovering enough revenue to pay for the electricity they purchase.

The report says customer tariffs remain below cost-reflective levels, leaving the government to bridge the financing gap through subsidies. However, these subsidies have become increasingly difficult to sustain amid fiscal pressures.

Raising tariffs to reflect actual costs could improve the sector’s financial health, the report says, but such increases remain politically unlikely.

Consequently, the Nigerian Bulk Electricity Trading Company (NBET), which serves as the intermediary buyer of electricity from GenCos, frequently lacks sufficient funds to settle invoices in full.

This has resulted in mounting debts owed to power producers, weakening their ability to maintain existing plants or invest in additional capacity.

Although successive governments have introduced bailout packages to ease liquidity pressures, the report argues these interventions merely postpone the problem rather than solving it. “Periodic bailouts do not solve the problem,” the report notes, warning that new debts accumulate almost as quickly as old ones are settled.

A market problem, not just a gas problem

The report emphasises that Nigeria’s gas-to-power ambitions will remain constrained unless all three bottlenecks are tackled simultaneously.

Simply deregulating gas prices, building more pipelines or increasing domestic gas production will not deliver reliable electricity if transmission constraints persist and power producers continue to operate in a market where they are not paid in full.

The report affirms that the country’s electricity crisis is fundamentally an ecosystem design problem rather than a resource problem.

Without comprehensive reforms across gas supply, transmission and market liquidity, the report warns that the country’s long-standing ambition to use its gas wealth to deliver reliable electricity is likely to remain far-fetched.