Gas rich Nigeria can’t find enough for its power plants

Nigeria may be sitting on over 600TCF of unproven gas reserves, some of the highest untapped volumes on the continent, but its power plants are struggling to find enough of the commodity to turn the lights on for millions of its people.

For several weeks, major cities around the country have witnessed worse-than-usual levels of power cuts. Outages have become more frequent and longer and the government says this is caused by lack of gas to power plants, broken infrastructure at some important plants and low levels of water at its hydro power plant.

In a press briefing organised by the Ministry of Power, on Thursday, at the State House Abuja, Abubakar Aliyu, minister of power said the ongoing maintenance work on some power plants around the country contributed to outages at a time where low water levels were witnessed in dams.

“We are having maintenance work in the Eastern Axis around Odukpani leading to reduced power supply from the usually reliable NDPHC Calabar Power Plant and we are having challenges at Okoloma Gas Station linked to Afam VI power plant,”

“We are working on NNPC and gas suppliers also to improve the pressure on the Western Axis that is precluding units from reaching optimum supply,” Aliyu said.

Peak generation on the national grid according to data from the Nigerian Electricity System Operator, a unit under the Transmission Company of Nigeria which manages the grid, was 4,582.20 MW on Wednesday.

Aliyu seeks to counter the narrative that power supply hovers around 4,000MW. Adding supply from the grid, captive and embedded power, he said supply in the country is around 8,000MW daily with installed capacity of 18,000MW, relying on a re-basing done by KPMG.

“These are not my figures; this was an industry study conducted by KPMG recently,” said Aliyu.

However, revising the figures does not translate to improved power supply for Nigerians anymore than better inflation figures hasn’t translated to improved standard of living.

Poor national supply from the grid, was what forced many industries to invest billions of naira in embedded generation. It is ironic that this would be counted as evidence of the success of Buhari’s power reforms by the minister.

Outages have become more frequent and longer and the government says this is caused by lack of gas to power plants, broken infrastructure at some important plants and low levels of water at its hydro power plant

The Federal Government is currently in talks with investors to buy some of the power plants lying fallow including the National Integrated Power Plants (NIPP) but the plan has suffered delays as investors struggle to justify the business case.

Analysts blame the situation with poor gas supply to power plants on several factors including locating gas plants away from sources and the government’s unwillingness to loosen its control over gas pricing.

In July 2021, the Federal Government cut gas prices from $2.50/MMBtu to $2.18/MMBtu after it adopted the recommendation of the technical ad hoc committee that involved organised labour to reduce the price of gas to power ostensibly to prevent a higher electricity tariff increase.

By lowering the price of natural gas, a critical feed stock in the production of electricity, the FG was counting on reducing the price at which it is sold to Power Generation companies (GenCos) and thereby affecting how electricity is priced.

Read also: Nigeria’s gas reserve hits 209.5 TCF – NMDPRA

The Federal Government placed on gas producers a domestic gas supply obligation which mandates them to sell a certain percentage of the gas they produce to legacy power plants at a controlled price regardless of their cost of production and business assumptions.

However, the idea is haunting the market.

“The gas supply industry must be anchored on a willing-seller willing-buyer framework to unlock further investments in gas exploration and delivery infrastructure. There should be a removal of price controls and concessional gas tariffs for sections of the market that are critical to achieving overall economic growth objectives,” said the Nigerian Gas Association, a trade group of gas producers in a recent communique.

For investors, controlled gas pricing removes the motivation for new investments even as projects already started suffer delays. It is having a negative impact on the business of gas producers supplying to the domestic market and partly accounts for the soaring price of cooking gas.

“Willing buyer, willing seller market is what the industry needs to get the industry to achieve the gas utilisation objective of the government,” said Chinwendu Enechi, an associate director at Andersen Tax.

Enechi said gas investment is not cheap so operators will want to sell gas at a price that will enable them to recover their cost.

“With the constant naira devaluation, it makes it more difficult for operators as cost is indexed in dollars,” said Enechi.

The Federal Government has declared a decade of gas from 2021 which aims to ramp up economic development leveraging gas. Industry operators are calling upon the government to match its policy goals with concrete actions.