Nigeria is forecast to be more populous than the United States by 2045, but Africa’s most populous nation faces a low-energy future despite being home to the world’s 9th largest natural gas resource and experts point to some choke-points.
The pricing of gas is a major issue in Nigeria and central to electricity generation, availability, and retail prices. About one half of the current generation mix in Nigeria is thermal and this proportion is set to go up with a limitation on utilisation of hydro capacity. Further exploitation of hydro resources is difficult due to capital barriers, even though the Federal Government has plans that are still at a conceptual stage, to develop a large hydro facility at Mambilla. Gas is the logical choice for power generation in Nigeria, both in terms of gas availability and capital requirements.
The power sector consumes up to 70 percent of the domestic natural gas supply in Nigeria but the persistent liquidity crisis in the sector has negatively affected the country’s gas pricing framework, as a result, electricity generation and per-capita consumption suffer.
According to the World Bank’s data, per-capita electricity consumption in Nigeria is 145 kiloWatts per hour (KWh) compared to other neighbouring West African countries, such as Ghana and Ivory Coast, which are not endowed with such resources, with per-capita electricity consumption of 351 KWh and 275 KWh respectively.
The Central Bank of Nigeria’s annual reports show that substantial supply gap for electricity generation still exists in Nigeria. Total installed capacity for electricity generation has stagnated at 12,232 mega-Watts (MW) for close to a decade. The average generation capacity of electricity has been oscillating within the range of 2,623.1 MW/hr and 4, 000 MW/hr against the estimated demand of 10,000MW per day.
The key dilemma in Nigeria is that while lower gas prices are needed to encourage gas demand and support local industries and power generation, cost-reflective prices are needed to stimulate investment in gas infrastructure and assure supply sustainability.
“I believe that a market reflective pricing framework should come to full effect in Nigeria to incentivise investors into the gas sector,” Victor Okoronkwo, GMD of Aiteo E&P Company Ltd. “I also advocate that pricing for natural gas should reflect the increasing demand for the resource in Nigeria and capital requirement to actualise that.”
Full monetisation of Nigeria’s abundant natural gas through gas exports on the one hand and domestic gas utilisation in gas-to-power, gas-based industries such as fertilizer, methanol, other petrochemicals as well as transportation initiatives on another hand will further propel the country’s economic diversification agenda.
To reach this, experts say there are chasms the country has to deal with to make the gas to value chain both profitable and sustainable. Some of these include solving the immediate liquidity issues in the sector, the non-cost reflective electricity tariff, payment securitisation, infrastructure deficits across the value chain and foreign exchange volatility.
“The gas pricing and supply situation in Nigeria is very dicey because you cannot rob Peter to pay Paul. The gas companies have their operating standards and they cannot operate at a loss. The gas companies are also in business to make profits just like the power generation and distribution companies,” said Chijioke James, president of Electricity Consumers Association of Nigeria, in a recent interview with one of Nigeria’s national dailies.
