Gas-to-Power Market in Nigeria: A Regulatory and Economic Assessment

Abstract

Nigeria has been noted to hold the largest proven natural gas reserves in Africa as well as being one of the top ten LNG exporting countries globally for several years. It is however paradoxical that natural gas currently accounts for only about 6% of the nation’s total primary energy supply. Most of the projected capacity and efficiency gains of the power sector reforms initiated from 2001-2013 has been hinged on the secured, affordable and reliable gas supply to about 75% of power generation plants in Nigeria. Nevertheless, the outlook and trends depict fundamental regulatory and institutional misalignments between the domestic gas supply industry and the electric power market. The major challenges relate to the lack of or the inadequacy or timeliness of infrastructural investments, as well as the security and affordability of gas supply to power generators. These issues have directly or indirectly led to a gas-to-power supply ‘crises.’ Thus, this paper seeks to consider the nexus between the perennial shortages in gas supply for power generation and the perceived inefficiencies evident in relevant institutional and regulatory frameworks which are meant to guide and secure ex ante and ex post investments. In this regard, the economic and regulatory implications of the main trends and outlook for the gas-to-power value chain will be highlighted. The relevant principles of legal and economic regulation applicable to the Nigerian gas-to-power industry will be examined, with the backdrop of ‘how’ and ‘if’ such principles or regulatory approaches have worked efficiently in jurisdictions like the US and UK where liberalised or deregulated energy markets has been relatively entrenched.