Why gas supply to domestic market remains a challenge

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The supplier of gas in a market dominated by export is not likely to supply to a domestic market at a price less than Export Parity Price (EPP) because the marginal incremental cost of supply should not be less than the dominant portfolio price for export gas which is EPP.

Prices shall not discriminate between customers with similar characteristics, such as similar size or a similar consumption profile in the same sector.

Supporting this argument at the Society of Petroleum Engineers (SPE )Technical meeting recently, Timothy Okon, an assistant  to the  former minister of State for Petroleum, said the producer or supplier of gas is neutral to whether gas is supplied to the domestic or export market as long as it receives payment on an export parity basis.

He however stated that arising from the economic principles mentioned, Nigeria can restate the aggregate price equation so that Export Parity Price (EPP) can now become preferred pricing for anchoring the sector-based pricing framework.

The State’s objective is to include the Strategic Export Sector which it intends to incentivise with lower gas prices linked to end product pricing.

Investments in the export of fertilizers, petrochemicals can only be sustainable if higher pricing for the commercial sector is set through an adjustment mechanism to ensure that the EPP is the aggregate price which is guaranteed to the supplier.

According to him when the adjustment factor is multiplied by the EPP it now becomes the price for the commercial sector at specific prices.

To date, Nigeria’s domestic gas prices are kept at a regulated low level, which does not cover the cost required to fully develop its gas resources.  Of the 162 TCF reported gas reserves, about 75% will require the building of new infrastructure to deliver these gas Read More...