Nigeria’s power sector is coming under renewed strain as widening price gaps between domestic gas supply and lucrative export markets push producers to prioritise foreign buyers, raising fresh concerns over energy security and sector sustainability.
Gas supplied to power generation companies (Gencos) under the Domestic Gas Obligation (DGO) currently sells for about $2.50 per mscf, but rises to roughly $3.80 when transportation costs are included, following the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA)’s recently approved tariff of $1.13 per mscf.
By contrast, industrial users pay between $6 and $8, while export offers—driven by global energy disruptions linked to tensions in the Middle East—have climbed as high as $12 per mscf.
This creates a stark price differential of about $8.20 between gas supplied to power plants and export markets, a gap analysts say is distorting incentives across the value chain.
Kunle Olubiyo, President of the Nigeria Consumer Protection Network, warned that the disparity is encouraging producers to divert supply away from the domestic power sector.
“With export markets offering up to $12, compared to about $3.80 for power plants, the commercial incentive clearly tilts away from domestic electricity generation,” he said.
Mounting debt and liquidity crisis
The pricing imbalance is compounding an already severe liquidity crunch in the electricity market. Generation companies are projecting subsidy and payment shortfalls to hit N12 trillion by the end of 2026, driven largely by monthly deficits estimated at N220 billion.
The Federal Government, through the Nigerian Bulk Electricity Trading Plc (NBET), has attempted to ease the burden by raising N501 billion in bonds, with plans to secure an additional N700 billion.
However, industry sources note that the initial tranche has yet to be disbursed to Gencos, worsening cash flow constraints.
Data from a March 2026 power sector engagement shows that legacy gas-to-power debts remain a major concern, with hundreds of billions of naira still outstanding despite partial settlement mechanisms, including bonds and royalty deductions.
The persistent shortfall, stakeholders say, has rendered the upstream generation segment largely unbankable, deterring both local and foreign investment.
“No serious investor will commit funds under the current structure,” Olubiyo said, citing mounting arrears and uncertain revenue flows.
Policy ambition meets market reality
The crisis comes at a time when the Federal Government is pushing its “Decade of Gas” initiative, aimed at transforming Nigeria into a gas-powered economy by 2030.
The programme emphasises balancing domestic supply with export growth, while also addressing gas-to-power debts and ensuring cost-reflective pricing.
However, recent data indicates that export volumes are rising alongside domestic supply, intensifying competition for available gas. In 2025, export gas increased to 2.6 billion cubic feet per day, compared to 2.1 bcfd for domestic use.
Industry experts warn that without deliberate policy safeguards, export-driven demand could crowd out supply to the power sector.
Structural weaknesses deepen risks
Beyond pricing challenges, longstanding structural inefficiencies continue to undermine the electricity value chain.
Olubiyo pointed to weak market discipline, noting that distribution companies operate without enforceable letters of credit, exposing the sector to “100 per cent market risk volatility.”
He also highlighted persistent gaps in metering, billing transparency, and revenue collection, alongside allegations that critical grid modernisation projects—including telemetry and automated metering systems—have been compromised by vested interests.
For decades, Nigeria has struggled to deploy Supervisory Control and Data Acquisition (SCADA) systems needed for real-time grid management. The absence of such infrastructure, experts say, limits data integrity, encourages market manipulation, and weakens system reliability.
The sector is burdened by aging infrastructure, inadequate spinning reserves, and insufficient black-start capabilities—factors that continue to contribute to recurring grid instability.
While domestic gas prices remain deliberately low to support electricity affordability—currently at their lowest level in a decade at about $2.13 per mscf.
Analysts argue that the policy may no longer be sustainable in a global market where prices are rising.
The challenge, they say, is finding a balance between protecting local power generation and maintaining incentives for gas producers.
Without urgent reforms, stakeholders warn that Nigeria risks a deeper energy crisis, where export-driven gains come at the expense of domestic electricity supply.
“The current structure is not just fragile—it is fundamentally misaligned,” adding that, “Unless pricing, governance, and liquidity issues are addressed, the power sector will remain trapped in a cycle of underperformance.”
