Published 26 August 2016
(Minor revisions 08/11/2016) For countries with large proven gas resources like Nigeria, the regulation and allocation of gas supply as exports via LNG and domestic supply to highly gas-dependent power sector involves crucial economic, regulatory and policy trade-offs. These trade-offs largely border on the adoption of certain principles of economic regulation and the efficiency of the overarching governance framework for gas supply to the power market. In such 'Nigerian-like' contexts and regulatory environment, gas producers typically favour supplying gas for LNG exports or through pipelines to markets where there are preferable contract terms and appropriate levels of regulatory certainties and guaranteed reasonable returns on investments. However, from a government perspective, the trade-offs are more complex and involves striking an efficient balance between maintaining investment incentives for producers, maximizing state revenues and ensuring the much needed energy supply increases while reducing pass-through costs to final consumers in the power market. In the Nigerian scenario, this basically entails matching the gains of the privatisation and liberalisation of the electricity supply industry with an effective and efficient regulatory framework for domestic gas supply.
The lingering 'energy supply crisis' in Nigeria has been largely blamed on inadequacy of gas supply to about 85% of installed electricity generation capacity. Although there are other issues such as the non-reliability and insecurity with the energy transmission networks, the gas supply dilemma largely relates to the inadequacy or timeliness of investments in critical infrastructure. This is also exacerbated by several years of regulatory uncertainties and opacity. Thus, this paper seeks to consider the nexus between the perennial shortages in gas supply for power generation and the apparent inefficiencies in the relevant regulatory approaches in the Nigerian gas-to-power value chain. This is carried out 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.
This paper will be part of the OGEL special issue on "Oil and Gas Law and Policy in West Africa". More information can be found here https://www.ogel.org/news.asp?key=506