Gas price increase for power generation deepens subsidy concerns in Nigeria
Nigeria’s electricity market is facing renewed financial pressure following a gas price increase for power generation, a move that could significantly widen the country’s already strained subsidy obligations.
The adjustment, announced by the Nigerian Midstream and Downstream Petroleum Regulatory Authority, sets a new domestic base price of $2.18 per million British thermal units for gas supplied to power generation companies. The new rate, which takes effect from April 1, 2026, represents a marginal increase from the previous $2.13/MMBtu benchmark in 2025.
While the increment appears modest at just over two per cent, industry analysts warn that its ripple effects could be substantial, particularly in a sector already grappling with liquidity constraints, legacy debts, and supply instability.
Rising costs and subsidy burden
The gas price increase for power generation comes at a time when the Federal Government is struggling to manage mounting subsidy obligations in the electricity sector. Data indicates that only a fraction of the total subsidy owed to power generation companies was settled in 2025, highlighting persistent funding gaps.
With tariffs still largely below cost-reflective levels, any increase in input costs—especially gas, which accounts for the bulk of power generation—translates directly into higher subsidy requirements. Nigeria generates over 75 per cent of its electricity from gas-fired plants, making the pricing adjustment particularly consequential.
Experts say the new pricing structure could intensify fiscal pressure unless accompanied by reforms that improve revenue collection and cost recovery across the electricity value chain.
Pricing aligned with market realities
In its official communication, the Nigerian Midstream and Downstream Petroleum Regulatory Authority stated that the revised pricing reflects prevailing market conditions and aligns with provisions of the Petroleum Industry Act.
The regulator explained that the adjustment is designed to strike a balance between ensuring sufficient gas supply for domestic use and maintaining an attractive investment climate for upstream producers.
Under the new framework, the $2.18/MMBtu rate serves as the benchmark for gas supplied to the power sector, while commercial users will pay a higher wholesale price. Gas-based industries such as fertiliser and petrochemical producers will operate under a flexible pricing band tied to the domestic base price.
The authority emphasised that a market-driven pricing regime is critical to incentivising production and addressing supply shortages that have long plagued Nigeria’s gas-to-power ecosystem.
Supply constraints persist
Despite holding one of Africa’s largest natural gas reserves, Nigeria continues to face supply challenges that undermine electricity generation.
Infrastructure deficits, pipeline disruptions, and competing export demand have all contributed to inconsistent gas supply to domestic power plants.
The gas price increase for power generation also reflects ongoing concerns about supply prioritisation. Gas producers often favour export markets, where prices are significantly higher, leaving domestic power plants with limited and less reliable supply.
Industry stakeholders note that without addressing these structural issues, pricing reforms alone may not resolve the underlying challenges in the sector.
Power sector liquidity under strain
The Minister of Power, Adebayo Adelabu, has previously highlighted the financial distress within the electricity market, pointing to low payment rates and mounting debts owed to gas suppliers.
According to him, many power plants receive only a portion of the payments due for electricity generated, further discouraging gas producers from prioritising domestic supply. The situation is compounded by legacy debts running into trillions of naira, as well as the absence of firm gas supply agreements for most generation companies.
Out of dozens of operational power plants, only a handful reportedly have guaranteed gas supply contracts, with others relying on less predictable “best endeavour” arrangements.
Implications for consumers and investors
Although the immediate impact of the gas price increase for power generation may not translate directly into higher electricity tariffs for consumers, analysts warn that the long-term implications could include tariff adjustments or increased government borrowing to sustain subsidies.
For investors, the pricing shift sends mixed signals. On one hand, it indicates a commitment to market-based reforms and improved returns for gas suppliers. On the other, persistent liquidity challenges and policy uncertainties continue to pose risks.
Stakeholders argue that for Nigeria to fully unlock its gas-to-power potential, reforms must go beyond pricing to include infrastructure development, improved contract enforcement, and enhanced payment discipline across the value chain.
Balancing reform with energy security
The Federal Government’s broader objective remains to stabilise the power sector while ensuring energy security and economic growth. However, the gas price increase for power generation underscores the delicate balance between fiscal sustainability and affordability.
As Nigeria continues to transition towards a more market-driven energy framework, policymakers face the challenge of managing short-term cost pressures while implementing long-term structural reforms.
Without coordinated action, experts caution that incremental pricing adjustments could deepen existing inefficiencies, leaving both consumers and industry players to bear the burden of an underperforming power sector.
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