Nigeria’s subsidy-related fiscal burden in the power sector is expected to climb further as the Federal Government, through the Nigerian Midstream and Downstream Petroleum Regulatory Authority, has increased the price of natural gas for power generation companies to $2.18 per million British thermal units.
The NMDPRA disclosed this in a public announcement signed by the authority’s Chief Executive, Saidu Mohammed, and obtained by our correspondent on Tuesday in Abuja.
The new pricing, effective from April 1, 2026, signals a recalibration of Nigeria’s gas market at a time when the power sector is already struggling with supply shortages, mounting debts, and liquidity challenges.
The new price is slightly higher than the 2025 rate of $2.13 per MMBtu for power generation companies, representing a marginal increase of five cents, or about 2.35 per cent.
This comes as the Federal Government paid N71.49bn out of the N1.92tn electricity subsidy owed to power generation companies in 2025, representing just 3.7 per cent of the total sum.
With the new marginal increase in gas prices, subsidy costs are set to rise further, compounding the financial woes of power generation companies unless there is a policy shift.
The adjustment also raises concerns that gas-linked subsidies and obligations across the electricity value chain could widen, given the sector’s heavy reliance on gas-fired generation. Nigeria generates over 75 per cent of its electricity from gas, making pricing decisions directly consequential for power costs and government subsidy exposure.
In the announcement, the regulator said the new price was determined in line with the Petroleum Industry Act, market realities, and existing gas pricing regulations.
“Taking into cognisance the provisions of the PIA, market realities, as well as the gazetted Gas Pricing and Domestic Demand Regulations, the NMDPRA hereby establishes the new Domestic Base Price as $2.18/MMBtu and wholesale prices of natural gas in the strategic sector, effective 1st April 2026,” the statement read.
Under the new regime, gas supplied to the power sector will be priced at $2.18 per MMBtu, serving as the benchmark Domestic Base Price. The regulator did not specify a separate floor or ceiling band for this category, effectively pegging supply to the base rate.
For commercial users, the authority fixed the wholesale price at $2.68 per MMBtu, while gas-based industries—including ammonia, urea, methanol, polypropylene, and low sulphur diesel producers—will operate under a more flexible pricing structure.
The regulator set a floor price of $0.9 per MMBtu, with the final price determined using a formula in the Fourth Schedule of the Petroleum Industry Act, benchmarked against the Domestic Base Price of $2.18/MMBtu.
The authority said the pricing structure is aimed at ensuring competitiveness across sectors while guaranteeing adequate supply to the domestic market.
“We thank and appreciate all investors in the Domestic Gas Market Sector and assure you of the Authority’s commitment to ensuring transparency, deepening of the domestic gas market, and creating an investor-friendly business environment, as we dutifully implement all the provisions of the regulatory framework,” the regulator added.
However, the development comes at a delicate time for the power sector, where stakeholders warn that pricing reforms could worsen liquidity pressures if not matched with improved payment discipline and supply stability.
The review is expected to indirectly increase subsidy obligations within the electricity market, where tariffs remain below cost-reflective levels for several consumer bands. The regulator said the framework is anchored on ensuring sufficient domestic supply while maintaining investor confidence.
“The price must be at a level to bring forward sufficient natural gas supplies for the domestic market voluntarily by upstream producers,” the announcement stated.
The development also aligns with recent concerns raised by the Minister of Power, Adebayo Adelabu, who warned that Nigeria’s gas supply crisis is worsening due to pricing distortions and payment challenges.
He explained that gas suppliers often prioritise export markets due to better returns compared to domestic power plants and highlighted ongoing liquidity constraints.
Adelabu added, “There is a lot of pressure on gas exports from Nigeria…Today, the power plants are paying the lowest price for local supplies. These gas companies have the option of selling it as exports at more than double what local plants are paying.
“Beyond that, when they supply to the power plants, they are not getting paid. They are only getting a proportion of what the sector pays, which today is about 35 per cent to 40 per cent. This is even outside the legacy debt of N4 trillion. Out of about 32 power plants that we have today, only two have firm gas supply contracts. Others operate on a best endeavour basis, after satisfying export and industrial customers.”
Nigeria’s gas-to-power framework remains central to its electricity strategy but is constrained by supply shortages, infrastructure gaps, and pricing disputes. Despite holding one of Africa’s largest gas reserves, domestic utilisation lags due to weak investment signals and export-driven incentives.
The Petroleum Industry Act introduced a market-based pricing system intended to correct distortions and attract investment, but implementation has remained complex due to competing economic pressures. Recent pipeline constraints and maintenance issues have further tightened supply to power plants.
The latest price adjustment by the NMDPRA underscores ongoing efforts to balance fiscal realities, investor expectations, and energy security. However, with subsidy exposure unresolved and gas supply shortages persisting, stakeholders warn that Nigeria may face another phase of cost pressures that could deepen fiscal risks if structural reforms do not keep pace with pricing reforms.
