Nigerian Gas Shortages Stalling Start of Electricity Market

Persistent gas shortages at power stations in Nigeria, Africa’s second-biggest economy, cut electricity output by half, delaying the start of a market-driven industry due this month, an energy regulator said.

Nigeria is producing 2,000 megawatts, or half its total capacity, due to gas shortages caused by sabotage of pipelines, Sam Amadi, chairman of the Nigerian Electricity Regulatory Commission, which oversees the power industry, said in an interview in the capital, Abuja, yesterday. One megawatt is enough to provide energy to 2,000 average European homes.

“That’s a serious challenge for a country that has to get all the power it can to the grid to improve the performance of the new market,” Amadi said. “Part of the problem is also making gas supply to power more competitive through proper contractual framework and incentivizing the producers.”

Blackouts are a daily occurrence in Africa’s most populous country where demand for electricity is more than double the industry’s 4,000-megawatt capacity. At least 70 percent of Nigeria’s total power output is supplied by gas-fired plants, according to the Ministry of Power.

The shortfall is also affecting Ghana, which is starting to ration power this week after low natural gas supply from Nigeria. Ghana is receiving about 40 million cubic feet of gas per day from the West African Gas Pipeline, instead of a contracted 120 million, according to the energy and petroleum ministry.

Supply Talks

Ghana’s Energy Minister Emmanuel Armah-Kofi Buah will be traveling to Nigeria to discuss the possibility of increasing the gas supply, the ministry said in a statement yesterday.

Current gas shortages are a “short-term challenge” and output to power stations will be boosted by at least 400 million standard cubic feet a day before the end of the year, David Ige, group executive director of gas and power at the state-owned Nigerian National Petroleum Corp., said on the sidelines of a conference today in Abuja.

“The power sector investors understandably are jittery right now, there’s no doubt about it,” he said. “But the challenge is very short term because what you need to bear in mind is that the fundamentals are there, the pipelines are being built and the supply is being developed as well.”

Nigerian authorities in September finalized the sale of 60 percent stakes in 15 power distribution and generation companies spun out of the former state-owned monopoly, Power Holding Co. of Nigeria. New owners include Siemens AG, Korea Electric Power Corp. and Forte Oil Plc, ending five decades of government control of the market.

Stable Legislation

NERC, as the electricity regulator is known, licenses power-generating and distribution companies, and regulates prices and transactions among companies. It guarantees the stability of legislation and has taken measures to reduce business risk and improve profits for investors, Amadi said in a Feb. 13 interview.

An interim power market will begin next week and last until gas shortages end, probably before the second half of 2014, Amadi said. The following five- to 10-year transitional phase will see the Nigerian Bulk Electricity Trading Plc, which acts as a clearing house for power-generating and distribution companies, guarantee all purchases.

“The transitional phase will be declared when the market is ready,” Amadi said. “We’re not fixated on a date, we want to ensure that the market moves to 100 percent performance.”

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