BALANCING MARKET LIBERALIZATION AND REGULATION IN NIGERIA’S DOMESTIC GAS SECTOR

INTRODUCTION

In April 2025, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (“NMDPRA” or “Authority”) announced a downward revision of the Domestic Base Price (“DBP”) for natural gas to USD 2.13/MMBTU.[1] This represents a USD 0.29 reduction from the previous year’s price of USD 2.42/MMBTU.[2] The DBP for natural gas in Nigeria is the regulated minimum price at which natural gas can be sold to certain strategic sectors within the domestic market. While the DBP for the power sector is USD2.13/MMBTU, the base price for the “Commercial Sector”[3] is USD2.63/MMBTU. With respect to gas-based industries, the floor domestic price is USD0.9/MMBTU with a maximum price of USD2.13/MMBTU. Gas based industries include industries or projects that process or utilize ammonia, urea, methanol, polypropylene, low-sulfur diesel and others that the Authority may add by way of Regulations.[4]

While seemingly modest, this decision is emblematic of the delicate balancing act the Nigerian government continues to perform between liberalizing the domestic gas market and exercising regulatory oversight to ensure national economic and energy objectives are met.

As Nigeria continues to position natural gas as a transitional fuel and a cornerstone for industrial growth, pricing remains a central lever in unlocking its potential. This briefing note examines the implications of this pricing reform for the domestic market, industry stakeholders, and overall energy accessibility.

WHAT ARE THE PRINCIPLES THAT GUIDE DETERMINATION OF THE DOMESTIC BASE PRICE?

The following are the relevant principles that guide determination of the DBP:

a.    The price must be of a level to bring forward sufficient natural gas supplies for the domestic market voluntarily by the upstream producers.

b.    The price shall not be higher than the average similar natural gas prices in major emerging countries that are significant gas producers of natural gas.

c.     The lowest cost of gas supply based on the three-tier cost of supply framework.

d.    Market-related prices tied to international benchmarks.[5]

THE SIGNIFICANCE OF THE NEW DOMESTIC BASE PRICE

The reduction of the DBP in 2025 can be viewed through several lenses:

1. Support for Domestic Industry: A lower base price provides cost relief to power producers and industries, especially in a high-inflation environment where rising energy costs can cripple production and stunt economic growth.
2. Stimulating Demand: By making gas more affordable for downstream users, the reduction could boost consumption and accelerate the government’s broader “Gas to Power” and “Decade of Gas” initiatives,[6] helping Nigeria’s energy transition plan.
3. Investment Uncertainty: On the flip side, consistent price reductions—if not backed by cost-reflective pricing structures—may send mixed signals to upstream investors, who might question the commercial viability of supplying the domestic market versus more lucrative export opportunities.

COULD EXISTING GAS SALE AND PURCHASE AGREEMENTS BE SUBJECT TO RENEGOTIATION?

It is quite possible. At present, the price of gas supplied to the domestic market stands at about USD8/MMBTU. Therefore, a decrease of the base price to $2.13/MMBTU could prompt a downward revision of pricing under current Gas Sale and Purchase Agreements (“GSPAs”) for domestic gas supply. Nonetheless, any such adjustment would be hinged on the specific clauses within the respective GSPAs, especially those that relate to price escalation/reduction mechanisms.

IS A GAS PRODUCER THAT HAS FULFILLED ITS DOMESTIC GAS DELIVERY OBLIGATIONS PERMITTED TO SELL GAS ABOVE THE DOMESTIC BASE PRICE WITHIN THE DOMESTIC MARKET?

In our opinion, once a gas producer has fulfilled its Domestic Gas Delivery Obligations (“DGDO”), it may lawfully enter into bilateral agreements with wholesale customers based on a willing buyer–willing seller arrangement. This means that the parties are free to determine the gas price independently, without being subject to statutory pricing constraints. Moreover, wholesale customers in strategic sectors are entitled to negotiate supply agreements directly with gas producers, provided they are satisfied that such agreements meet their operational needs. In such cases, the wholesale customer is required to notify the NMDPRA of its decision to disengage from the domestic gas aggregator, and must also notify the Nigerian Upstream Petroleum Regulatory Commission of the identity of the relevant gas producer.[7]

WHAT IS THE IMPACT OF THE DOMESTIC BASE PRICE ON ELECTRICITY TARIFFS?

The power sector is reportedly the largest consumer of natural gas in Nigeria.[8] It would be reasonable to expect that a reduction in the applicable Domestic Base Price (DBP) of gas would lead to a corresponding decrease in electricity tariffs across the power sector value chain. However, this is not necessarily the case.

Natural gas is only one component of power generation costs. There is also a significant fixed-cost element associated with infrastructure. While a sustained reduction in the domestic gas price could, over time, contribute to marginal decreases in electricity costs, the immediate impact of the recent 29-cent reduction is likely to be minimal.

This is because infrastructure costs—which encompass equipment and other capital expenditures—account for a substantial portion of the total cost of power. Power generation costs are broadly divided into fixed and variable components: fixed costs relate to infrastructure and equipment, while variable costs include inputs such as gas. In some cases, the fixed costs may exceed the variable costs, further limiting the immediate impact of gas price reductions on electricity tariffs.

THE TENSION BETWEEN LIBERALIZATION AND REGULATION

The Petroleum Industry Act, 2021 (“PIA”) introduced sweeping reforms aimed at fostering transparency, competition, and private investment in Nigeria’s oil and gas sectors. A key pillar of this reform was market liberalization, which encourages market-based pricing and private sector participation.[9] However, liberalization in its pure form can often conflict with national priorities—especially in a developing economy like Nigeria, where energy affordability and accessibility are essential to industrial growth and poverty reduction.

To moderate these tensions, the NMDPRA employs tools such as the DGDO and the DBP, which are crafted to safeguard local gas supply and shield strategic sectors—particularly power generation, gas-based industries, and commercial enterprises—from excessive price volatility.[10]

WALKING THE TIGHTROPE: POLICY IMPLICATIONS

This price revision illustrates the Nigerian government’s ongoing effort to balance competing interests:

• On one hand, there is a need to liberalize the market to attract capital, ensure supply reliability, and promote competition.
• On the other, there is an obligation to regulate prices in a way that protects domestic industries and consumers from cost shocks.

The 2025 DBP revision appears to lean toward pro-consumer policy, likely influenced by inflationary pressures, rising electricity tariffs, and the fragile economic recovery. Yet, for this policy to be sustainable, the government must ensure that gas producers are not disincentivized, especially given the capital-intensive nature of gas development.

FINDING THE MIDDLE GROUND

To strike an effective balance, Nigeria should consider:

• Transparent and data-driven pricing frameworks that account for production costs, infrastructure investments, and international benchmarks.
• Gradual liberalization—introducing price bands or phased price deregulation rather than abrupt changes.
• Subsidy realignment, where necessary, targeting only the most vulnerable sectors.
• Legal and regulatory clarity, ensuring that long-term contracts and GSPAs account for pricing dynamics and escalation clauses.

CONCLUSION

The 2025 adjustment to the DBP is more than a simple numerical revision—it represents a strategic policy signal in Nigeria’s evolving gas market landscape. By reducing the base price to USD2.13/MMBTU, the Authority aims to stimulate greater domestic gas utilization while responding to the economic realities faced by producers, consumers, and industrial stakeholders. This move underscores Nigeria’s ongoing effort to create a pricing framework that is both attractive to investors and accessible to domestic industries, particularly power generation, manufacturing, and agriculture. It reflects a calculated step toward correcting long-standing inefficiencies in pricing that have stifled growth and deterred long-term investment in gas infrastructure.

At the heart of this adjustment is Nigeria’s broader ambition to position natural gas as both a transition fuel and a cornerstone of industrialization. However, this ambition requires a delicate balancing act between market liberalization and regulatory oversight. Over-regulation could discourage investment, while unchecked liberalization might undermine national energy security and equitable access. Walking this tightrope demands a policy approach that promotes competition, incentivizes infrastructure development, and ensures affordability for end-users. Ultimately, the success of the domestic gas sector—and its role in driving inclusive economic growth—hinges on Nigeria’s ability to craft a regulatory environment that aligns commercial viability with public interest.