The Domestic Gas Market
Despite sitting atop Africa's largest gas reserves, Nigeria has struggled to build a robust domestic gas market. Gas-fired power plants lack reliable fuel supply, industries compete for limited volumes, and millions of households still cook with firewood and kerosene. This unit examines the policies, projects, and persistent challenges shaping Nigeria's domestic gas economy.
Domestic Gas Supply Chain
The National Gas Master Plan (2008)
The Nigerian Gas Master Plan (NGMP), approved by the Federal Executive Council in 2008, was the country's first comprehensive policy framework for the development of the domestic gas sector. The plan established a clear hierarchy of gas allocation priorities: first to strategic domestic uses (power generation and industrial feedstock), then to commercial exports (LNG), and finally to other markets.
The NGMP introduced key institutional concepts including the Gas Aggregation Company of Nigeria (GASCN), which was tasked with managing the allocation of gas to domestic buyers and ensuring orderly market development. It also established three strategic gas infrastructure clusters:
Western Cluster
Centred on Lagos and the South-West, this cluster targets gas supply for power generation, industrial use, and residential LPG distribution. The Escravos-Lagos Pipeline System (ELPS) and the West African Gas Pipeline (WAGP) are the primary supply arteries.
Eastern Cluster
Focused on the Niger Delta and South-East, where most gas production occurs. This cluster supplies NLNG on Bonny Island, the Onne industrial zone, fertiliser plants in Port Harcourt, and power stations in the region.
Northern Cluster
The least developed cluster, envisioned to bring gas to northern Nigeria through the Ajaokuta-Kaduna-Kano (AKK) gas pipeline. This would supply power plants and industries in a region that has historically relied on imported diesel and limited grid electricity.
The Ajaokuta-Kaduna-Kano (AKK) gas pipeline, a 614-kilometre project, is under construction and represents the most ambitious effort to extend gas infrastructure beyond the Niger Delta and Lagos corridor into northern Nigeria.
Major Gas Infrastructure
| Pipeline / Facility | Route | Length / Capacity | Status |
|---|---|---|---|
| Escravos-Lagos Pipeline System (ELPS) | Escravos - Lagos | ~340 km, 1.1 BCF/d | Operational |
| Ajaokuta-Kaduna-Kano (AKK) | Ajaokuta - Kaduna - Kano | 614 km, 2.2 BCF/d | Under construction |
| Obiafu-Obrikom-Oben (OB3) | Rivers - Edo | ~127 km, 2.0 BCF/d | Operational |
| West African Gas Pipeline (WAGP) | Nigeria - Benin - Togo - Ghana | ~678 km, 475 MMSCF/d | Operational |
| Trans-Nigeria Gas Pipeline (TNGP) | Calabar - Ajaokuta | ~680 km | Planned |
Gas-to-Power
Natural gas is the dominant fuel for electricity generation in Nigeria, powering approximately 80% of grid-connected thermal generation capacity. The country's installed gas-fired capacity exceeds 12,000 megawatts (MW), yet actual generation typically hovers between 3,500 and 5,000 MW due to chronic gas supply shortfalls.
The National Integrated Power Project (NIPP), launched in 2004, built several gas-fired power stations across the Niger Delta and South-West, including Alaoji, Geregu II, Olorunsogo II, and Sapele II. While these plants added significant installed capacity, they frequently operate well below nameplate capacity because of inadequate gas supply, pipeline vandalism, and payment disputes between gas suppliers, generators, and distribution companies.
The Gas Supply Challenge
The central problem in gas-to-power is the mismatch between the price at which gas producers can profitably sell domestically and the price that power generators (and ultimately consumers through electricity tariffs) can afford to pay. For years, the domestic gas price was regulated at artificially low levels - sometimes below USD 1.00 per million British Thermal Units (MMBtu) - while the export price through LNG could fetch USD 8-15 per MMBtu or more.
This price differential created a strong incentive for producers to prioritise gas exports over domestic supply, leaving power plants chronically short of fuel. The government has gradually moved towards more cost-reflective domestic gas pricing, but the transition remains politically sensitive.
Industrial Gas Use
Beyond power generation, natural gas serves as a critical feedstock and fuel for Nigeria's industrial sector. Key industrial gas consumers include:
- •Cement manufacturing: Major producers such as Dangote Cement and BUA Cement use natural gas as kiln fuel in their plants across Nigeria, replacing more expensive and polluting alternatives like coal and low-pour fuel oil.
- •Fertiliser production: Gas is the primary feedstock for producing urea and ammonia. The Dangote Fertiliser plant in Lekki and Indorama Eleme Petrochemicals in Port Harcourt are large consumers, producing millions of tonnes of fertiliser annually for domestic use and export.
- •Petrochemicals: The Eleme Petrochemicals plant produces polyethylene and polypropylene from gas-derived feedstock, supplying Nigeria's packaging and plastics industry.
- •Steel and manufacturing: Gas-powered furnaces and boilers serve steel mills, glass factories, and food processing plants, though many industries still rely on diesel generators due to unreliable gas and grid electricity supply.
CNG & LPG for Transportation and Cooking
As part of the government's strategy to reduce dependence on imported refined petroleum products, Nigeria has launched ambitious programmes to promote compressed natural gas (CNG) for transportation and liquefied petroleum gas (LPG) for household cooking.
CNG for Transportation
Following the removal of the fuel subsidy in 2023, the Presidential CNG Initiative (Pi-CNG) was launched to accelerate the adoption of CNG as a cheaper, cleaner alternative to petrol (PMS) for vehicles. The initiative subsidises vehicle conversion kits, supports the construction of CNG refuelling stations, and provides CNG-powered buses for urban mass transit.
CNG costs a fraction of petrol on an energy-equivalent basis, offering significant savings for commercial transport operators. However, adoption has been slowed by the limited number of CNG refuelling stations, the upfront cost of vehicle conversion, and public unfamiliarity with the technology.
LPG for Cooking
Nigeria's National LPG Expansion Implementation Plan aims to make LPG the dominant cooking fuel by 2030, replacing firewood, charcoal, and kerosene. Despite producing and importing substantial volumes of LPG, Nigeria's per-capita consumption remains among the lowest in Africa.
Barriers to LPG adoption include the high upfront cost of gas cylinders and cookers, inadequate distribution infrastructure (especially in rural areas), safety concerns, and the deep-rooted cultural preference for traditional cooking methods. The government and private sector are working to address these barriers through cylinder distribution schemes, micro-distribution networks, and consumer education campaigns.
Domestic vs Export Gas Pricing
One of the most persistent structural challenges in Nigeria's gas market is the price gap between domestic and export sales. For decades, the government mandated a low domestic gas price to keep electricity affordable, while LNG exports earned significantly higher returns on the international market.
The regulated domestic price has been gradually revised upward. The current framework established under the Petroleum Industry Act (PIA) 2021 provides for a willing-buyer, willing-seller model with a regulated floor and ceiling price for gas supplied to the power sector, while industrial and commercial gas prices are being liberalised.
Until domestic pricing reaches a level that adequately compensates producers for the cost of gas development and transportation, the incentive to supply the domestic market will remain weaker than the incentive to export. Achieving this balance without making electricity and industrial inputs unaffordable is one of the central policy challenges facing Nigeria's gas sector.
The "willing-buyer, willing-seller" pricing model under the PIA represents a significant shift from the previous regime of administered prices. However, implementation depends on the broader reform of the electricity tariff structure and the financial viability of power distribution companies.
Key Challenges
Building a thriving domestic gas market in Nigeria faces several interconnected challenges:
- •Infrastructure gaps: Insufficient gas processing plants, pipelines, and distribution networks limit the ability to deliver gas from the Niger Delta to demand centres across the country.
- •Payment and credit risk: Power generation companies and distribution companies owe billions of naira in unpaid gas invoices, discouraging producers from committing supply to the domestic market.
- •Security: Pipeline vandalism and community disruptions in the Niger Delta interrupt gas supply to power stations and industrial users.
- •Regulatory uncertainty: Frequent changes in policy direction, fiscal terms, and institutional mandates create uncertainty for investors planning long-term gas infrastructure projects.
Sources
- Gas Aggregation Company Nigeria (GACN), "Domestic Gas Market Report"
- Federal Ministry of Power, "Eligible Customer Declaration Guidelines"
- NNPC Gas, "AKK Pipeline Project Overview"