Presidential report on the Power Sector Reform 2010 as well as Gas Master Plan (GMP, 2008) vested much commitment to the gas sector towards electricity value chain viability. The result so far has been marginal. The primary challenge lays perhaps, in the impractical gas commitment contracts between the power and gas companies. Other challenges include unfavorable domestic gas pricing mechanism relative to export parity pricing; there is also the uncertainty in the security of supply lines by virtue of vandalism.

Guided by the domestic supply obligation enshrined in the GMP, this paper develops an integrated economic model that evaluates both sides of the gas to power contract. The estimated gas volume required per period is determined to facilitate the decision making process in the Nigerian power sector. A total base case data of electricity demand as established by Presidential pronouncement are imposed as reference inputs into a simple gas conversion model to develop annual gas supply equivalent for a base Take or Pay (TOP) contract life of 25 years. The developed supply profile is applied to the gas pricing model, keeping in perspective, the price transition from opportunity cost pricing in terms of netback gas export price or the export parity price (EPP).

The estimated discounted cash flow model results in terms of economic metric measures (NPV & IRR) and systems performance indicator (HGT & DHGT) show fiscal impact on profitability of gas investment. The validated model indicates that a GDP growth of 7% will require at least 3176 MW annual capacity addition and about 100 Bscf annual cumulative gas input in the next 25 years, given base boiler efficiency of about 83%. As expected, taking gas price from the stipulated 1.8 to 3.35 $/MSCF brings about proportionate increase in the NPV. It also reduces the payback period. Assigning triangular and normal distributions to gas price and turbine performance values respectively, gave the stochastic P90 NPV of between 513 and 1,925 Million USD.

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