Nigerian Gas Transmission Tariff Framework Study

Abstract The Federal Government of Nigeria intends to develop the domestic gas market by opening investment opportunity for infrastructural development, and by including gas pipeline construction among her key projects in 2009 budget. The domestic gas market is estimated to have an annual growth potential of about 15% to 18%, which attests to its potential profitability. In this study, we investigated the gas transmission tariff and profitability potential for investment in the gas transmission investment opportunity proposed in the Nigerian Gas Master Plan. The gas transmission systems are the South-North System, the Western System, and the Interconnector System. Deterministic and stochastic methods were used for cashflow modeling and sensitivity analysis. Using 17% internal rate of returns, the resulting tariffs for the gas transmission systems were the following: $0.47/Mscf for the Western Pipeline System, $0.97/MScf for South-North pipeline system, and $0.34/MScf for Interconnector pipeline system. The most sensitive cost items to internal rate of returns for investment in the pipeline systems were determined as the peak flow of gas, gas pipeline costs, and installation costs. The calculated tariffs could be coupled with the casing head gas price and processing fee to yield the likely price of the lean gas.