Nigeria’s electricity sector could come under increased strain in the third quarter of 2026 as natural gas producers increasingly prioritize supplies to creditworthy industrial customers over the country’s financially troubled electricity distribution companies, according to a new quarterly outlook by the Society of Energy Editors (SEE).

The industry group’s report warns that the country’s electricity market is approaching a structural inflection point, arguing that longstanding liquidity challenges in the power sector are reshaping how gas is allocated and could deepen supply constraints for consumers connected to the national grid.

According to SEE, the traditional assumption that greater gas production automatically translates into improved electricity supply is becoming less reliable because commercial considerations are increasingly determining where gas is sold.

Industrial Demand Overtakes the National Grid

The report says gas producers are increasingly entering long-term commercial arrangements with large industrial users—including cement manufacturers, steel producers, data centres and major manufacturing companies—that are able to pay market-reflective prices and settle invoices promptly.

By contrast, power generation companies supplying the national grid depend on a multi-layered payment chain involving electricity distribution companies (DisCos), the Nigeria Bulk Electricity Trading Plc (NBET) and other market participants, where persistent payment delays have weakened liquidity across the sector.

“Gas producers will continue to prioritise creditworthy industrial off-takers over the illiquid NBET ecosystem,” the report states, arguing that payment certainty has become the primary factor influencing gas supply decisions.

The report suggests the trend could widen the gap in electricity reliability between industrial facilities operating dedicated gas-fired power plants and residential or commercial consumers dependent on the national grid.

A Three-Tier Electricity Market Emerging

SEE argues that Nigeria’s electricity sector is increasingly evolving into three distinct markets.

The first remains the conventional national grid, operated by the Transmission Company of Nigeria (TCN) and supplied through the country’s electricity distribution companies.

The second comprises state electricity markets, embedded generation projects and mini-grids that have expanded following implementation of the Electricity Act 2023, which granted Nigerian states greater authority over electricity generation, transmission and distribution within their jurisdictions.

The third—and fastest-growing—segment consists of captive power generation, where industrial companies build and operate their own gas-fired electricity plants to reduce dependence on the national grid.

According to the report, this structural shift is changing the economics of Nigeria’s gas-to-power value chain as large industrial users increasingly secure direct gas supplies outside the traditional electricity market.

AKK Pipeline May Not Immediately Improve Electricity Supply

The report also highlights what it describes as the “AKK paradox.”

While the Ajaokuta-Kaduna-Kano (AKK) gas pipeline is expected to improve gas availability across northern Nigeria, SEE argues that additional gas supplies alone are unlikely to translate into significantly better electricity service for households and businesses connected to the national grid.

The analysts attribute this to the sector’s financial structure. Electricity generated from gas-fired plants must pass through multiple market participants before gas suppliers receive payment, leaving producers exposed to delays and revenue shortfalls.

According to the report, unless the sector’s financial discipline improves, gas producers are likely to continue directing supplies toward industrial customers with stronger credit profiles.

Regulatory Reform Identified as Critical

SEE argues that Nigeria’s electricity challenges are increasingly driven by market liquidity and regulatory enforcement rather than gas availability alone.

The report calls for greater operational independence for the Nigerian Electricity Regulatory Commission (NERC), urging the regulator to more rigorously enforce licensing conditions, performance standards and financial obligations among electricity distribution companies.

According to the report, stronger regulatory oversight could improve market confidence, strengthen payment discipline and encourage greater gas supply to electricity generation companies.

Decentralisation Gains Momentum

The report concludes that decentralisation of Nigeria’s electricity industry is accelerating under the Electricity Act 2023, with state electricity markets, embedded generation projects and industrial captive power expected to play an increasingly prominent role alongside the national grid.

While this transition could improve electricity reliability for industrial users and attract new private investment, SEE cautions that continued financial weakness among distribution companies could further erode service quality for residential consumers and small businesses that remain dependent on the national grid.

For investors, the outlook highlights how payment security, regulatory certainty and commercial creditworthiness are becoming increasingly important drivers of investment decisions across Nigeria’s power sector. The report also underscores the growing shift toward decentralised electricity systems as businesses seek more reliable energy supplies in Africa’s largest economy.

The Society of Energy Editors concludes that the third quarter is unlikely to create new structural challenges for Nigeria’s electricity market but is expected to expose existing weaknesses more clearly as demand rises and commercial pressures intensify.