THE EFFECT OF GAS PRODUCTION ON ENERGY DEMAND AND SUPPLY IN NIGERIA

Abstract

The study evaluates the effect of gas production on energy demand and supply in Nigeria. The long run total energy consumption had a similar movement with economic growth except for coal consumption. The empirical results reveal that petroleum, electricity and the aggregate energy consumption have significant and positive relationship with economic growth in Nigeria. However, gas consumption although positive, does not significantly affect economic growth. The provision of energy infrastructure is essential for economic growth, social cohesion, and environmental sustainability. Understanding the multiple functions and services it provides us requires firstly a deeper understanding of the factors that influence energy infrastructure itself.

TABLE OF CONTENT

Title page

Approval page

Dedication

Acknowledgment

Abstract

Table of content

CHAPETR ONE

1.0   INTRODUCTION 

1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5        Significance of the study

1.6        Scope and limitation of the study

1.7       Definition of terms

1.8       Organization of the study

CHAPETR TWO

2.0   LITERATURE REVIEW

CHAPETR THREE

3.0        Research methodology

3.1    sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5        Validation of research instrument

3.6        Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1 Introductions

4.2 Data analysis

CHAPTER FIVE

5.1 Introduction

5.2 Summary

5.3 Conclusion

5.4 Recommendation

Appendix

CHAPTER ONE

INTRODUCTION

• Background of the study

Energy is a critical factor for economic growth of any country. Energy commodities facilitate economic development by increasing productivity and income as well as creating employment. The aim of an efficient energy market is to provide energy commodities to power the industrial, transport, household and service sectors of the economy. Hence, energy remains the lubricant of sustainable economic growth. The crucial role of energy in the globalisation and market liberalisation of the global economy can be underpinned by the economic development of the 1990s, which resulted in the improved wellbeing of citizens, particularly among emerging economies. It is a recognised fact that availability and access to energy is a sine qua non for achieving industrialisation in any country. In terms of employment creation, the American Petroleum Institute (API) estimated that the energy sector supports more than 9.0 million jobs directly and indirectly, which is over 5.0 per cent the country’s total employment. In 2012, the energy industry supported a total value added to the national economy of more than US$1 trillion, representing 7.7 per cent of US GDP (WEF, 2012). Asides from the huge impact of the energy sector on employment generation, it also act as catalyst for sustainable development and enhances resource efficiency. Indeed, energy is the “oxygen” of the global economy and the life-blood of growth in any nation. Energy is widely regarded as a propelling force behind any economic activity and indeed industrial production. Therefore, high grade energy resources willamplify theimpact of technology and create tremendous economic growth. High grade resources can act as facilitator of technology while low grade resources can dampen the forcefulness of new technology. Ojinnaka (1998) argued that the consumption of energy tracks with the national product. Hence, the scale of energy consumption per capita is an important indicator of economic modernization. In general countries that have higher per capita energy consumption are more developed than those with low level of consumption. The importance of energy lies in other aspect of development – increase in foreign earnings when energy products are exported, transfer of technology in the process of exploration, production and marketing; increase in employment in energy industries; improvement of workers welfare through increase in worker’s salary and wages, improvement in infrastructure and socio-economic activities in the process of energy resource exploitation. Thus in the quest for optimal development and efficient management of available energy resources, equitably allocationand efficient utilizationcan put the economy on the part of sustainable growth and development. Arising from this argument, adequate supply of energy thus becomes central to the radical transformation of the nation’s economy. In Nigeria, energy serves as the pillar of wealth creation evident by being the nucleus of operations and engine of growth for all sectors of the economy. The output of the energy sector (electricity and the petroleum products) usually consolidate the activities of the other sectors which provide essential services to direct the production activities in agriculture, manufacturing, mining, commerce etc. Nigeria is endowed with abundant energy resources but suffers from perennial energy crisis which has defied solution. The co-existence of vast wealth in natural resources and extreme personal poverty referred to as the “resource curse” or ‘Dutch disease’ (Auty,1993) afflicts Nigeria. The size of the economy marked by the Gross National Income per capita is put at $1,190 and ranked 162 out of 213 countries in the world development index in 2009 (The World Bank, 2011). On economic growth, the GDP per capita of Nigeria expanded by 132 percent between independence in 1960 and 1969, and rose to a peak growth of 283 percent between 1970 and 1979. The severity of this malaise led to the restructuring of the economyin 1986. In the period 1988-1997 which constitutes the period of structural economic adjustment and liberalization, the GDP responded to economic adjustment policies and grew at a positive rate of 4 percent. In 2006, the real GDP growth rate was 7 percent. The economy when measured by the real GDP, grew by 7.87% in 2010. (National Bureau of Statistics-NBS, 2010 and Central Bank of Nigeria – CBN, 2010). The average power per capita (in watts)in USA, Japan,South Africa, China, Indiaand Nigeria were 1,363, 774, 496, 397, 85, and 12 respectively. These roughly correlate with the GDP per capita of the countries in 2008 (The World fact book, 2008). Ironically, while Nigerian energy resources, particularly oil, are exported to other countries; itspeople and economy suffer from severe shortages of the same product. This is manifested by the epileptic supply of electricity and perennialshortage of most petroleum products. The survey of literature shows that most empirical studies focus on either testing the role of energy in stimulating economic growth or examining the direction of causality between these two variables. Although the positive role of energy infrastructure on economic growth has become a stylized fact, there are some methodological reservations about the results from these empirical studies. Some authors have used the autoregressive distributed lags bounds test, two-regime threshold co-integration models, panel data approach and multivariate models. A general observation from these studies is that the literature produced conflicting results and there is no consensus on the existence and direction of causality between energy consumption and economic growth. This paper focuses on the causality between GDP and total energy consumption on one part and each of the basic subcomponents of energy consumption in Nigeria with a view to finding out if different sources of energy have varying impact on economic growth. With proven oil reserves exceeding 9 billion tons, Nigeria is one of the largest hydrocarbon feedstock producers in Africa, and ranks twelfth place worldwide.The country relies heavily on its petroleum industry for economic growth, the sector accounts for about 80% of government revenues and provides 95% of foreign exchange (Iwu, 2008).Nigeria is a member of the Organisation of Petroleum Exporting Countries (OPEC). Also, the countrynatural gas reserves account for 5.2 trillion cubic metres, making it the world’s seventh biggest natural gas reserve.Although, natural gas occur in associated form with crude oil, Nigeria’s gas reserves are three times greater than its oil reserves. The government is committed to increasing gas production for domestic supply as well as for export evident by The Trans-Saharan Gas Pipeline currently in development. This will enable Nigeria to supply the continent of Europe with gas. The country provides 10% of the world’s LNG (Corporate Nigeria, 2012). Despite this potential, gas flaring has continued unabated over the years (Eboh, 1998). Currently, the Nigerian energy crisis has stymied the socio economic activities of the country which has brought untold hardship on the people of the country. At the moment,the electricity supply in the country does not meet national demand. While the estimated daily power generation was about 3,700MW as at December 2009, the peak load forecast for the same period was 5,103MW. This is based on the existing connections to the grid which does not takeinto accountthe suppressed demand.Also, theprojected electricity demand has been translated into demand for grid electricity and peak demand on the bases of assumptions made for transmission and distribution losses, auxiliary consumption, load factor and declining non-grid generation (Energy Information Administration, 2012). The demand is projected to rise from 5,746 MW in 2005 to 297,900MW in the year 2030 which translates to construction of 11,686MW every year to meet this demand (Sambo, 2008). While the government owned monopoly company (Power Holding Company of Nigeria) has been unbundled, in its stead, three hydro and seven thermal generating, a radial transmission grid (330kV and 132kV); and eleven distribution companies (33kV and below) that undertake the wires, sales, billing, collection and customer care functions within their area of geographical monopoly have been set up. Also, it is a fact that substantial supply gap for electricity generation still exists in Nigeria. Total installed capacity for electricity generation remained at 12,232 MW in 2014, the same level recorded in 2013, but showed an increase of 23.1 per cent above the level in 2012. The average generation capacity of electricity has been oscillating within the range of 2,623.1 MW/hr in 2007 and 3,485.5 MW/hr in 2014 against the estimated demand of 10,000MW per day (CBN Annual Reports). In fact, in the last one and half decades, output had not increased beyond 3,000MW per hour. The low and unstable capacity utilisation in electricity sub-sector reflected the large gap between installed and actual operational capacity as evident in an average of less than 40.0 per cent for the period discussed, (Iwayemi, 2008:18). Except for the transmission function, the others have been privatized.

• STATEMENT OF THE PROBLEM

Nigeria has ample renewable and non-renewable fossil fuels, solid minerals, wind, hydro, and tidal wave. It is the sixth largest oil producing country in the world (Qua Petroleum Refinery Project, 2015). In spite of this, it is highly energy deficient in terms of its energy consumption needs. It is against this backdrop that the researcher intends to investigate the effect of gas production on energy demand and supply in Nigeria.

• OBJECTIVE OF THE STUDY

The main objective of this study is to ascertain the effect of energy demand and supply in Nigeria. But to aid the completion of the study, the researcher intends to achieve the following specific objective;

1. To ascertain the effect of energy demand and supply on Nigeria economic growth
2. To examine the role of energy demand and supply on Nigeria’s economic growth

• To examine the impact of energy supply on infrastructural development

1. To investigate the relationship between energy demand ,supply and economic growth
   • RESEARCH QUESTIONS

To aid the completion of the study, the following research questions were formulated by the researcher

1. Is there any relationship between energy demand ,supply and economic growth ?
2. Does energy demand and supply has significant impact on infrastructural development?

• Does energy demand and supply play any role on Nigeria’s economic growth

1. Does energy demand and supply has any effect of energy demand and supply on Nigeria economic growth?
   • RESEARCH HYPOTHESES

To aid the completion of the study, the following research hypotheses were formulated by the researcher

H₀: energy demand and supply does not have any effect on Nigeria economic growth

H₁: energy demand and supply does have an effect on Nigeria economic growth

H₀: there is no significant relationship between energy demand ,supply and economic growth

H₂: there is a significant relationship between energy demand ,supply and economic growth

• SIGNIFICANCE OF THE STUDY

It is believed that at the completion of the study, the findings will be beneficial to the national economic committee as the study will explore the

impact of energy demand and supply on the growth of Nigeria’s economy, the study will also be useful to the management of gas and other renewable energy as the study seek to explore other benefit of exploring the advantages of renewable energy and other forms of energy supply apart from petroleum product. The study will also be of importance to researchers who intend to embark on a study in a similar topic as the study will serve as a reference point to further research, finally, the study will be useful to the student, teachers, lecturers academia’s and the general public as the study will add to the pool of existing literature on the subject matter.

• SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers the effect of gas production on energy demand and supply in Nigeria. In the cause of the study, there were some factors which limited the scope of the study;

1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
3. c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities

1.8 OPERATIONAL DEFINITION OF TERMS

   Gas

Gas is one of the four fundamental states of matter. A pure gas may be made up of individual atoms, elemental molecules made from one type of atom, or compound molecules made from a variety of atoms.

Energy

In physics, energy is the quantitative property that must be transferred to an object in order to perform work on, or to heat, the object. Energy is a conserved quantity; the law of conservation of energy states that energy can be converted in form, but not created or destroyed.

Demand

In economics, demand is the quantities of a commodity or a service that people are willing and able to buy at various prices, over a given period of time. The relationship between price and quantity demanded is also known as demand curve. Preferences and choices, which underlie demand, can be represented as functions of cost, benefit, odds and other variables

 Supply

In economics, supply is the amount of something that firms, consumers, labourers, providers of financial assets, or other economic agents are willing to provide to the marketplace.

Economic growth

Economic development is the process by which a nation improves the economic, political, and social well-being of its people. The term has been used frequently by economists, politicians, and others in the 20th and 21st centuries

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study

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