Assessing the Economic Implication of Energy Insecurity in Nigeria Fubara Susan 1, Iledare Omowunmi 2, Onyije Israel 3 Emerald energy Institute, University of Port Harcourt 40 th IAEE International Conference, Marina Bay Sand Hotel, Singapore, 18-21 June, 2017 EMERALD ENERGY INSTITUTE UNIVERSITY OF PORT HARCOURT
OUTLINE Introduction Overview of Energy Resources in Nigeria Energy Intensity in Nigeria Data Sources and Methodology Presentation of Result and Discussion of Findings Recommendations Conclusion
INTRODUCTION Energy security is central to the rapid and sustained economic growth and poverty reduction of any nation. Availability and Accessibility ENERGY SECURITY Sustainability Affordability
BACKGROUND OF THE STUDY Energy Insecurity is the loss of economic welfare that may occur because of changes in energy price or unavailability of energy. Nigeria is a nation blessed with enormous energy resource. Yet, access to energy eroded with energy insecurity. The objective of this study is to assess the economic impact of energy insecurity in Nigeria arising from volatile oil price dynamics and low access to electricity.
ENERGY RESOURCES IN NIGERIA ENERGY SOURCE CRUDE OIL NATURAL GAS COAL HYDRO RESERVES ESTIMATES 37.06 billion barrels 180.5 trillion cubic feets 2.7 billion tonnes 14750 MW SOLAR RADIATION 3.5-7.0 KWH/m 2 WIND ENERGY BIOMASS 2.0-4.0 m/s 144 million tons/ year Data Source: BP Statistics (2015) & Iwayemi (2008)
Energy Production/Total Primary Energy Supply (Mtoe) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 ENERGY PRODUCTION AND SUPPLY IN NIGERIA 300 250 200 150 100 50 0 Year Total Primary Energy supply (Mtoe) Energy Production (Mtoe) Data Source: IEA, 2015
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 ENERGY INTENSITY ENERGY INTENSITY IN NIGERIA 12 10 8 6 4 2 0 Year Energy intensity level of primary energy (MJ/$2011 PPP GDP) Source: World Bank WDI, 2017
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Access to Electricity (% of Population) ACCESS TO ELECTRICITY IN NIGERIA 100 90 80 70 60 50 40 30 20 10 0 Access to electricity, urban (% of urban population) Access to electricity, rural (% of rural population) Access to Electricity (% of Population) Source: World Bank WDI, 2017
METHODOLOGY AND DATA ANALYIS Descriptive statistics were used to show the trend in oil prices and its impact on government revenue, exchange rate and consumer price index. Error Correction Model was adopted to determine the relationship between energy use (consumption) and some economic indicators (GDP per capita as a proxy for economic growth and gross capital formation). Secondary data sources from the World Bank and Central Bank of Nigeria- GDP per capita, Exchange Rate, Gross Capital Formation, consumer price Index and Energy Use
RESULTS: CRUDE OIL PRICE AND NIGERIAN MACROECONOMIC PERFORMANCE Year Oil Price TOR/TGR (%) COG/RGDP (%) OR/RGDP (%) Exchange Rate (LCU per US$) 2000 39.22 83.5% 30.7% 0.2% 101.70 2001 32.71 76.5% 30.3% 0.5% 111.23 2002 32.97 71.1% 25.0% 0.4% 120.58 2003 37.14 80.6% 28.2% 0.4% 129.22 2004 48.01 85.6% 26.4% 0.4% 132.89 2005 66.17 85.8% 24.8% 0.4% 131.27 2006 76.59 88.6% 22.2% 0.5% 128.65 2007 82.75 77.9% 19.7% 0.5% 125.81 2008 107.06 83.0% 17.3% 0.5% 118.55 2009 68.13 65.9% 16.0% 0.5% 148.90 2010 86.41 73.9% 15.4% 0.5% 150.30 2011 117.23 79.9% 15.0% 0.5% 153.86 2012 115.28 75.3% 13.6% 0.4% 157.50 2013 110.55 69.8% 11.2% 0.5% 157.31 2014 99.06 67.5% 10.4% 0.5% 158.55 2015 52.39 55.4% 9.6% 0.3% 192.44 Note: TOR= Total Oil Revenue, TGR= Total Collected Government Revenue, COG=Crude Oil
2000 2002 2004 2006 2008 2010 2012 2014 Crude Oil Price (US$) Oil Revenue/Total Government Revenue (%) 2000 2002 2004 2006 2008 2010 2012 2014 Crude Oil Price (US$) Exchange Rate(LCU per US$) RESULTS: CRUDE OIL PRICE AND NIGERIAN MACROECONOMIC PERFORMANCE 140.00 100.0% 140.00 250.00 120.00 100.00 80.00 60.00 40.00 20.00 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 120.00 100.00 80.00 60.00 40.00 20.00 0.00 200.00 150.00 100.00 50.00 0.00 0.00 0.0% Year Crude Oil Price TOR/TGR (%) Crude Oil Price Exchange Rate EMERALD ENERGY INSTITUTE UNIVERSITY OF PORT HARCOURT
RESULT:IMPACT OF LOW ACCESS TO ELECTRICITY ON BUSINESS ACTIVITIES Cost of doing Business (CAPEX) Insufficient Power Supply Interest on Lending Use of Generator Set Unfavourable Economic Condition LOW MEDIUM HIGH 5% 25% 70% - 15% 75% - 20% 80% - 30% 70% - 30% 70%
MODEL SPECIFICATION: SHORT-RUN MODEL AND ERROR CORRECTION MECHANISM log EU t = α + N1 i=1 log GDPPC t = α + λ i log EU t 1 + N1 i=1 λ i N2 j =1 β 1j log GDPPC t 1 + log GDPPC t 1 + Where; EU = Energy Use GDPPC = Gross Domestic Product per Capita GCF = Gross Capital Formation ECT = lagged Error Correction Term ε = error term N2 j =1 β 1j N3 j =0 β 2j log GCF t 1 + δect t 1 + ε t 1.1 log EU t 1 + δect t 1 + ε t 1.2
RESULT PRESENTATION Summary of Unit Root Test Results Augmented Dickey Fuller (ADF) Phillip Perron (PP) Level First Difference I (d) Level First Difference I (d) EU 2.690753 b -4.838741 a *** I (1) EU -2.438500b -7.38841 a *** I (1) GDPPC -2.010055 b -6.577592 b *** I (1) GDPPC -1.923528b -13.00963 b *** I (1) GCF -1.131951 b -5.200272 b *** I (1) GCF -1.113940b -5.192581 b *** I (1) Note: ***, ** and * imply statistical significance at 1%, 5% and 10% respectively. Also a denotes model with constant, b for model with constant and trend and c is the model without constant and trend
RESULT: ENERGY USE AND ECONOMIC GROWTH Dependent Variable DLOG(GDPPC) Variable Coefficient t-statistic Prob. C 0.00938 0.246767 0.8072 DLOG(GDPPC (-1)) 0.06596 0.363258 0.7196 DLOG(EU) 4.61156 2.578835 0.0165 DLOG(GCF) 0.26353 2.202268 0.0375 ECM (-1) 0.91932-3.991597 0.0005 R-squared 0.561473 Adjusted R-squared 0.48838 Durbin-Watson stat 1.50279 F-statistic 7.68217 Prob(F-statistic) 0.000391 Dependent Variable: DLOG(EU) Variable Coefficient Std. Error t-statistic Prob. C 0.000401 0.003718 0.107745 0.9151 DLOG(EU(-1)) 0.352871 0.163548 2.157596 0.0412 DLOG(GDP) 0.046896 0.013602 3.447691 0.0021 DLOG(GCF) -0.019508 0.010116-1.928338 0.0657 ECM(-1) -0.539333 0.155856-3.460455 0.0020 R-squared 0.507917 Adjusted R-squared 0.425904 Durbin-Watson stat 2.243682 F-statistic 6.193075 Prob(F-statistic) 0.001430 EMERALD ENERGY INSTITUTE UNIVERSITY OF PORT HARCOURT
DISCUSSION OF FINDINGS Crude oil and exchange was revealed to have an inverse relationship. Thus, an increase in crude oil price yields a decrease in the exchange rate and vice versa. Crude oil and gas industry was shown to have minimal contribution to the Real GDP. This could be attributed to the fact that crude oil and natural gas produced are majorly exported and not utilized locally. The result from the regression analysis using the error correction model revealed that there is a positive relationship between energy use and Real GDP for the period consider.
DISCUSSION OF FINDINGS 70% of the business owners responded to Insufficient power supply for doing business in Nigeria, with 75% of them investing in the purchase of generating set to generate power for their business operation. Thus, this could translate into high cost of doing business as the CAPEX of small scale business will be high. 70% responded that the economic condition is unfavourable. The unfavourable economic condition could be attributed to the recession caused by the decline in crude oil price in 2014. The impact of crude oil prices on the economy table reveals that the oil revenue accounts for majority of the government collected revenue. Thus, a decline in crude oil price yields a decline in the percentage contribution from oil.
CONCLUSION AND RECOMMENDATION The positive relationship between energy use and economic growth have proven the importance of energy in achieving economic growth. Thus the elimination of energy insecurity is a necessary cause that Nigeria must undertake and they are contingent on: The expansion of the nation s energy mix The formation of partnership between the public and private sectors in undertaking emerging investment in renewable energy technologies and projects. Access to reliable, adequate and affordable electricity service to both rural and urban populace.
CONCLUSION AND RECOMMENDATION The country should also increase its level of domestic consumption and utilization of crude oil through the construction of modular refineries, rehabilitation of existing refineries and infrastructural development of industrial packs. The major issue of energy security in Nigeria is access. Thus, addressing the issue of energy access will make energy available and affordable for end-users.
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