Energy is the backbone of any growing economy, which justifies the heavy reliance of the world economies on it. According to Alam (2006), “energy is the indispensable force driving all economic activities”.  In other words, energy consumption is a prerequisite for economic growth and overall development. The energy composition of a country is equally important to economic prosperity as a diversified and self-reliant mix has implications for supply security and the balance of payments.

Nigeria is a developing nation with a population of 140 million and consumption of about 0.78 quadrillion Btu of energy per year. Nigeria is the largest oil producer in Africa, the eleventh largest producer of crude oil in the world and a member of the Organization of Petroleum Exporting Countries. Nigeria consumes about 295,000 barrels of oil per day. The country’s natural gas consumption is growing over the years and stands at about 186 billion cubic feet, all of which is domestically produced. The Nigerian economy is a developing economy experiencing a process of energy transition: from traditional energies to commercial energies, from agriculture to industrialization and from low efficiency solid fuels to liquid fuels such as oil and gas. As at 2004, Nigeria’s energy consumption mix was dominated by oil (58%), followed by natural gas (34%) and hydroelectricity (8%). Renewables were not part of the country’s energy mix at the time. [1]

This study has been conducted on factor analysis for the changes in energy consumption in Nigeria over the period 1980-2012 and forecast has been made for the period 2014-2020 based on the General Decomposition Model using the Laspeyres technique. The available up-to-date data has been sourced from the Energy Balances and Statistics of the International Energy Agency. The following conclusions can be drawn from this study.

The activity effect plays the most dominant role in accounting for changes in energy demand over the years. Over the study period, it accounted for an increase in demand of 49975 Ktoe in the fuel type analysis and growth in demand of 46504 Ktoe in the sectoral analysis. The structural effect decreased demand by 4750 Ktoe, indicating a shift in the Nigerian sectors from energy intensive to industrialization and service intensive economies. The intensity effect decreases demand by 5508 Ktoe in the source analysis, implying a more efficient energy use and improvement in technology. However, it accounts for 1030 Ktoe growth in the sectoral demand, signifying the inefficient use of energy in Nigerian sectors, of which residential energy alone accounts for 1117.5 Ktoe growth.

Biofuels is the most energy intensive energy source while the residential sector is the most intensive sector. Biofuels add about 49322 Ktoe (more than 90 per cent) to total demand while the residential sector adds more than 85 per cent (41613 Ktoe) to total energy consumption. The reasons for the changes in sectoral energy consumption can be summarised as increases in number of households, population and incomes (residential), improved efficiency and technological improvements (Transport), increase in outputs and improved efficiencies (industrial) and growth in output and technological progress (services).

Using 2009 as the reference year, the energy intensity growth rate is calculated to be a negative rate of 0.0046 and the GDP growth rate is 0.033. Based on this, the energy demand for the subsequent years is forecasted. Analysis is also done on a number of scenarios which is compared to the reference case. Scenario 1 involves a high GDP rate and energy intensity. Scenario 2 assumes a high GDP and low energy intensity; scenario 3, a low GDP and low energy intensity, scenario 4, a high GDP and the reference energy intensity while scenario 5 assumes a low GDP and reference energy intensity. The high GDP is 0.05 while the low GDP is 0.02. The high and low energy intensity is -0.002 and -0.006 respectively.

Figure: Scenario Analysis.

The conclusion reached is that as Nigeria experiences greater technical efficiencies, increases in the GDP and transits from agriculture to industrialization and urbanization, energy consumption is reduced.

Osasohan Agbonlahor is an Economics PhD Student at the University of Nevada, Reno.