Assessing the Economic Implication of Energy Insecurity in Nigeria Fubara Susan1, Iledare Omowunmi2, Onyije Israel3 Emerald energy Institute, University of Port Harcourt 40th IAEE International Conference, Marina Bay Sand Hotel, Singapore, 18-21 June, 2017

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

Availability and Accessibility INTRODUCTION Energy security is central to the rapid and sustained economic growth and poverty reduction of any nation. Availability and Accessibility Sustainability ENERGY SECURITY 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 RESERVES ESTIMATES CRUDE OIL 37 .06 billion barrels NATURAL GAS 180.5 trillion cubic feets COAL 2.7 billion tonnes HYDRO 14750 MW SOLAR RADIATION 3.5-7.0 KWH/m2 WIND ENERGY 2.0-4.0 m/s BIOMASS 144 million tons/ year Data Source: BP Statistics (2015) & Iwayemi (2008)

ENERGY PRODUCTION AND SUPPLY IN NIGERIA Data Source: IEA, 2015

ENERGY INTENSITY IN NIGERIA Source: World Bank WDI, 2017

ACCESS TO ELECTRICITY IN NIGERIA 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% 129.22 2004 48.01 85.6% 26.4% 132.89 2005 66.17 85.8% 24.8% 131.27 2006 76.59 88.6% 22.2% 128.65 2007 82.75 77.9% 19.7% 125.81 2008 107.06 83.0% 17.3% 118.55 2009 68.13 65.9% 16.0% 148.90 2010 86.41 73.9% 15.4% 150.30 2011 117.23 79.9% 15.0% 153.86 2012 115.28 75.3% 13.6% 157.50 2013 110.55 69.8% 11.2% 157.31 2014 99.06 67.5% 10.4% 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 and Gas Contribution, RGDP=Real Gross Domestic Product, OR=Oil Refining Contribution

RESULTS: CRUDE OIL PRICE AND NIGERIAN MACROECONOMIC PERFORMANCE

RESULT:IMPACT OF LOW ACCESS TO ELECTRICITY ON BUSINESS ACTIVITIES MEDIUM HIGH Cost of doing Business (CAPEX) 5% 25% 70% Insufficient Power Supply - 15% 75% Interest on Lending 20% 80% Use of Generator Set 30% Unfavourable Economic Condition

MODEL SPECIFICATION: SHORT-RUN MODEL AND ERROR CORRECTION MECHANISM 𝑊ℎ𝑒𝑟𝑒; 𝐸𝑈=𝐸𝑛𝑒𝑟𝑔𝑦 𝑈𝑠𝑒 𝐺𝐷𝑃𝑃𝐶=𝐺𝑟𝑜𝑠𝑠 𝐷𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝑃𝑟𝑜𝑑𝑢𝑐𝑡 𝑝𝑒𝑟 𝐶𝑎𝑝𝑖𝑡𝑎 𝐺𝐶𝐹=𝐺𝑟𝑜𝑠𝑠 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐹𝑜𝑟𝑚𝑎𝑡𝑖𝑜𝑛 𝐸𝐶𝑇=𝑙𝑎𝑔𝑔𝑒𝑑 𝐸𝑟𝑟𝑜𝑟 𝐶𝑜𝑟𝑟𝑒𝑐𝑡𝑖𝑜𝑛 𝑇𝑒𝑟𝑚 𝜀=𝑒𝑟𝑟𝑜𝑟 𝑡𝑒𝑟𝑚

RESULT PRESENTATION

RESULT: ENERGY USE AND ECONOMIC GROWTH

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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