ANALYSIS OF ENERGY - Central Bank of Nigeria

Occasional Paper No. 55

ANALYSIS OF ENERGY MARKET CONDITIONS IN NIGERIA

CENTRAL BANK OF NIGERIA

CENTRAL BANK OF NIGERIA

Authors:

Chukwueyem S. Rapu Adeniyi O. Adenuga

Williams J. Kanya Magnus O. Abeng

Peter D. Golit Margaret J. Hilili Ibrahim A. Uba Emeka R. Ochu

October 2015

Copyright ? 2014 Central Bank of Nigeria 33 Tafawa Balewa Way Central Business District P. M. B. 0187, Garki Abuja, Nigeria

Analysis of Energy Market Conditions in Nigeria

Studies on topical issues affecting the Nigerian Economy are published in order to communicate the results of empirical research carried out by the Bank to the public. In this regard, the findings, interpretation and conclusions expressed in the papers are entirely those of the authors and should not be attributed in any manner to the Central Bank of Nigeria or institutions to which they are affiliated.

The Central Bank of Nigeria encourages dissemination of its work. However, the materials in this publication are copyrighted. Request for permission to reproduce portions of it should be sent to the Director of Research, Research Department, Central Bank of Nigeria, Abuja.

Analysis of Energy Market Conditions in Nigeria

CONTENTS

Pages

List of Tables ... ... ... ... ... ... ... ... vi

List of Figures

... ... ... ... ... ... ... vii

Glossary of Terms ... ... ... ... ... ... ... viii

1.0 INTRODUCTION

... ... ... ... ... ... 1

2.0 THE GLOBAL ENERGY MARKET ... ... ... ... 5

2.1 Energy Prices ... ... ... ... ... ... 5

2.1.1 Crude Oil Prices ... ... ... ... 5

2.1.2 Natural Gas Prices ... ... ... ... 8

2.2 Electricity Generation and Consumption ... ... 9

2.3 Determinants of Energy Conditions

... ... 11

2.3.1 Changes in Demand ... ... ... ... 12

2.3.2 Changes in Supply ... ... ... ... 13

2.3.3 Natural Gas Production and Consumption ... 14

2.3.4 Changes in Price ... ... ... ... 15

2.4 Electricity Pricing ... ... ... ... ... 14

3.0 STYLISED FACTS ON NIGERIA ENERGY MARKET ...

3.1 Endowments ... ... ... ... ...

3.2 Operation ... ... ... ... ...

3.3 Market Dynamics ... ... ... ...

3.4 Contribution to the Economy ... ...

3.4.1 Powering the Nation

... ...

3.4.2 Source of Revenue ... ... ...

3.4.3 Political Instrument ... ... ...

3.5 Negative impacts ... ... ... ...

... 17 ... 17 ... 18 ... 20 ... 22 ... 23 ... 24 ... 25 ... 26

4.0 REFORMS IN THE ENERGY SECTOR ... ... ... ... 33

4.1 Policies, Programmes and Interventions for the

Energy Market

... ... ... ... ... 33

4.1.1. Oil ... ... ... ... ... ... 33

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Analysis of Energy Market Conditions in Nigeria

4.1.2. Gas ... ... ... ... ... ... 34

4.1.3 Electricity

... ... ... ... ... 35

4.2 Gas to Power Initiatives ... ... ... ... 36

5.0 OUTLOOK ON ENERGY CONDITIONS IN NIGERIA ... ... 39

5.1 Global Oil Supply ... ... ... ... ... 41

5.2 Global Natural Gas Demand and Supply ... ... 42

5.2.1 Global Natural Gas Demand ... ... 42

5.2.2 Global Natural Gas Supply ... ... ... 43

5.3 Global Electricity Production/Consumption ... 44

5.4 Impact of the Global Developments on Nigeria's

Energy Market

... ... ... ... ... 44

5.5 Global Drive for Renewable Energy

... ... 46

6.0 CHALLENGES IN THE NIGERIAN ENERGY MARKET ... ... 49

6.1 Challenges in the Oil/Gas Sector ... ... ... 49

6.1.1 Production Challenges (Upstream)

... 49

6.1.2 Challenges in the Downstream Sector/

Oil Subsidy ... ... ... ... ... 49

6.1.3 Energy Infrastructure Capacity ... ... 51

7.0 THE WAY FORWARD ... ... ... ... ...

7.1 Development of Gas Infrastructure

...

7.2 Renewable Energy ... ... ... ...

7.3 Renewable Energy Sources

... ...

7.2.1 Security of Supply ... ... ...

7.2.2 Promote Decentralisation of Energy

Management

... ... ...

7.2.3 Cheap and Easy to Generate ...

7.2.4 Suitable for Rural/Community

Development

... ... ...

7.3 Environmental Considerations ... ...

7.4 Competitive Energy Markets

... ...

... 55 ... 55 ... 55 ... 56 ... 57

... 57 ... 57

... 57 ... 58 ... 59

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Analysis of Energy Market Conditions in Nigeria

7.5 Conducive Environment for Private Sector Investment ... ... ... ... ...

7.6 Regional and Ecological Considerations 7.7 Capacity Development ... ... ...

... 59 ... 60 ... 60

8.0 CONCLUSION

... ... ... ... ... ... 63

References

... ... ... ... ... ... ... 65

Websites Visited ... ... ... ... ... ... ... 71

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Analysis of Energy Market Conditions in Nigeria

List of Tables

Pages

Table 1: Table 2:

Table 3: Table 4: Table 5: Table 6:

Table 7:

Energy Indicators for Nigeria (2000 ? 2013) 2012 Energy Basket of Nigeria in KTOE on net Calorific Value Basis ... ... ... ... FGN Capital Releases to the Power Sector Derived Subsidy Payment ... ... ... Fuel Import Foreign Exchange Consumption Global Oil Demand (2013 ? 2015) (million barrels per day) ... ... ... World Oil Production (million barrels per day)

... 11

... 23 ... 26 ... 29 ... 30

... 40 ... 42

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Analysis of Energy Market Conditions in Nigeria

List of Figures

Pages

Figure 1:

Figure 2:

Figure 3 : Figure 4 :

Figure 5: Figure 6: Figure 7 :

Figure 8:

Average Crude Oil Prices (US$ per barrel,

2000 ? May 2015) ... ... ... ... ... 5

Average Prices of OPEC Crude Basket

(US$ per barrel) (1990- 2015)

... ... ... 8

Natural Gas Prices (US$/mBtu) (1990 - 2015) ... 9

Oil Revenue Compared with Total Revenue

(1999 to 2014)

... ... ... ... ... 25

Electricity Generation (MW)

... ... ... 27

PMS FX Demand Vs WDAS Total Supply in US$ ... 31

Domestic Electric Power Generation from

1999 - 2013 ... ... ... ... ... ... 36

Gas Allocated to Power Sector Profile (2010 -2016) 37

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Analysis of Energy Market Conditions in Nigeria

Glossary of Terms

MW/hr API BS and W RVP TCF Ktoe CDU NXP TWh Kb/d LTO Bcf/d KWh/cap KRPC

PHRC WRPC Company

Megawatt per hour American Petroleum Institute Basic Sediment and Water Reid Vapour Pressure Trillion Cubic Feet Thousand Tonnes of Oil Equivalent Crude Oil Distribution Units Nigerian Exports Proceeds Form Terawatt hours Kilo barrels of oil per day Light Tight Oil Billion Cubic Feet per day Kilowatt hour per capita Kaduna Refining and Petrochemical Company Port Harcourt Refining Company Warri Refining and Petrochemical

viii

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