SCENARIOS OF NIGERIA ENERGY CONSUMPTION PER CAPITA USING HYBRID FACTOR DECOMPOSITION AND SYSTEM DYNAMICS

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ABSTRACT

 

This study examined the scenarios of Nigeria energy consumption per capita using hybrid factor decomposition and system dynamics to aid in the forecast of oil consumption per capita (OCPC) and related indices. The objectives included the development of the hybrid methodology of factor decomposition method modified by system dynamics and its application for projecting Nigeria’s oil consumption per capita up to 2040. Three factors were used for the factor decomposition comprising economic activity, technological progress, and structure of energy consumption. The contribution of technological progress, economic activity, and structure of energy consumption were investigated on Nigeria’s OCPC using factor decomposition, while projections were made by carefully configuring a causal loop diagram. The system dynamics model, developed in VENSIM comprised stocks, flows, and converters. Ten stocks were used in the architecture, and in this arrangement, the projected OCPC, OCPC at base case, change in OCPC at time, T, OCPC at time, T, alpha effect, beta effect, gamma effect, alpha at time, T, beta at time, T, and gamma at time, T were selected. Three flows were also included in the model to represent different scenarios in values of alpha, beta, and gamma. Also, nine converters, labelled as ‘variables’ in VENSIM environment have been included in the model and included population, GDP, energy consumption per oil consumption, OCPC (labelled as alpha), energy consumption per capita (labelled as beta), ratio of oil consumption on general energy consumption (labelled as gamma), change in alpha, change in beta, and change in gamma, respectively. Using this arrangement, and three what-if scenarios, projections of OCPC were made up to 2040. From the results of an increasing OCPC growth in the first scenario, Nigeria’s OCPC would increase at 61.31 % per year during 2018–2025, and 35.17 % between the period 2025 and 2028.The results further indicates that, Nigeria’s OCPC can hit values of 978688 GJ, 2864742 GJ, 6626213 GJ and 8746523 in 2020, 2021, 2022 and 2023 respectively.





TABLE OF CONTENTS


Cover Page                                                                                                                               

Title Page                                                                                                                       i

Declaration                                                                                                                     ii

Dedication                                                                                                                      iii

Certification                                                                                                                   iv

Acknowledgements                                                                                                        v

Table of Contents                                                                                                           vi

List of Tables                                                                                                                 viii

List of Figures                                                                                                                x

Abstract                                                                                                                          xii

 

  CHAPTER 1: INTRODUCTION

1.1        Background of Study                                                                                        1

1.2         Statement of Problem                                                                                       3

1.3         Aim and Objectives of Study                                                                         4

1.4         Scope of Study                                                                                                  4 

1.5        Justification of the Study                                                                                  5

 

CHAPTER 2: LITERATURE REVIEW

2.1         System Dynamics Model Based Applications                                                       6

2.2         Econometric Studies on oil Products Demand in Developing Countries                       8

2.3         Econometric Approach to Energy Forecast                                                      12

2.4        Nexus between Energy Consumption and Econometric Growth                   16

 

CHAPTER 3: MATERIALS AND METHODS

3.1     System Dynamic Model for Oil consumption per Capita                                    20

3.2      Oil Consumption per Capita Modelled by Factor Decomposition Method                         21

 

CHAPTER 4: RESULTS AND DISCUSSION

 4.1        Structured Data Analysis                                                                                             32

4.2       Factor Decomposition Analysis of OCPC                                                                  34

4.2.1    Factor Decomposition Analysis Change in Economic Activity                                 37

4.2.2    Factor Decomposition Analysis Change due to Technological Progress                   38

4.2.3    Factor Decomposition Analysis Change Due to Structure of Energy

            Consumption                                                                                                                39

4.2.4    Factor Decomposition Analysis due to OCPC                                                            40

4.2.5     Combined results from Scenarios 1 and 2                                                                   51

 

CHAPTER 5: CONCLUSION AND RECOMMENDATIONS                          

5.1       Conclusion                                                                                                                    72

5.1.1     Contributions to Knowledge                                                                                       73

5.2        Recommendations                                                                                                       73

             References                                                                                                                   74

Appendix A                                                                                                                 78

 

 

 

 

 

 

                                                            LIST OF TABLES


3.1     Nigeria Population Growth                                                                                                  25

3.2    Nigeria Gross Domestic Product (GDP)                                                                          26

3.3    Nigeria Crude Oil Consumption                                                                                          27

3.4   Nigeria Electricity Consumption                                                                                                 28

3.5   Nigeria liquefied Petroleum Gas Consumption                                                               29

3.6   Nigeria Coal Consumption                                                                                               30

3.7   Nigeria Natural Gas Consumption                                                                                               31

4.1   Nigeria Population Growth, GDP and Oil Consumption                                                 33

4.2   Summary of Nigeria Aggregate Energy Consumption                                                     34

4.3   Summary of Structured Oil Consumption per Capita (OCPC) data                                  35

4.4   Factors affecting OCPC via Changes in Economic Activity                                            38

4.5   Factors affecting OCPC via Changes in Technological Progress                                       39

4.6   Factors affecting OCPC via Changes Technological progress                                           40

4.7   Summary of Change in OCPC                                                                                          41

4.8   parameters of Scenario 1                                                                                                   45

4.9   Summary of Projections from Scenario 1                                                                         47

4.10   Parameters of Scenario 2                                                                                                51

4.11   Summary of Projections from Scenario 2                                                                       53

4.12    Parameters of Scenario 3                                                                                               54

4.13    Summary of projections from Scenario 3                                                                      57

4.14     Alpha at time T                                                                                                             58 

4.15     Beta at time T                                                                                                               59

4.16     Gamma at time T                                                                                                          60

4.17     Alpha effect                                                                                                               61 

4.18     Beta effect                                                                                                                 62 

4.19     Gamma effect                                                                                                            63 

4.20    Change in Alpha                                                                                                        64 

4.21     Change in Beta                                                                                                          65 

4.22     Change in Gamma                                                                                                               66                    

 

 

 

  

 

 

                                                            LIST OF FIGURES

                                                                                                                                  

3.1       Causal loop diagram of energy consumption per capita                                             21

4.1        Effect of economic activity, technological progress and structure of energy

             consumed on oil consumption per capita                                                                   42                        

4.2       General changes in OCPC                                                                                           42

4.3        Nigeria energy consumption for the years 1991-2014                                               43

4.4       Nigeria GDP for the years 1991-2014                                                                         43

4.5       Nigeria OCPC and Population for the years 1991-2014                                             44

4.6       Result from Scenario 1                                                                                                45

4.7       Projected oil Consumption per Capita (Scenario 1)                                                    46

4.8       Causal loop diagram of projected OCPC                                                                    48

4.9       Projected changes in Oil consumption per Capital at time T                                      48

4.10     Causal loop Diagram of Changes in OCPC                                                                 49

4.11     Causal strip of OCPC                                                                                                   50

4.12      Projected oil Consumption per Capita                                                                        52

4.13     Causal strip of OCPC                                                                                                   54

4.14     Projected oil Consumption per capita                                                                           55

4.15     Causal strip of OCPC                                                                                                    56

4.16     Alpha at time T                                                                                                             67

4.17     Beta at time T                                                                                                                67

4.18     Gamma at time T                                                                                                          68

4.19     Alpha Effect                                                                                                                  68

4.20     Beta Effect                                                                                                                    69

4.21    Gamma Effect                                                                                                                69

4.22   Change in Alpha                                                                                                            70

4.23   Change in Beta                                                                                                              70

4.24   Change in Gamma                                                                                                         71

 



 

 

 

 


CHAPTER 1

INTRODUCTION

                                                                            

1.1       BACKGROUND OF STUDY

Energy is an important indicator of the economic growth, progress, and development of any nation. It is an imperative factor in the development of all thriving sectors in all economies. For developing nations, impending economic growth dominantly depends on the long-term availability of energy from sources that are affordable, accessible, and environmentally friendly. In fact, public health, climate change as well as security are closely related with energy (Ramchandra and Boucar, 2011).

Most of the sectorial energy sources are derived from the burning of petroleum products. In Nigeria, for example, petroleum products consumption has always maintained an upward trend, outpacing domestic production. This condition has created instability between demand and supply in the domestic market and this can partly be attributed to restrictions in the domestic refining capacity. The government has had to resort to importing such products in order to address this imbalance. In 2011 alone, about 90% of petroleum products consumed in Nigeria were imported due to the inadequate and limited local production according to government owned oil corporation reports. The seeming rise in the level of oil products consumption in Nigeria is partly due to the sudden increase in individuals’ per capita income as a result of the two OPEC-induced oil price shocks. Likewise, the low price of products has helped to promote smuggling and increase products consumption but consumed outside the country.

Furthermore, population growth in the country has resulted in rural-urban migration as well as oil-income-driven urbanisation, with a resultant expansion in motorization that has helped to increase oil products consumption. Accordingly, local consumption of oil products has increased significantly than the average annual growths in real incomes and population. This calls for accurate information on income and price elasticities of energy demand for oil

products for projecting future aggregate energy demand and in planning the required capacity to meet future domestic consumption and exports. Such information will assist policy makers on the extent to which prices must be adjusted in order to control internal consumption and the potential for the local market to realise the energy-efficiency objectives of government with regards to economic growth. Thus, the current study seeks to help guide policy makers and investors in making wise investment decisions with knowledge about scenarios of Nigeria energy consumption per capital using hybrid factor decomposition and system dynamics.

Nigeria’s energy consumption per capita (ECPC) is comparatively small and stands at about one-sixth of the ECPC in developed countries. This index is directly linked to the level of poverty in the country. The gross domestic product (GDP) and per capita income are crucial indices whichs are used to measure the economic well-being of a country and its people (Karekezi, 1997). GDP refers to the value of a country's overall output of goods and services (typically during one fiscal year) at market prices, excluding net income from abroad, while the per capita income is a measure of the amount of money earned per person in a country with respect to the yearly income that is generated in the considered country (Investopedia, 2022). Studying its current status and its projection into the near feature using economic indices is worthwhile e. This projection can be achieved using any of the decomposition techniques derived from index decomposition analysis (IDA). For the purpose of this research work, the factor decomposition method is employed.

The decomposition method is an effective tool which takes into account the relationship between energy consumption in different sectors of economic activities and energy-related economy. It gives a differential and quantified view of the implementation of energy conservation measures. The foremost study of the application of the decomposition of energy conservation was presented in (Sun, 2003). However, most of the studies on energy decomposition were limited to two economic dimensions such as energy intensity and GDP. And in these trends, energy changes have been implemented in different sectors following a large collection of recent energy and gross domestic product values. Here, the method is to be extended to analyse the energy per capita of different economic sectors of Nigeria projected by the method of hybrid factor decomposition and system dynamics simulation. The factor decomposition model which splits energy per capita reflects the effects of technological progress and structural changes of an economy and indicates the total reduction of energy use if the overall population remains unchanged. If the effectiveness of production technology increases, energy per capita appreciates. The model considers three decomposition drivers which includes the economic growth, technological progress, and structure of energy consumption.

 

1.2       STATEMENT OF PROBLEM

The existing literature highlights the significance of understanding the intricate relationship among economic growth, technological advancement, and patterns of energy consumption, particularly when assessing a nation's oil consumption per capita (OCPC). Previous studies have revealed that the connections between OCPC and per capita gross domestic product (GDP) are notably multifaceted. Graphical representations often suggest a visible trend, indicating that countries with higher per capita oil consumption also exhibit higher per capita GDP. However, empirical statistical analyses fail to establish a significant correlation between these two variables. This incongruity arises because the association between oil consumption per capita and GDP per capita within a country is not as strong as the relationship between energy consumption per capita and GDP per capita.

To address this apparent disparity and advance the understanding of this complex relationship, this study proposes utilizing factor decomposition analysis in conjunction with a system dynamics approach. This comprehensive framework aims to analyse OCPC within various economic, technological, and energy consumption scenarios, thus shedding light on the nuanced dynamics at play and potentially resolving the existing gaps in the literature.


1.3     AIM AND OBJECTIVES OF STUDY

The aim of this study is to examine the scenarios of Nigeria’s energy consumption per capita using hybrid factor decomposition and system dynamics.

The objectives are to:

1.     apply the environmental impact (I) which is the product of three factors: Population (P), affluence (A) and technology (T), IPAT Identity and its variants as Factor Decomposition method for Nigeria’s oil consumption per capita.

2.     develop hybrid methodology of factor decomposition method modified by system dynamics.

3.     employ the factor decomposition method for projecting Nigeria’s oil consumption per capita.


1.4       SCOPE OF STUDY

The research scope was limited to the following:

i.    Development of the OCPC established by Factor Decomposition method.

ii.   Evaluation of oil consumption into its effects using the factor decomposition method.

      iii. Determination of the effects of economic activity, technological progress, and structure          

             of energy consumption on OCPC.

iv. Development of system dynamic model for oil consumption per capita under the three

     operating domains.

V. Projection of oil consumption per capita till 2040 using the developed scenarios. 

 

1.5       JUSTIFICATION OF THE STUDY

  The existing literature is characterized by its recognition of the intricate interplay among economic growth, technological progress, energy consumption, and oil consumption per capita (OCPC). However, it grapples with the challenge of reconciling graphical trends that suggest a connection between high OCPC and high GDP per capita with the lack of statistical correlation between these variables, highlighting the need for further investigation. To address these issues, this study proposes a novel approach employing factor decomposition analysis and system dynamics as analytical tools to scrutinize OCPC under various economic, technological, and energy consumption scenarios, signalling a commitment to a comprehensive examination of these complex relationships. This structured overview not only illuminates the existing knowledge landscape but also underscores the significance of this research endeavour.



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