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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