3
Natural Gas Dependence and Electricity
Vulnerability in N igeria
Abiola Akandeand BabatolaBickersteth
Abstract
Natural gas is becoming the fastest-growing fossil fuel and one of the sources of
electricity generation in Nigeria. This study examines the over-dependence on
natural gas for electricity generation in Nigeria between 1999 and 2012. The study
employed the gas supply security index (GSSI) derived from four indicators of
security of gas supply, with a higher index indicating higher gas supply that might
lead to vulnerability in electricity generation. The results revealed that Nigeria was
least and most vulnerable in 2000 and 2005 respectively. In 2012, the GSSI was
0.83, making it the second mostvulnerable among the years considered. This was
due to the nation’s over-reliance on natural gas for electricity generation as well as
its greater exposure to geopolitical risks. Once there is any disruption in natural gas
supply, the resultant effect is fluctuations in electricity generation. The study suggests
that government should target other possible sources for power generation to mitigate
natural gas supply disruption.
3 . 1 In t r od u ct io n
Nat ural gas is t he fastest-growing fossil fuel and one of t he sources of power
generation in the 21st century (IEA, 2014). W ith advances in industrialization in
emerging markets, population growth and electricity access continue to increase
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Natural GasD ependence and Electricity Vulnerability in Nigeria
63
along with rising living standards. As a result, global electricity usage is projected to
rise annually. Electricity demand is rising twice as fast as overall energy use, and is
likely to increase by more than two-thirds between 2011 and 2035. In 2012, 42 per
cent of primary energy used was converted into electricity (IEA, 2014).2 In most
developed and developing countries, electricity is seen as an essential source of
energy for many activities and acts as a catalyst for socio-economic development
(Nakawiro, Bhattacharyya and Limmeechokchai, 2007; Ayodele, 1999; 2001; IEA,
2002 and Samuel and Lionel, 2013). Electricity plays a multi-faceted role in an
economy; it is a productive input that facilitates economic growth process by its
direct influence on the productivity of other factors of production. Its availability
and quality directly affect the degree to which households can enjoy most of the
comfort and quality of living provided by modern society (IEA, 2012). Electricity
availability and accessibility is one of the fastest ways to alleviate rural poverty,
boost productivity among women and accelerate education and health outcomes;
especially among people living in rural and semi-urban centres. Nigeria, being a
commercial and economic stakeholder in Africa, requires about 120,000MW of
electricity to become an industrialized nation (Adenikinju, 2013).3
Gas has been touted as the cheapest and easiest option for power generation.
Moreover, Nigeria is blessed with abundant gas assets within the Niger Delta region
where it is found in reservoirs or produced along with oil as associated gas. However,
the Nigerian government has established price controls to keep a cap on gas prices,
making gas prices artificially low, creating market imperfections and negative
externalities. The gas industry has played a significant role in Nigeria’s overall
economic performance having a robust agenda on gas usage which places emphasis
on the use of gas for power generation. Furthermore, its vision of an aggressive gasbased industrial growth will invariably boost further growth of electricity demand.
As at 2011, electricity generation from hydropower represented 20.9 per cent of
Nigeria’s total production (Trading Economic, 2014)4 while natural gas accounted
for the remaining 79.1 per cent. Electricity production from natural gas has steadily
increased over the years. Many power plants that were built before and during the
ongoing National Integrated Power Plants (NIPP) project to improve electricity
generation in Nigeria are dependent on natural gas as a feedstock.5 As the country
adds new capacities to meet the demand for electricity, the additional capacity
would require a significant increase in natural gas supply for the power sector.
Electricity generation in Nigeria is vastly reliant on natural gas; thus, a high share of
natural gas in power generation raises concerns of security of electricity supply and
could even make the country vulnerable to high gas dependence in its power
generation over time.
Studies (Olomola and Adejumo, 2006; Adedipe, 2004; Adeniyi, 2011; Adeniyi
et al, 2011; Muhammad et al, 2010; Ogundipe and Ogundipe, 2013) abound in the
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FutureEnergy Policy Options: Assessment, Formulation and I mplementation
literature which assess oil volatility in Nigeria, but little attention has been given to
gas supply security in the country that emphasizes the electricity sector. This paper
attempts to address this gap in the literature. The paper aims to assess the impact of
natural gas dependence on power generation and how it can make the Nigerian
economy vulnerable over time. Furthermore, the paper analyses how gas supply
security will affect power generation over time, especially since natural gas is the
major feedstock for electricity generation. The paper is divided into six sections.
Following this introduction, section 3.2 presents a range of stylized facts on the
nation’s power h=generation. Following this in section 3.3 is the literature review;
and then section 3.4, which provides the methodology used in the study. Section
3.5 is based on the vulnerability analysis, while section 6 presents the conclusion of
the paper.
3 . 2 St ylize d Fact s
Nigeria is endowed with abundant gas reserves but the enormous challenge facing
the country is how to use this resource for economic growth especially in power
generation. The country’s agenda on gas utilization is robust because it places gas at
the core of the nation’s power generation endeavour. Thus, its vision of an aggressive
gas-based industrial growth will invariably boost further growth of electricity
demand. Electricity generation in the country currently stands at4,044MW on
account of improved gas supply to generation stations and the rise in the water
levels at the various hydro stations (Business D ay, 4 September 2014). The
4,044MW generated as at September 2014, later dropped to 3500MW6 by
16 December 2014 presumably due to shortage in gas supply.
The main source of electricity generation in Nigeria has shifted over time. First,
it was coal that predominated, followed by oil, then hydro and now gas. The
dominance of coal ended in 1997, followed by hydro and natural gas; thus natural
gas has remained the pre-eminent source of fuel for electricity generation (OECD/
IEA, 2014).7 Indeed, natural gas has been promoted as “a noble fuel” for enhancing
electricity generation in the country because it is reliable, available in abundance,
easy to manage, flexible, and more environment-friendly. This has fostered the
greater involvement of government and the oil companies in the development of the
gas market in the country. Consequently, a lot of gas projects were developed to
exploit the country’s enormous gas reserves and reduce the large quantum that is
flared. Many gas-to-power plants were built and the ongoing National Integrated
Power Projects (NIPP) were inaugurated to improve electricity generation in Nigeria
using gas as feedstock.8
Therefore, electricity production from natural gas has increased steadily over
the years, rising from about 5.94 per cent in 1971 to 63.3 per cent in 2011 (CIA,
2014). Nevertheless, there seems to be a real challenge with supplying gas to the
Natural GasD ependence and Electricity Vulnerability in Nigeria
65
power plants. For example, gas pipelines and infrastructure are being sabotaged
and vandalized continually just as low gas prices and technical fault s furt her
constrain the power plants. Also, there are uncertainties and increasing regulation
around gas prices. The consequence is a significant drop in electricity generation as
shown in the power sector polls that NOI Polls conducted in November 2014. The
survey shows that 63 per cent of Nigerians received less than five hours of continuous
power supply daily, while the majority (72 per cent) spent a lot more on alternative
energy sources ( Vanguard, 24 July 2013; 28 January 2014).9
Figures 3.1and 3.2 complement each other in reporting the sources of fuel used
to generate electricity in the country. It also reveals the transitional trend over t he
years. Figure 3.2 shows that coal and hydro were the respective dominant sources in
the 1970s and 1980s. Then came the era of oil which ended in 1997, thereby paving
the way for natural gas to dominate the scene. Thus, coal, oil, gas and hydro sources
accounted for 0.1per cent, 13.7per cent, 53.7 per cent and 32.5 per cent, respectively,
of power generation in 1990. By 1993, coal wasno longer used for electricity generation
in the country while the share of oil and gas fell to 13.5 per cent and 48.1 per cent,
respectively. This automatically raised the share of hydro source of energy to 38.4
per centin the same year. Another dramatic t urn was witnessed in 1997when oil
accounted for 0 per cent of power generation. This reduced the major sources of
electricity generation from four to two, namely, gas and hydro, thus exerting pressure
on these remaining two sources which accounted for 80.3 per cent and 19.7per cent,
respectively, in 2012 (EIA, 2014).
Figure 3.1. Nigeria Generation Electricity Fuel Sources (1970-2012).
Source: OECD/IEA, 2014.
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FutureEnergy Policy Options: Assessment, Formulation and I mplementation
Natural gas is traditionally used mostly for cooking and heating in the residential
and commercial sectors. In the industrial sector, fertilizer plants use natural gas as
raw material, just as the power sector uses it for electricity generation. The electricity
sector is among the key users of natural gas, accounting for 53 per cent and 80 per
cent of natural gas consumption in 1990 and 2012, respectively (IEA, 2014). This
huge share of the electricity sector is attributed to government policies which gave
it priority in gas allocation in Nigeria (Ige, 2014).
It was observed that the electricity sector has shown faster growth in gas demand
during the post electricity reforms period and the same has been attributed to the
failure of electricity markets. The power sector is by far the largest user of natural gas
with around 40 per cent of global gas demand as the fuel contributes to meeting
incremental power demand and produces less CO2 than coal. Industrial sector uses
roughly 24 per cent of total gas consumption and the residential/commercial sector
uses 22 per cent. Other uses include energy industry consumption which accounts
for about 10 per cent (IEA, 2014).
Figure 3.2. Share of Fuel Sources for Electricity Generation in Nigeria (1990-2012)
Source: IEA, 2014
As in most developed countries, natural gas is seen as the fastest global
commodity for generating electricity owing to its attributes of environmental
friendliness, high efficiency and least cost (Cabalu and Manhutu, 2009; BP, 2014).
This has made other sources of generation highly expensive compared to natural
gas. Natural gas helps to drive the electricity sector in Nigeria; hence, the nation has
built her electricity base on a mono-fuel supply mix with the commodity resident
in the most fragile and volatile zone – the Niger Delta region (this is prior to the
advent of Boko Haram in Nigeria). The zone is also characterized by incessant pipeline
Natural GasD ependence and Electricity Vulnerability in Nigeria
67
vandalism which has resulted in fluctuations in electricity supply in Nigeria, t hus
raising concerns for gas supply security.
Nigeria has failed to maintain a balanced electricity mix as compared to other
gas exporting countries. Figure 3.3 reveals the share of electricity mix in the Gas
Exporting Countries Forum (GECF). It reveals t hat Russia has the most balanced
electricity mix, followed by Iran. Both Nigeria and Egypt have the most imbalanced
electricity mix and both have a disproportionate dependence on natural gas for
their electricity supply (Adegun, 2014).
Figure 3.3. Electricity Mix of the Selected Natural Gas Exporting Countries
Source: Adegun (2014) W ikipedia (list of power plant, 2014)
3 . 3 Lit er at u r e Review
Over the past decade, much of the work done on energy security has focused on oil
and has been carried out mainly in developed countries. However, of the few ones
done in Nigeria, most used descriptive analysis while others placed emphasis on
energy as a whole. The gap t hus created by this analytical method and the area of
emphasis has necessitated this study.
Bhattacharyya et al (2008) examined t he electricity capacity expansion in
Thailand, an analysis of gas dependence and fuel import reliance. They adopted t he
traditional electricity capacity planning using theW ien Automatic System Planning
version IV. They found t hat high gas dependence in power generation makes t he
Thai economy vulnerable over t ime.
Cabalu (2009) similarly examined the indicators of security of natural gas
supply in Asia (Japan, Korea, China, India, Singapore and Thailand). He found that
both India and China are moderately less vulnerable to gas supply disruptions
because they produced gas domestically as against other countries t hat relied on
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FutureEnergy Policy Options: Assessment, Formulation and I mplementation
imported gas for energy generation. Also, the two countries have a balanced energy
mix such that the share of natural gas as fuel source is relatively small compared to
other countries.
Sonya (2012) examined gas supply security for selected European countries
(UK, Germany, Spain, Ireland, Netherlands, France, Italy and Greece). The research
adopted gas supply security indicators such as gas intensity, net gas imports
dependency and domestic production to consumption and geopolitical risks for all
the countries in 2000 and 2010. Also, it explored how natural gas has evolved for the
selected countries over the years. The research found that UK had the highest level
of gas supply security in 2000 while the pendulum swung to Netherlands by 2010.
During the period of study, France, Italy and Greece had improved in terms of gas
supply security while Ireland remained highly vulnerable and most susceptible
among all the countries under study.
Cabalu and Alfonso (2013) examined the energy security in six Asian countries10
using a gas supply security index that cut across 1996 to 2009. They found out that
both China and India are the least vulnerable to natural gas security. This can be
attributed to the fact that both countries produced natural gas domestically and it
accounted for a minor share of their energy mix as compared to other countries. The
over-reliance and huge exposure of Thailand electricity sector to natural gas made
the country the most vulnerable with greater exposure to geopolitical risks in the
country.
Borok et al (2013) examined energy security in Nigeria with emphasis on oil.
They argued that oil and gas are vital to the Nigerian economy because they accounted
for about 80 per cent of government revenue, 90 per cent of exports and 90 per cent
foreign exchange earnings. They evaluated the challenges facing the oil and gas
sector in terms of its availability, accessibility and utilization using a descriptive
analysis. In similar view, Agbaeze et al (2014) explored Nigeria’s dependency on oil.
They adopted descriptive analysis and argued that Nigeria’s economy is highly
volatile to international oil price shocks because oil constitutes the bulk of Nigeria’s
oil export, revenue and foreign earnings.
Biresselioglu et al (2014) investigated the natural gas supply security in 23
importing countries11 from different regions of the world. They employed the
principal component analysis (PCA) to evaluate the gas supply security index.
They focused more on two supply securities for all the selected countries on yearly
basis between 2001 and 2013. They found that the greatest consumers of gas by
volume and the greatest dependence on imports are not certainly the most exposed
to supply security shocks. The results reveal that the most natural gas importdependent countries are also the secure countries, which are Spain, France, Belgium,
Italy and UK, while Brazil, Mexico and the US are the less secure and have the
highest levels of import dependence by a single supplier of natural gas. Furthermore,
Natural GasD ependence and Electricity Vulnerability in Nigeria
69
Hungary, Slovakia, UAE, Iran and Finland are the least secure countries. They
ascertained that for the period under study, Spain and France remained the most
secure countries and concluded that diversification has a great impact on natural
gas supply security.
Kamsamrong et al (2014) examined an assessment of energy security in
Thailand’s power generation. They employed the ESSI and found that coal power
plants produced the highest emission which raised the unit cost of electricity.
We have found from the reviewed literature that most studies were done in
developed countries with scanty works in developing countries, and most especially
in Nigeria. The few works done adopted descriptive analysis, to the best of our
knowledge. The over-exposure of the electricity sector to natural gas has raised
concerns and necessitated this study.
3.4 M e t h o d o lo gy
The literature on oil shocks in the 1970s and 1980s and the recent dwindling in oil
prices have revealed how vulnerable the world’s economy could be to supply
disruptions and oil price fluctuations. The Nigerian electricity sector is vulnerable
to disruptions caused by insufficient gas supply, vandalism, technical faults and
increased insecurity in the Niger Delta by limiting the continuous supply of natural
gas to the electricity sector. This study employs the gas supply security indicators
(GSSI) as postulated by Cabalu (2009) and has been widely used by different
authors (Bhattacharyya et al, 2008; Sonya, 2013).
GSSI provides combined quantitative indicators which are easy to compute,
making it a preferred method. It also captures the main components of gas supply
security and takes into consideration the interactions and interdependence among
the various indicators. Each of the indicators allows for aggregation to create a
composite indicator (GSSI). It is derived as the root mean square of the scaled
values of four indicators of security of gas supply (Gnansounou, 2008). These
indicators are gas intensity (G1 ), gas dependency (G2 ), ratio of domestic gas
production to consumption (G3) and geopolitical risk (G4 ). The GSSI helps to
capture the sensitivity of the Nigerian electricity sector to development in the
international and domestic gas market, with a higher index indicating higher gas
supply insecurity and vulnerability of the electricity sector in Nigeria. For this
purpose, the indicators were modified, as against the literature, to address the
objectives of this study.
The G1measured the ratio of domestic gas consumed (GC) in an economy to
gross domestic product (GDP). It implies the amount of natural gas required to
produce a dollar’s worth of goods and services. Also, it explains how the gas consumed
locally is used efficiently in producing the economy’s output. The gas intensity
(G1) is computed as:
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FutureEnergy Policy Options: Assessment, Formulation and I mplementation
G1
GC
GDP
(1)
The gas intensity of the country is expressed as the ratio of total natural gas consumed
to GDP in Nigeria.
It is expressed as the ratio of natural gas to produce electricity to GDP. The
Nigerian GDP is measured in US dollar and sourced from IEA. The relative indicator
for Nigeria associated with G1 (N1) is estimated as:
1t
G1t Min(G1 )
Max(G1 ) Min(G1 )
(2)
The relative indicator, 1t results in projection of G1t that lies between 0 and 1. The
low value of 1t implies that at time (t) Nigeria is less vulnerable or less insecure to
supply shocks compared to other years in the study.
Secondly, the G2 is expressed as the ratio of electricity generated from natural
gas (GTP) to total electricity produced (TEP) in the economy. This is one of the
modifications that makes this work different from other conventional methods.
This is used to capture the degree of electricity generation dependency on natural
gas consumption.
G21
GTP
TEP
(3)
Where GTP is the natural gas to power at time t and TEP is the total electricity
generated in Nigeria at time t, which is expressed as a percentage. Similarly, the
relative indicator for various time t associated with G2 ((N2)) is computed as:
21
G21 Min(G2 )
Max(G2 ) Min(G2 )
(4)
The modified indicator lies between 0 and 1 such that the values consider both
extremes. The values 0 and 1 are assigned to express the least and most vulnerable
of the selected security of supply indicators, respectively, for Nigeria for the various
years under study.
Thirdly, we consider G3, which measured the ratio of domestic gas production
to total domestic gas consumption. Cabalu (2009) argued that domestic gas
production is one of the best yardsticks of a country’s capacity to survive with
short-term supply disruption than domestic reserves, as production excludes gas
from stranded reserves which cannot be tapped immediately. It is expressed as:
Natural GasD ependence and Electricity Vulnerability in Nigeria
G31
GP
GC
71
(5)
W here GP is the domestic natural gas production in Nigeria over the selected t ime
frame and GC is the total natural gas consumed (total final consumption). The
computation of G3 is quite different from other previous indicators since it is
negatively related to gas supply vulnerability or security. To accommodate t his
negative relationship, t is adjusted to ensure t hat it is consistent with GSSI design.
Thus, high G3 and low (N3) is preferable. Therelativeindicator for time ( t ) associated
with G3 (N3) is computed as:
31
Max(G3 ) G31
Max(G3 ) Min(G3 )
( 6)
Lastly, weconsidered the geopolitical risk (G4) using the adjusted Shannon W einer
Newman Index which accounts for the political stability of the supply source of
natural gas in Nigeria. The index is modified as follows:
( 7)
G41 ( mi Inmi )
W here mi represents the political stability in natural gas producing areas (Niger
Delta) in Nigeria. The number of cases of vandalism on natural gas pipelines was
used as a proxy to capture this variable. A low G4t denotes higher exposure to security
supply risk. It is relatively related to security of natural gas supply for the period
under study. The relative index for the same period is calculated as:
41
Max(G4 ) G41
Max(G4 ) Min(G4 )
(8)
After all the four indices were derived, we then computed the gas supply security
index (GSSI) for the selected years. TheGSSI for the selected years can be calculated
as the root mean square of the four relative indicators discussed above. The GSSI
ranges lies between 0 and 1 in which zero and one means the highest and lowest
relative level of gas supply security, respectively. The GSSI is computed as:
GSSI
2
1
22 32 22 / 4
( 9)
3 . 5 Dat a An alysis an d In t er pr et at ion
The methodology used here was adopted for Nigeria based on data derived for t he
years 1999, 2000, 2005, 2008, 2010 and 2012. Data on GC, GTP, TEP, GP and GDP
were obtained from IEA Energy Balance of Nigeria (IEA, 2013). The GDP is quoted
in US dollars. The number of cases of pipeline vandalism was used as a proxy for
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FutureEnergy Policy Options: Assessment, Formulation and I mplementation
political stability factor in the Niger Delta where natural gas is produced in Nigeria.
The individual gas security indicators are shown in Table 3.1. It reveals the areas of
strength and weakness of the indicators and how they tend to influence the relative
indicators over time. Thereafter, we present Table 3.2 which shows the results of the
analysis of relative indicators for gas supply security between 1999 and 2012 for
Nigeria.
Table 3.1. Individual Gas Supply Security Indicators for Nigeria Between 1999 and 2012
1999
2000
2005
2008
2010
2012
G1(m3/$)
0.00
0.00
0.00
0.00
0.00
0.00
G2 (%)
61.79
61.78
67.00
72.90
75.60
80.29
G3
6.65
10.50
7.03
12.70
21.94
10.86
G4
0.64
0.00
1.00
0.96
0.93
0.98
Source: Author’s computation.
From Table 3.1, natural gas intensity, G1, was zero for all the years considered
which was measured in cubic metres per unit of GDP (in $US). The share of
natural gas in electricity generation over time, G2, measured in percentages, shows
an upward movement over the years considered in the study. This depicts a huge
reliance on natural gas for electricity generation. In 1999, the contribution of natural
gas to electricity generation accounted for about 62 per cent, and kept increasing
over time.
G3 represents the ratio of natural gas production to natural gas consumption in
Nigeria. G3 was low in 1999 and rose to about 10.86 in 2012, owing to gas
monetization and gas-to-power initiatives. The geopolitical risk, G4, reflected the
level of vandalism in areas where natural gas is found. The individual gas supply
security indicators were used to compute the relative indicators between 1999 and
2012 for Nigeria.
Table 3.2. Relative Indicators for 1999-2012
1999
2000
2005
2008
2010
2012
Average
N1
0.32
0.38
1.00
0.49
0.00
0.56
0.46
Source: Author’s computations
N2
0.00
0.00
0.28
0.60
0.75
1.00
0.44
N3
1.00
0.75
0.98
0.60
0.00
0.72
0.68
N4
0.64
0.00
1.00
0.96
0.93
0.98
0.75
Natural GasD ependence and Electricity Vulnerability in Nigeria
73
Note: N1 is the relative indicator or scaled value for G1 (gas intensity); N2 is the relative
indicator or scaled value for G2 (gas dependency on electricity generation); N3 is the relative
indicator or scaled value for G3 (ratio of domestic gas production to total domestic gas
consumption); N4 is the relative indicator or scaled value for G4 (geopolitical risk).
This paper estimated the GSSI for Nigeria between 1999 and 2012. The final
values of the GSSI for the six years that natural gas was utilized with a drastic
reduction in gas flaring in Nigeria is shown in Figure 3.4.
Figure 3.4. Comparison of GSSI for the Selected Years in Nigeria 1999-2012
Source: Author’s computations, 2015.
From Figure 3.4, year 2000 is revealed to be the least vulnerable in the event of
a natural gas supply disruption. It shows that GSSI was the lowest at 0.42, ranking
it first among other years in the study. The reason for this might be attributed to
weak N2 and N3 where the strength lies in N1 and N4. This implies that the gas
dependency for electricity generation and geopolitical risk for the concerned years
was weak or low as against other years in the study, and hence not reliant on imports.
With hydro and natural gas being the main sources of energy for power generation
in Nigeria, gas intensity of the economy’s GDP was low. However, in 2000, Nigeria’s
natural gas consumption rose faster than any other fuel due to the gas monetization
initiatives of the Nigerian Gas Master Plan and other gas-to-power strategies that
had positioned initially flared gas towards electricity generation.
In 1999, the GSSI was 0.62, ranking it the third among the selected years under
study. The gas intensity was low because a large volume of natural gas was flared
and it was reflected by N1. Also its share of total domestic consumption is high
relative to total domestic production as captured by N3. The high indicator witnessed
in N3 can be attributed to the gas monetization policy that led to utilization through
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FutureEnergy Policy Options: Assessment, Formulation and I mplementation
LNG exports to Asia and other parts of Europe. However, the gas intensity was low
and geopolitical risk was high in the region as captured by N1 and N4 respectively.
The GSSI rose to 0.87 in 2005 which was the highest recorded under the period
of study and later declined to 0.68 and 0.59 in 2008 and 2010, respectively. The
significant values recorded can be attributed to gas intensity (N1), gas supply security
(N3) and geopolitical risk (N4) respectively. The gas intensity and geopolitical risk
were relatively high due to high prices of natural gas at the international market and
pipeline vandalism activities in the region where gas is found, respectively; hence an
increase in natural gas dependency for electricity generation. This implies that the
share of natural gas in electricity generations is weak and low and began to increase
till 2012.
There was a significant improvement in GSSI for year 2008 and 2010 that
accounted for 0.68 and 0.59, respectively. For both years, gas supply security (N3)
and geopolitical risk (N4) improved, which made Nigeria less vulnerable as a whole
but electricity generation was highly vulnerable due to high dependency on natural
gas. This was obvious in the results as N2 has witnessed an upward trend since
2005. The world financial meltdown led to a low demand for gas at the international
market which resulted in low gas intensity in 2000 and raised its domestic usage
towards achieving the gas-to-power strategy for Nigeria.
In 2012, the GSSI deteriorated to 0.85 compared to 0.59 in 2010, which made
Nigerian electricity generation highly vulnerable to natural gas dependency in the
event of natural gas supply disruption. This ranked fifth among other years in the
study and the strength lies in all the four indicators of GSSI. This has raised natural
gas as the main source of fuel for power generation in Nigeria so as to drive the
nation’s economy.
However, the following deduction was arrived at in the course of this study: Gas
monetization led to the utilization of natural gas and reduction in gas flaring in
Nigeria over time. In addition, natural gas has become a viable and dominant fuel
source for electricity generation in Nigeria. Therefore, natural gas supply disruption
and over dependency on natural gas will further make the Nigerian electricity sector
more vulnerable.
3 . 6 Con clu sion an d Recom m en dat ion
There were fluctuations in GSSI over the years in which the two extremes are 0.46
and 0.88 in 2000 and 2005, respectively, compared to the overall average of 0.76. In
2012, all the indicators were high which led to high GSSI that accounted for about
0.84. The overall average GSSI was 0.76 with strength in gas supply security (N3)
and geopolitical risk (N4) which accounted for 0.68 and 0.75, respectively. Therefore,
the electricity sector and the export market i.e., the LNG exports, are the key demand
drivers for natural gas in Nigeria. With the increase in demand and supply for
Natural GasD ependence and Electricity Vulnerability in Nigeria
75
natural gas and multiple players entering the market and dwindling crude oil prices,
the Nigerian government must be proactive in ensuring sustainability, availability,
security and diversification of the electricity-mix away from natural gas which
currently accounts for a bulk of the electricity generation and domestic gas
consumption in the country.
The following recommendations were made to promote the need to diversify
electricity mix in Nigeria. Firstly, there is need to diversify the Nigerian electricity
fuel source mix from natural gas and embrace other sources such as renewables.
Secondly, the government should implement policies to address pipeline vandalism
in the country particularly in the areas where natural gas is found. Thirdly, the
government should improve and emulate best practices for all the component
indicators.
En d n o t e s
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Abiola is a doctoral research student at Centre for Petroleum Economics and Law
(CPEEL), University of Ibadan.
http://www.world-nuclear.org/info/Current-and-Future-Generation/World-EnergyNeeds-and-Nuclear-Power/
Cited from Punch newspaper report entitled “Nigeria needs 120,000MW of electricity
for industrialization”, dated Thursday, 18 April, 2013, p. 33.
Cited from article written by Yinka Abraham titled “renewable energy options for
embedded generation“ of the BusinessDay newspaper dated 26 August, 2014 filed under
power West Africa Energy.
How to develop Nigeria Gas Market, TheGuardian newspaper dated Friday, 13 Dec., 1996.
See http://www.today.ng/news/power-supply-drops-to-3500mw-due-to-gaschallenges/
Electricity generation by fuel for Nigeria, www.iea.org/statistics
How to develop Nigeria Gas Market, TheGuardian newspaper dated Friday, 13 Dec., 1996.
See http://www.punchng.com/business/business-economy/power-supply-hasntimproved-with-privatisation-survey/
Japan, Korea, China, India, Singapore and Thailand.
US, Mexico, Austria, Spain, France, Belgium, Italy, UK. Hungary, Slovakia, UAE,
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