1.0 INTRODUCTION
In today's hypercompetitive world, the issues and concerns about the energy sector are numerous with varying degree of effects and dynamics due, to the role of energy in our lives as well as in production processes that transforms input into goods and services [1] . This is largely due to its strategic importance in terms of macro-economic influences, geopolitical implications and environmental concerns. Within these comprehensive issues lie a set of common problems affecting every aspect of the economy, that is individual households, businesses and governments.
The role of energy in the economic activities of any economy arises due to the mutual interdependency of economic activities and energy. While energy sector uses inputs from other sectors (Industry, transport and household), it is at the same time an input for these sectors. This interrelationship influence the demand for energy, substitution possibilities within the energy and with other resources (capital, labour, land and material), supply of energy and other goods/services, investment decisions, and the macro-economic variables of a country (economic output, balance of payment situations, foreign trade, inflation, interest rate, etc). Thus, the macro-level influences arise broadly from the following (Bhattacharyya, 2007) [2] :
The level of economic activities and its evolution over time;
Interdependence of energy and other economic activities as well as interactions among economic activities;
The structure of each activity and its evolution over time;
The technical composition and characteristics of the economic activities and its evolution over time;
The institutional arrangement that provides the enabling environment for different activities to flourish and its evolution; and
Macro-management of the economy and its interaction with the institutional arrangement.
Apart from the interaction of energy with the macro economy, the energy sector itself is made up of different industries (sub-sectors), each of which has different technical and economic characteristics. Interdependent to some extent and each subsector attempts to achieve a balanced operation considering demand, investment, prices, supply and institutional environment.
Thus, the sector faces both micro-level operating issues, which are short-term in nature as well as those involving the medium and long-term future. Because of specific characteristics of the energy sector such as reliance on non-renewable energies, capital intensiveness of investments, discrete plant sizes, long gestation periods, scale of economies, tradability of certain goods leading to high revenue generation potential compared to other economic activities, oil price volatility and the like, decisions need to be taken well in advance for both present and future demand and supply.
While the above interaction is general, the specifics vary depending on the circumstances (e.g. resource rich or poor country), economic conditions (developed or developing country), time dimension, type of energy (oil, gas, coal, etc) and the like. This paper will be restricted to oil resources analysis of demand and supply as it affects the Nigeria economy.
Being an integral part of energy, oil resources are also concern with the basic issues of allocating scarce resources in the economy. Thus the micro-economic concerns of oil supply and demand and the macro-economic concerns of investment, financing and economic linkages with the rest of the economy, form an essential part of this paper.
Accordingly, this research aims to analyse the oil resource of the country and the extent of its influence on macro-economic elements. This paper will attempt to analyse the present and forecast the future demand and supply of oil and its determinants. This is apt due to abundant oil reserves of the country and the main stay of the economy.
2.0 RELEVANCE OF OIL TO NIGERIA ECONOMY
Nigeria is an oil-oriented economy as according to EIA, with a reported 95% of exported earnings and 85% of government revenue are derived from oil [3] . Also, the Nigeria's gas sector holds significant gas reservoir, which is reputed to be the 7th largest reserves in the world with an estimated proven reserve of 185 tcf, and an accumulated total of proved, probable as well as possible reserve of 300 tcf [4] .
Given this background, it is undisputable that the oil commodity plays a vital role in the economy of Nigeria. Therefore, the thrust of this chapter is to demonstrate an overview of the oil and gas industry in Nigerian, as well as analyse the extent of demand and supply of the commodity to the health of the economy.
2.1 OVERVIEW OF NIGERIAN OIL INDUSTRY
In Nigeria, extraction and drilling of petroleum is the largest industry and by far the main generator of GDP in Nigeria, contributing over 40% of Nigeria's GDP [5] . In 2008, it was recorded a surplus of 98% for the oil and gas exports. However, the federal governments revenue accounted for about 83%, which resulted, to a generation of more than 40% of its GDP. The foreign exchange earnings accounted for 95%, and the government budgetary revenues accounted for about 85% [6] .
The United States Energy Information Administration (EIA) estimates that Nigeria's proven oil reserves are somewhat between 16 and 22 billion barrels (3,500,000,000 m³) [7] . The results of the reserves place Nigeria as the tenth most petroleum-rich nation, as well as the most affluent in Africa.
In Nigeria, the petroleum is categorized as either light or sweet, which implies that the oil contains less than 0.5% of sulphur in comparison to other higher sulphur level oils [8] , hence making Nigeria's oil very good. OPEC recognises Nigeria's petroleum's as the largest producer of sweet oil.
This sweet oil is very similar in terms of the content of oil extracted from the North Sea region. However, this oil in context is identified as the bonny light cruel oil. Besides the Bonny Light crude, there are other types that are named according to the export terminal, theses include:, Brass River, Escravos blend, Forcados, Pennington Anfan and Qua Iboe. The United States plays a vital role in terms of customers to Nigeria. They are the countries largest customers for crude oil, which account for 40% of the total export of the country, although interestingly, Nigeria provides about 980 Thousand Barrels [9] (10%) of the total U.S. petroleum imports and ranks as the fifth-largest source for U.S. imported oil [10] .
2.2 The Dynamics of Oil Demand and Supply in Nigeria
Nigeria with a population of well over 150 million people [11] , blessed with abundant natural resources, especially hydrocarbons undoubtedly the largest oil producer in Africa and with one of the biggest reserves in the world. Resource waste and maintenance of infrastructure continue to affect the country's ability to utilize its resources to translate to economic prosperity.
It contains estimated proven oil reserves of 36.2 b/bbls and produces 90 mmbbls per annum (approximately 2mmbbls/d) of crude oil (IEA 2008) [12] . Most of the production is from the prolific Niger Delta region. Although there are problems associated with community disturbances and underfunding, Nigeria's wealth of oil makes it very attractive to the major international oil companies due to large reserves and favorable features of its crude oil. It also contains an estimated 182 tcf of proven natural gas reserves, of which 75% of the associated gas is flared and only 12% re-injected [13] . Virtually all the major international oil companies participate in the industry by full representation, which adds to its foreign reserves.
The government through its wholly state-owned national oil company, Nigeria National Petroleum Corporation (NNPC) has total control over the Industry, in both upstream and downstream activities and setting of wholesale and retail prices.
The upstream remains the most single important sector in the economy, providing over 95% of the country's total exports. The downstream is considered the second key sector, which manages the country's 3 oil refineries with a capacity of 445,000 bbl/d, 8 oil companies and about 750 independents oil marketing companies, actively involved in marketing petroleum products [14] . Due to poor policy implementation, this often results to acute scarcity and its attendant socio-economic consequences.
Refined products remain heavily subsidized in spite of oil price volatility in international market and reverting to realistic prices remain a mirage, as efforts are countered by the national labor unions and the general public.
Supply Pattern of Oil
According to EIA (2009), in 2007, crude oil production average 1.94mmbbls/d making it the largest crude oil producer in Africa. If current shut-in capacity were to be back online, it estimates that production could have reached 2.7mmbbl/d in 2008. But due to communal disturbances, production does not come in relative volume, which had implications on revenue generation, investment, employment rate, among other macro-economic indices.
These problems have consistently led to postponement of production activities, making operations highly unsecured. Also due to inadequate refining capacity, higher volume of production is exported and refined products imported to meet domestic consumption.
Chart 1: OIL PRODUCTION & DOMESTIC CONSUMPTION
Source: EIA 2007
This has significant effect on government spending and foreign reserve earnings. Hence the constant battle between economic growth and oil consumption.
Demand Pattern of Petroleum Products
There is an increasing demand for petroleum products consumption due to population growth and increased foreign investment into the country, which could be attributed to oil exploration activities without a corresponding increase in domestic supply, and investment in refining capacity as a result of minimal deregulation of the oil Industry.
The Transport sector is the major consumer of petroleum products with 64% of the total consumption in 1980 and 81% in 2007; Industry and non-energy use accounts for 0.02% each, other sectors (including residential, agric, commercial/public services) accounts for 16% (Appendix 8-ESDS, 2009) [15] .
PMS, DPK and AGO been the major refined products consumed are commonly used for cooking; transportation and running of standby generators for electricity due to erratic power outage (NNPC 2008) [16] . The percentage usage of DPK is higher in rural areas where commercialized electricity is rare and inefficient. The industrial and other sectors heavily rely on standby generators for power generation.
Being transport a captive sector, any disruption in refine product supply causes panic due to importance of the sector to the economy. To put it in the proper perspective, the graph below indicates that economic growth of the country in terms of GDP has not consistently reflect on per capita income of the country. This could be attributed to population growth.
Source: IEA, 2006 Energy Indicators
2.2 Factors Affecting Demand and Supply of Oil in Nigeria
Basically, the country faces problems affecting resource-rich countries in terms of coordinating influences of resource sector management. This is evident in view of the mismatch between production and consumption as depicted in chart (1) above. The factors inherent in the above assertions range from oil pricing, investment, income, government regulation while tastes/preference and oil substitution to cheaper source seems inelastic due to captive nature of the oil resource. These factors collectively influence the demand and supply of oil in the country.
Oil price, to be discussed exhaustibly in the next chapter, has a lot of influence on the country's economy. Being the main stay of Nigeria's economy, its volatility has multiplier effect on revenue, which trickles down to an average family in the country. This factor is an exogenous variable to the economy, as government cannot influence it.
As budget relies on oil revenue, a fall in crude oil price affects the country's account balances, which translates to individual household income. This is largely due to government been the highest expender. Consequently, investments tend to suffer due to low revenue generation. As the industry is highly capital intensive, investors will be unwilling to invest due to falling oil prices and on the other hand, government commitments to other social desirable projects need to be considered as well.
Continuous control and excessive regulation of the industry, lack of market-oriented structures and oil substitute has taken a turn on demand and supply of oil in Nigeria. While government regulation of price through subsidies is unsustainable, refined products scarcity seems to defy all solutions. The resultant effect is that consumers face an undue hardship to meet their demand.
2.3 Effects of Oil Price on Nigerian Economy
Being an international product, crude and refined products remained the single largest international trade both in volume and value (Hartshorn, 1993) [17] . In view of its strategic position, it remains the key economic variable in determining the financial worth of economies.
Oil prices are increasingly becoming volatile due to its inherent features. Consequently, the variety of inter linkage effects on Nigeria economy can be traced as follows;
Higher oil prices experienced in the 1980s to 2007 resulted to a fall in domestic consumption due to increase in import value (foreign exchange effect) of refined products though a net-exporter of crude oil.
The cost of production of goods and services rose drastically, which puts pressure on profits of industries. The effect led to output reduction and consequently winding-up of major manufacturing industries due to higher energy intensity requirements of those sectors to flourish.
The higher cost of goods and services place much pressure on general price levels in the economy, leading to inflation.
These higher costs and inflation, along with reduced profit margin placed pressures on demand, wages increment and employment, and affected economic activities.
The spiral effects on economic activities influenced financial markets, interest and exchange rates [18] .
Consequent upon which consumer behaviours were affected and economising became a household name in the country.
Oil price volatility and current downward price of oil from mid-2009 continues to affect the economy negatively translating to budget cuts and adjustments. Being an importer of refined products, products are source at import parity price, paid in foreign currency and distributed at highly subsidized rates.
3.0 FORECAST AND ANALYSIS OF OIL DEMAND & SUPPLY
The essence of analyzing and forecasting of future oil demand and supply is based on the premise that sufficiency is vital to the smooth running of any economy. As stated earlier, energy and economy are interwoven and each complements the other. More so, due to long lead-time and capital intensiveness of energy projects, developing countries need to analyze past trends and forecast the likely growth path of future energy demand and supply. The increasing demand for commercial liquid fuels other than solid fuels for economic activities in developing countries and its effect on general economic indices cannot be overemphasized.
Thus indicators like simple growth rate, oil intensity, GDP and oil price elasticity, and production to consumption (P/C) ratio [19] have consistently provided a clue to oil utilization for both past and future expectations and will be applied to this research paper accordingly.
3.1 Analysis of Historical Demand and Supply of Oil
The simple average growth rate analyzed shows that total oil consumption decreased by 1% from 7096ktoe in year 1980 to 6398ktoe in year 1990 with an increase in GDP growth rate of 2.6% within the 10 year period. Between year 1991-2000, consumption increased drastically by 5% from 6398ktoe to 9023ktoe and GDP growth rate increased further to 5.3% within same period under analysis. Also GDP increased at a decreasing rate by 1.3% and same for oil consumption by 1% between years 2001-07 (See Appendix 5). The correlation between oil consumption and GDP is a reflection that oil export revenue is the only source of revenue generation of the country, while other productive sectors contribute insignificantly to the economy.
Oil Intensity decreased by 29% between periods 1980-1990 (2.29 to 1.63 toe per thousand national currencies - real terms) and further decreased by 47% between periods 2000-2007 (1.91 to 1.01 toe per thousand national currencies) (See Appendix 4). This phenomenon is a reflection of modest growth of oil consumption relative to population and GDP within the last 27 years. The future of oil demand might change in view of government policy on deregulation of the sector, consequent upon which demand will reduce initially and later increased due to adjustments in the system.
Based on elasticity, oil consumption is found to be inelastic to price (-0.02) between years 1980/1990; elastic to price (0.19) between periods 1991/2000; and subsequently remained inelastic to price (-0.5) within years 2001/2007 (See Appendix 6). Again, this anchors the earlier assertion above that oil consumption is not responsive to price. It also reflects the fact that when the short-run stock of oil using appliances is fixed, capacity utilization presents limited opportunities to change oil consumption. However, between years 1991-2000 (when demand is elastic) shows that consumers became responsive to price and some simply have to do without it (deprivation). If substitutes were available, demand curve will inexorably shift to the left but instead, the effect showed in output gained in terms of GDP growth rate of 2.6% between 1980/90 to 5.3% in 1991/2000.
The production to consumption ratio (P/C) is a measure of self-reliance and sufficiency indicator showing that the country has enough domestic production to cope with demand. The rule of this indicator is that a P/C value < 1 indicates that the country is a net importer (the country produces less than it consumes), while P/C >1 indicates a net exporter. The P/C ratios in 1980 and 1990 for Nigeria are averagely 14 while for the periods 2000 and 2007 are consistently 13, indicating a self-sufficiency ratio to cope with demand (See Appendix 7). Indeed, the P/C ratio is a useful indicator for addressing the demand and supply issues, such as the ability of a country to continue producing at a current rate, or the decrease on foreign currency reserves due to oil imports to meet demand.
3.2 Determinants of Future Demand and Supply
A country in isolation cannot with degree of certainty determine those factors that will shape its future demand and supply. This is in view of the fact that oil is an international commodity and inputs (in terms of technology) changes rapidly. However, generally speaking, Issues concerning security of supply, access to energy for the teeming population struggling to afford at reliable and acceptable prices abound. At the same time, increasing demand for energy from developing countries due to industrialisation, supply concentration in politically unstable regions and lack of adequate investment from producer governments may be the determining variables.
At national level, restructuring and reforms to market-oriented structures, environmental concern continues to dominate the industry. This is compounded by the fact that oil segment is complex because of a number of factors:
The industries is highly technical in nature, requiring a thorough understanding of the underlying processes and techniques for a good grasp of the economic issues;
Each value chain in the industry has its own specific features which require special attention;
Oil being an ingredient of any economic activity, its availability or lack has significant effect to society.
Consequently, a lot of factors will shape the future demand and supply of oil in Nigeria. These include;
Adequate supply arrangement to cope with increasing demand due to population growth with effective market-led mechanism, which could eliminate subsidy. The deregulation effort of government is welcome.
Access to alternative substitute due to environmental concern of oil could assist in meeting ambient air quality standards as well as reduction in greenhouse gas emissions by encouraging efficient technologies.
Technology development and investments requirement due to capacity addition in refined products.
Wealth distribution mechanism in terms of fiscal mechanism and credit facilities to boost the economy.
Government policies should gear towards state-led investments in major energy projects, especially those requiring longer-term financial commitments and strategic importance, where private sector could not develop those nationally desired energy sources like renewable or those considered as public goods.
3.3 Forecast of Oil Demand and Supply
Based on the forecast of 20% growth rate in GDP and oil consumption (See Appendix 3), it is expected that consumption will increase drastically due to increase in economic activities as indicated in the chart below. This is on the assumption that government considers the factors analyzed above (investments, etc). This will trigger productive sectors consumption and inevitably add to national income of the country.
Chart 2: Forecasted Oil Production (Supply) and Consumption (Demand)
Original Source: ESDS (See Bibliography)
Recall that chart 1 shows that oil production is basically exported leaving a paltry sum for domestic consumption over the years 1986-2007. This forecast expects the trend to change from production-export to production-consumption which could stimulate real economic growth of productive sectors by the year 2020 if a growth rate of 2.0% is achieved annually, thus reflecting the narrow gap between production and consumption in chart 2 above as against the past trends.
4.0 DEMAND AND SUPPY SIDE MANAGEMENT OF OIL
This chapter focuses on the economic decisions involved in demand and supply management of non-renewable resources especially oil due to its peculiar features (uneven distribution, infrastructure constraints, possibility of depletion) that restricts application of some basic economic principles.
As oil continues to dominate the future energy demand both at national and international level, supply related problems have necessitated the need to look at the demand management of oil to change the level of consumption that will be beneficial to the society [20] .
The analysis above for Nigeria shows that domestic production continues to grow yearly while GDP growth rates are not commensurate to sectorial consumption and also oil consumption is not responsive to price and GDP changes both in the short-term and long-term. This therefore calls for structural changes to alter the equation.
For the economy to be responsive, sectorial contribution to national income/output need to be encouraged for sustainable growth. It's even more so due to too much reliance on oil revenue which is unpredictable. This is clearly reflected between years 1991-2000 were GDP growth rate reduced from 27% to 21% as a result of oil price shock (See Appendix 5).
While sectorial consumption is forecasted to grow at 20% from 2008-2020, oil conservation and efficiency policies need to be put in place to provide an opportunity for energy savings. Already energy intensity is assisting in that direction as it has consistently showed a remarked reduction of 29% and a further 47% between 1980-90 and 2000-07 respectively, perhaps due to low productive economic activities.
Finally, government intervention is required in areas where market failures and externalities [21] exist to provide corrective measures. Swisher et al (1997) provided some suggestions including standards and regulations; information and labeling programs on efficient technologies; and financial and fiscal incentives (grants, subsidies, tax holiday, loans, etc).
5.0 CONCLUSION
Indicators analyzed like oil intensity, elasticity and P/C ratio points to the fact that the economy relies heavily on oil for revenue generation while domestic consumption contribution to the GDP is virtually insignificant, much of which is generated from crude oil exports. With a forecasted growth rate of 2.0% in consumption, it has been discovered that other sectorial contribution to national income/output will step up in manifold from 2008-2020 with a corresponding growth in GDP. This shows a strong exponential relationship between oil resources and the macro-economic indices of all economies.
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