Closer look at Nigeria

Nigeria’s President says that his country will not be able to generate enough electricity for its population until 2015.

BBC News

How realistic are the President’s plans, what does the future hold for Nigeria and what are its implications for the rest of the world?

Currently, only 40% of Nigerians have access to the country’s power grid. The energy mix of Nigeria is made up of oil, gas, and a significant portion of hydroelectricity. (seen below)

Nigeria's Energy Mix
Nigeria's Electricity Production

 
The plans of President Umaru Yar’Adua include renegotiating contracts with international oil companies over seven years on the sale of exported gas in order to bring three gas-fuelled power stations online. There are also a few hydroelectric projects in development with the help of Chinese investment. Some experts also suggest that Nigeria has enough coal reserves to meet energy demand (Link). Even so, the issue of transmitting any electricity to rural regions, which contain most of the 85 million people without electricity, is problematic and costly.

According to Kadiri Hamzat, Lagos State Commissioner for Science and Technology, it costs about 1.2 million dollars to connect each village to the electrical grid1. In addition, there are losses in electricity from transmission. The susceptibility of a centralized grid must also be considered given recent rebel attacks against oil facilities in the Niger Delta. With this in mind, a decentralized solution must be considered.

There is already local response to the unreliability of the electrical grid. The EIA states that “To compensate for the power outages, the commercial and industrial sectors are increasingly using privately operated diesel generators to supply electricity2.” Seems like a good source of electricity for a country with vast oil reserves, right?  In fact, despite 587,000 barrels/day of production being shut-in as of April 2007 due to rebel attacks, Nigeria exports roughly 2.15 million bbl/d and is looking to expand offshore production which would not be susceptible to rebel attacks. Their peak in oil production is not expected until the next decade at least. The only thing keeping this from being a short-term solution is (surprise, surprise) infrastructure.

Due to a lack of refining capacity, Nigeria is forced to import finished petroleum products, and subsidize them for its population. There are only four refineries in all of Nigeria, and most are not in optimal condition3. One refinery is currently under consideration that would add 360,000 bbl/d of refining capacity. Nevertheless, diesel generators would not be a scalable way to bring electricity to Nigeria even if it is off the grid.  If done remotely, there would be costs of transporting diesel fuel, lowering the net energy return of any investment.

While diesel electricity generation is an unrealistic possibility, solar power could bring a large amount of electricity to rural villages. While connecting villages to the grid costs $1.2 million dollars, installing a solar power system costs only $83,0001. The potential for wind is also there, with potential development in coastal and northern areas4. Not only is this method more cost effective and efficient, it will require villages to develop in a sustainable manner. Whether these renewable sources can be scalable solutions remains to be seen, but with proper planning they should take on a less than insignificant role in the energy mix of Nigeria.

But what are the implications for the rest of the world that receives the 2+ million barrels/day of oil exports, principally the United States, but also Europe, South America, Asia and the Caribbean? In the short term, the electricity shortage could have a few effects. First, the diesel generators used as substitutes to grid power could see an increase in use, putting further pressure on world diesel prices. However, the steep rise in the price of finished products may price many Nigerians out of the market, leaving many without electricity or fuel for their automobiles. Couple this with the ongoing shortage of electricity and you have the makings of an economic slowdown. Nigerian real GDP growth for 2007 was a robust 6.3%, a misleading figure due to 20% of GDP coming from oil revenue. If a slowdown in their economy were to occur, domestic oil consumption would likely decrease, increasing the amount of exports available and preventing the consequences of the export land model we now see in Mexico, Indonesia and elsewhere. As seen below, domestic consumption has been slow to grow in the last 20 years.

Nigerian oil production and consumption

The Nigerian government hopes to increase oil production from 2.45 million bbl/day to 4 billion by 2010 as new projects come online and shut-in production is able to be exploited. In my opinion, this optimistic scenario is unlikely to occur as an increase in exports will only strengthen the cause of the rebels and bring about more attacks. Despite this, if developments in offshore drilling prove to be successful, the increase in Nigerian output could greatly help offset the coinciding drop in exports from Mexico and elsewhere.

To conclude, Nigeria should look at renewable, decentralized sources of electricity rather than attempting to expand the grid to rural villages. The potential effects of electricity shortage and rising fuel costs, along with the inability of Nigeria to utilize its own petroleum production will benefit the rest of the world as exports remain high. I am not advocating simply maintaining dependence on oil by finding new sources, but using these new sources to instead buy time for transition while preventing economic collapse.

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One Response

  1. […] a large portion of the decline seen from other exports such as Algeria, Mexico and Venezuela. In a previous post we briefly discussed the possibility of Nigeria helping to offset the declines seen in Mexico and […]

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