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Forecasting the Domestic Utilization of Natural Gas in Nigeria(2015-2020)

Abstract

Domestic utilization of natural gas in Nigeria is being hampered by the poor developments in the natural gas sector over the years, with low level of electricity (generation) consumption per capital, weak legal, commercial and regulatory framework amidst poor infrastructural developments in natural gas as compared to that which exists for oil. Nigeria ranks the second in gas flaring and shows low volumes of domestic gas utilization, consuming only about 11% out of the 8.25 billion cubic feet produced per day in 2014 despite its natural gas resource endowment. This paper examines the determinants of domestic utilization of natural gas in Nigeria from 1990-2013. It investigates its relationship as a function of price of natural gas, price of alternative fuels, foreign direct investment, volumes of gas flared, electricity generated from natural gas sources and per capital real GDP. Going further, it forecasts its likely growth rate for a short-term period, using an econometric methodology of ordinary least squares and an ARIMA model, it estimates the relationship between the variables and uses the historical trend to forecast into the future.The result of the study showed that the determinants jointly explain the pattern of domestic gas utilization in Nigeria by 98%. Individually, per capital real GDP, electricity generated from natural gas sources and changes in the volume of domestic utilization of natural gas was found to have a positive and significant effect on domestic gas utilization. Further, the forecast values show evidence of a slow but gradual increase in utilization pattern in the near future from 2015-2020. A best-case scenario of an increase of 0.15% and a worst-case scenario of a decrease of 0.14% was presented. In conclusion, having identified significant influences on domestic gas utilization patterns in Nigeria it is imperative that the government uses economic instrument to enhance the utilization patterns in Nigeria by improving economic activities and developing the power sector which shows significant influence in domestic natural gas utilization patterns.