Energy Supply and Demand Patterns in Nigeria
*Curated by the Research Partnership Group (RPG) of Clean Technology Hub
Written by Mohammed Saani Osman (July, 2024)
1. Introduction
In recent years, the global energy sector has experienced significant transformation with the emergence of modern sources of energy. Prior to 2021, modern renewables such as wind and solar PV were the least contributors to global energy supply. The growth of these sources has been trending upwards through 2021 when they surpassed hydro in the global energy supply mix (International Energy Agency). In the same vein, the composition of wind technologies and solar PV each surpassed oil as a fuel source for electricity generation globally in 2016 and 2020 respectively (International Energy Agency). This trend appears to be symptomatic of the global energy transition agenda targeted at limiting greenhouse gas emissions to 1.5oC above pre-industrial levels. This agenda seeks to promote the adoption of modern renewable energy forms while discouraging the use of fossil fuels. In the African context, the energy transition agenda is yet to influence the energy mix in a similar manner as the global narrative. Modern renewables are still underdeveloped with only natural gas surpassing coal in the energy supply mix as well as the electricity generation mix (IEA). Individual African countries, especially oil and gas-rich countries, are faced with the challenge of transitioning their energy sectors to non-fossil-based sources in the wake of economic challenges.
Being the largest crude oil producer in Africa (International Trade Administration), Nigeria’s total energy production is characterized by a heavy presence of biofuels and waste, followed by crude oil and natural gas. The country’s energy consumption is predominantly in the residential sector, signifying the majority role of biofuels and waste in the energy mix. Nigeria faces significant challenges in electricity access with a considerable dependency on fossil fuels for electricity generation (International Trade Administration). The Nigerian energy mix is further detailed in the following paragraphs.
2. Energy Supply Mix
According to the International Energy Agency, Nigeria’s overall energy supply is heavily dominated by biofuels and waste, which accounted for 74.5% of the total energy supply in 2021 (Figure 1). Oil and natural gas together contributed 24.1%, while coal accounted for a mere 0.9%. This reliance on biofuels is largely due to the extensive use of biomass for cooking and other domestic purposes in the residential sector, which is the largest energy consumer by sector in the Nigerian economy.
3. Energy Consumption Patterns
In 2021, the residential sector in Nigeria consumed 76.2% of the total energy supply, followed by the transport sector at 13.5%, industry at 6.6%, and services at 2.4% based on the International Energy Agency data (Figure 2). The demand for biofuels, primarily for cooking, constituted 79% of the energy consumption in the residential sector, making it the largest energy source in demand. Petroleum products, natural gas, electricity, and coal accounted for 15.1%, 3.1%, 1.1%, and 1.1% of the energy consumption respectively according to the International Energy Agency.
The heavy reliance on biofuels in the residential sector is a significant issue due to the health and environmental implications. Traditional biomass use, such as firewood and charcoal, leads to indoor air pollution, which poses severe health risks, particularly respiratory diseases. Women and children are disproportionately affected as they spend more time indoors and are often involved in cooking activities.
Figure 1: Energy Supply Mix of Nigeria (2021)
Source: Author’s Computation from International Energy Agency
Figure 2: Energy Consumption Pattern by Sector in Nigeria (2021)
Source: Author’s Computation from International Energy Agency
4. Electricity Access and Generation Mix
As of 2021, the electricity access rate per total population in Nigeria was 59.5%, with urban population having a higher access rate (89.2%) compared to rural population according to the World Bank. This disparity highlights a critical challenge in achieving equitable energy access across the country. The International Energy Agency has indicated that, the electricity generation mix in Nigeria is primarily dominated by natural gas, which accounts for 78% of the generation, followed by hydro at 22% and solar PV at a negligible 0.1%. The inclusion of solar PV in the electricity generation mix began only in 2012 at initial generation capacity of 22 GWh. The generation capacity increased to 48 GWh by 2021 indicating a 118% increase over the period.
Nigeria’s heavy reliance on natural gas for electricity generation indicates a high level of dependence on fossil fuels. This dependency poses risks in terms of energy security and sustainability under the energy transition scenario.
5. Dependence on Fossil Fuels
Nigeria’s electricity generation heavily relies on fossil fuels, particularly natural gas. This dependence is reflective of the broader energy sector, where fossil fuels play a crucial role. Nigeria is the largest oil-producing country in Africa and the third-largest natural gas producer on the continent according to the International Trade Administration. Despite its significant oil and gas production, Nigeria remains a net importer of petroleum products due to its limited domestic refining capacity as indicated by the International Trade Administration Country Commercial Guide. The country’s reliance on imported petroleum products is a major economic concern. It not only drains foreign exchange reserves but also exposes the economy to global oil price volatility.
5.1 Economic Implications
The oil and gas sector is a vital component of Nigeria’s economy, contributing 6.2% to the country’s GDP in 2021 (World Bank). However, the sector faces challenges such as inadequate infrastructure, limited refining capacity, and fluctuating global oil prices, which affect its overall contribution to economic stability and growth.
6. Challenges and Opportunities in the Energy Sector
The Nigerian energy sector faces several challenges that hinder its development and efficiency. One of the primary issues is the inadequate infrastructure for energy production and distribution. The country’s limited refining capacity means that despite being a major oil producer, Nigeria imports a significant portion of its petroleum products (IEA, 2021). Under the energy transition scenario where the oil and gas business is continuously being disincentivized, this poses a risk of unavailability to meet domestic demand of finished products thereby impacting on energy security if this demand remains dominant.
Another challenge is the limited access to electricity, particularly in rural areas. The disparity between urban and rural electricity access rates highlights the need for significant investment in rural electrification projects. Expanding access to electricity is crucial for improving the quality of life and supporting economic activities in rural communities.
Despite these challenges, there are opportunities for growth and improvement in Nigeria’s energy sector. The country has significant renewable energy potential, particularly in solar and wind power considering its geographical location and climate. Investing in renewable energy sources can help diversify the energy mix, reduce reliance on fossil fuels, and improve energy security. The inclusion of solar PV in the electricity generation mix, although currently minimal, indicates a step in the right direction (IEA, 2021).
7. Policy Recommendations
The following are some policy recommendations:
Invest in Energy Infrastructure: Upgrading and expanding energy infrastructure is essential for improving energy production, distribution, and access. This includes investment in transmission and distribution networks to reduce energy losses and improve supply reliability.
Promote Renewable Energy: Increasing investment in renewable energy sources, such as solar and wind, can help diversify the energy mix and reduce dependence on fossil fuels. Implementing policies that encourage the development of renewable energy projects, such as tax incentives and subsidies, can attract private sector investment. Additionally, establishing clear regulatory frameworks and streamlining approval processes can facilitate the growth of the renewable energy sector.
Rural Electrification: Expanding access to electricity in rural areas should be a priority. Government and private sector collaboration can help fund and implement rural electrification projects, including off-grid and mini-grid solutions. Providing financial incentives and technical support to local entrepreneurs can also promote the development of decentralized energy systems in rural communities.
Energy Efficiency: Promoting energy efficiency measures can help reduce overall energy consumption and lower costs. Implementing energy efficiency standards and regulations for appliances, buildings, and industrial processes can contribute to more sustainable energy use. Public awareness campaigns and energy audits can also encourage households and businesses to adopt energy-saving practices.
8. Looking Ahead
Nigeria’s energy sector is characterized by a heavy reliance on fossil fuels and biofuels, with significant challenges in electricity access and domestic refining capacity. While the country has substantial oil and gas resources, there is a critical need for investment in infrastructure and diversification of the energy mix to enhance energy security and support sustainable economic growth. By addressing these challenges and leveraging opportunities in renewable energy, Nigeria can achieve a more resilient and sustainable energy future.
Mohammed Saani Osman is a Research Policy Analyst at the Africa Centre for Energy Policy, Accra, Ghana. His areas of interest are oil and gas, electricity, mining, and energy transition. Saani is a member of CTH RPG.
Email Address: msosman@acep.africa
