TEL503 — Energy Economy: Lecture Note

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Course code: TEL 503 Course title: Energy Economy Course credit load: 2 Units Series 1: The Nigerian and World Energy Situation and Foundations of Energy Economics • Part 1.1: The Nigerian Energy Situation o Sub Part 1.1.1: Nigeria's Energy Resources and Reserves o Sub Part 1.1.2: Nigeria's Energy Production and Consumption Patterns o Sub Part 1.1.3: Challenges in the Nigerian Energy Sector • Part 1.2: The World Energy Situation o Sub Part 1.2.1: Global Energy Resources and Reserves o Sub Part 1.2.2: Global Energy Production and Consumption Trends o Sub Part 1.2.3: Comparing Nigeria's Energy Situation to the Global Picture • Part 1.3: Foundations of Energy Economics o Sub Part 1.3.1: What Is Energy Economics? o Sub Part 1.3.2: Key Economic Concepts Applied to Energy o Sub Part 1.3.3: The Role of Energy in Economic Development • Part 1.4: Theoretical Perspectives in Energy Economics o Sub Part 1.4.1: Classical and Neoclassical Perspectives on Energy o Sub Part 1.4.2: Resource Depletion Theory o Sub Part 1.4.3: Energy Economics as a Field of Study

Introduction This is the opening Series of TEL 503: Energy Economy. Energy is not merely a technical or engineering commodity; it is a central input to every national economy, and understanding how energy is produced, consumed, priced, and governed requires genuine economic analysis alongside the physical and engineering knowledge built up in earlier coursework. This Series begins that analysis by establishing a clear picture of Nigeria's own energy situation, the wider world energy picture against which it is usefully compared, and the basic economic and theoretical foundations that the rest of this course builds upon. The aim of this Series is to equip you with knowledge of the Nigerian and world energy situations, an appreciation of how they compare, and the foundational economic concepts and theoretical perspectives that underpin the study of energy economics as a distinct field. We shall commence this Series by examining the Nigerian energy situation. Next, we will consider the world energy situation. Following that, we will examine the foundations of energy economics. Finally, we will conclude by examining theoretical perspectives in energy economics. Series Learning Outcomes Upon completing this Series, you should be able to: • SLO 1.1: demonstrate knowledge of the Nigerian energy situation, • SLO 1.2: describe challenges facing the Nigerian energy sector, • SLO 1.3: demonstrate knowledge of the world energy situation, • SLO 1.4: compare Nigeria's energy situation to the global picture, • SLO 1.5: explain the foundations of energy economics, • SLO 1.6: apply key economic concepts to energy, • SLO 1.7: explain the role of energy in economic development, • SLO 1.8: describe theoretical perspectives underpinning energy economics. 1.1 The Nigerian Energy Situation 1.1.1 Nigeria's Energy Resources and Reserves

Nigeria possesses substantial energy resources, most notably proven crude oil reserves exceeding 37 billion barrels and natural gas reserves among the largest in Africa, positioning the country as a significant hydrocarbon producer on the global stage, while also holding considerable, largely untapped renewable potential in solar irradiance across its northern regions and hydropower along several major river systems. Despite this resource abundance, Nigeria's energy economy remains heavily weighted toward hydrocarbon extraction for export earnings rather than domestic energy conversion, meaning the country's vast reserves have historically translated into national export revenue far more reliably than into widespread, reliable domestic electricity supply for its own citizens and industries. Worked example: Nigeria's proven oil reserves of roughly 37 billion barrels, at a production rate of approximately 1.5 million barrels per day, imply a reserves-to-production ratio of several decades at current extraction rates, before accounting for any new discoveries. Application: Understanding the scale and type of Nigeria's energy resource base is the essential starting point for any policy discussion about how the country should manage, tax, or diversify its energy sector. Fill in the blank: Nigeria's natural gas reserves are among the largest in ________. 1.1.2 Nigeria's Energy Production and Consumption Patterns Nigeria's energy production is dominated by crude oil and natural gas extraction, much of it destined for export, alongside domestic electricity generation drawn primarily from natural gas-fired thermal plants and hydropower, while energy consumption patterns show a striking divide between a formal grid-connected sector and a very large informal sector relying on self-generated power from small diesel and petrol generators. Per-capita electricity consumption in Nigeria remains substantially below the levels seen in comparably sized economies, reflecting both insufficient generation capacity actually reaching consumers and the widespread reliance on self-generation as a costly but necessary substitute for an unreliable grid supply. Worked example: A Nigerian small business paying for both a grid connection and a backup diesel generator effectively pays twice for electricity access, once through utility tariffs and once through fuel and maintenance costs for self-generation, illustrating the true effective cost of Nigeria's current energy consumption pattern. Application: Recognising this formal-informal consumption divide is essential for correctly interpreting Nigeria's official electricity statistics, which capture only a fraction of the energy Nigerians actually consume and pay for. Fill in the blank: Nigeria's energy consumption shows a divide between a formal grid sector and a large ________ sector relying on self-generation.

1.1.3 Challenges in the Nigerian Energy Sector The Nigerian energy sector faces several persistent challenges: insufficient generation and transmission capacity relative to demand, significant technical and commercial losses within the distribution network, gas supply constraints that limit thermal generation even where plant capacity exists, and a difficult revenue collection environment that limits funds available for reinvestment in the sector's own infrastructure. These challenges are mutually reinforcing rather than independent: poor revenue collection limits infrastructure investment, under-invested infrastructure produces unreliable supply, and unreliable supply in turn undermines both willingness to pay and the sector's ability to collect revenue, a difficult cycle that energy policy in Nigeria has grappled with for decades. Worked example: A distribution company facing high commercial losses from unmetered or under-billed connections has less revenue available to invest in reducing those same losses, illustrating the self-reinforcing nature of Nigeria's sector challenges. Application: Understanding these interlinked structural challenges is necessary context for evaluating any specific energy policy or reform proposal examined later in this course. Fill in the blank: Nigeria's energy sector challenges are mutually ________ rather than independent of one another. Figure 1.1: Nigeria's electricity generation mix by source. Pilot questions 1.1 1. State the approximate scale of Nigeria's proven oil reserves. (Linked to SLO 1.1)

2. Name Nigeria's two main domestic electricity generation sources. (Linked to SLO 1.1) 3. Explain the formal-informal energy consumption divide in Nigeria. (Linked to SLO 1.1) 4. Name three challenges facing the Nigerian energy sector. (Linked to SLO 1.2) 5. Explain why Nigeria's energy sector challenges are mutually reinforcing. (Linked to SLO 1.2) 1.2 The World Energy Situation 1.2.1 Global Energy Resources and Reserves At the global level, energy resources remain dominated by fossil fuels, oil, coal, and natural gas, concentrated geographically in a relatively small number of resource-rich regions, including the Middle East for oil and natural gas and a handful of countries for coal, alongside rapidly growing renewable resource development, particularly solar and wind capacity, spread more evenly across regions with suitable climatic conditions. This geographic concentration of conventional fossil reserves, unlike the more evenly distributed potential for renewable resources, has historically shaped global energy trade patterns, geopolitics, and pricing, with a small number of major exporting nations exerting outsized influence over world oil and gas markets. Worked example: The Middle East holds a substantial share of the world's proven oil reserves, giving a small group of countries considerable influence over global oil supply and pricing decisions through coordinated production adjustments. Application: Understanding the geographic concentration of global energy resources is essential background for interpreting international energy prices, trade flows, and the geopolitical dimension of energy policy. Fill in the blank: Global fossil fuel reserves are geographically ________ in a relatively small number of regions. 1.2.2 Global Energy Production and Consumption Trends Global energy production and consumption have grown substantially over recent decades, driven by population growth, industrialisation, and rising living standards, particularly in large developing economies, with fossil fuels still supplying the majority of total world energy demand despite the rapid recent growth of renewable generation capacity. Consumption patterns vary enormously between advanced and developing economies: advanced economies generally show high per-capita consumption with slow or flat overall growth, while

developing economies show lower per-capita consumption but far faster growth rates, as expanding populations gain access to modern energy services for the first time. Worked example: A rapidly industrialising developing economy might see its total energy consumption double within a couple of decades as manufacturing activity and household electrification both expand, a growth rate far exceeding that typically seen in a mature, already highly electrified economy. Application: Understanding these differing growth trajectories is essential for forecasting future global energy demand and for placing Nigeria's own energy trajectory in appropriate international context. Fill in the blank: Developing economies typically show lower per-capita energy consumption but far faster ________ rates than advanced economies. 1.2.3 Comparing Nigeria's Energy Situation to the Global

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