Shortage Of Petroleum Products Economics Essay

Recent find of oil and gas in Ghana in commercial measures has given the state hope in advancing economic development. The state at the minute is seting in topographic point the necessary legislative and institutional reforms to guarantee efficient usage of resources from the oil discovery. Ghana ‘s quest to run into its development docket is guided by the vision 2020 policy papers with the aim to achieve a in-between income position by 2015. Another major policy enterprise is to run into the millenary development ends by 2015. Attempts at making these marks have proven quiet challenging.

The rate of population growing in Ghana is bit by bit increasing with an mean intercensal growing rate of 2.5 % from 2000-2010.[ 1 ]The population of the state is projected to duplicate in size in 28 old ages.[ 2 ]Presently the population of Ghana stands at about 24million and is expected to duplicate by 2020. Increase in population will accordingly ensue in an addition in the demand for energy to fuel the economic system and for that affair the demand for crude oil merchandises.

A end under the energy policy papers for the downstream is to “ ease the cosmopolitan entree to adequate, dependable and cost effectual crude oil merchandises such as Liquefied crude oil gas ( LPG ) . ”[ 3 ]The focal point of the survey is chiefly on the major crude oil merchandises in high demand viz. ; Gasoline, Diesel, LPG and kerosine.

Therefore, this paper seeks to do projections for crude oil merchandises by 2015. The result of the research is expected to supply a prognosis of the state of affairs to policy shapers in the petro-chemical industry and the necessary intercessions for future planning.

1.1 JUSTIFICATION FOR THE STUDY

The deficit of crude oil merchandises in Ghana is one of the key challenges confronting the petro-chemical industry. The state has been challenged with frequent deficits of crude oil merchandises particularly LPG in recent old ages. This job generated from most commercial conveyance proprietors change overing their vehicles engines into utilizing LPG which they consider much affordable to petrol and diesel. Demand for LPG is projected to stand at 250,000-300,000 metric tons annually as a consequence of its high demand in the transit and domestic sector.[ 4 ]

Presently at the clip of this research, there has been a deficit in supply of crude oil merchandises in the state and the lone available merchandise for automobilist is leadless fuel which cost 2.4 cedis per liter as against 1.7 cedis for regular gasoline.[ 5 ]

Another major reverse facing the crude oil industry is unequal refinement capacity and deficient storage substructure.[ 6 ]The jutting one-year growing rate for crude oil merchandises is anticipated to increase from 1.62 million metric tons to 2.49 million metric tons by 2015.[ 7 ]

As a consequence of the celebrated challenges, this paper seeks to calculate for future demand of crude oil merchandises by 2015 and the demand for authorities readiness to counter demand and the current challenges at manus.

Figure 1: Deficit OF PETROLEUM PRODUCTS

Deficit Of Fuel Cues

Beginning: Joy Online, 2013.

The Figure above shows the recent deficit of crude oil merchandises on the Ghanese market making long waiting lines and devastation in concern activities.

2. REVIEW OF LITERATURE ON ENERGY DEMAND FORECASTING

This chapter identifies bing literature on energy demand calculating methods and decisions drawn from the assorted surveies.

2.1 EMPERICAL STUDIES

Ghosh, projected for future demand of crude oil merchandises in India utilizing cointegration and error-correction modeling attack from 1970-1971 to 2001-2002. His prognosis was to analyze the long-term equilibrium relationship between economic growing and entire ingestion of crude oil merchandises. The result of his research revealed that the series were co-integrated and the long-term snap of demand for crude oil merchandises was projected.

He farther went on to calculate for in-between distillations and entire demand for crude oil merchandises from 2011-2012. The consequences from the prognosis provided the demand for investing in the Indian refinery industry.[ 8 ]

Ibrahim and Hurst studied the factors lending to the form and degree of energy demand in oil importation and exporting states utilizing aggregative oil and energy demand theoretical accounts. The consequences from their survey pointed out a strong relationship between sum energy demand and income.[ 9 ]

Chai et al forecasted the demand for crude oil merchandise ingestion in the Chinese transit industry based on the Bayesian additive arrested development theory and Markov Chain Monte Carlo method ( MCMC ) . They established a demand-forecast theoretical account of gasoline and Diesel ingestion introduced into the analytical model, with explanatory variables of urbanization degree, per capita GDP, turnover of riders ( cargo ) in sum ( TPA, TFA ) , and civilian vehicle figure ( CVN ) . The prognosis A A was undertaken between the period ( 2011-2015 ) based on the historical information covering 1985 to 2009. They concluded that urbanisation is the most sensitive factor, with a strong fringy consequence on gasoline and Diesel ingestion in the transit sector.[ 10 ]

Parikh et Al. forecasted the demand for crude oil merchandises from 2011-2012 utilizing econometric theoretical accounts based on different crude oil merchandises. The survey was carried under two scenarios of low and high gross domestic merchandise ( GDP ) growing. The result of their survey provided an penetration for the Indian authorities on the investing determinations in the oil and gas industry to enable them achieve GDP growing as anticipated in the hereafter.[ 11 ]

Cheze et Al. projected the demand for fuel oil from 2008-2025 utilizing scenario design for the air conveyance sector. Their research concluded on a 100 % addition in air transit with an one-year growing of 4.7 % bespeaking an addition in demand for fuel oil by 38 % with 1.9 % one-year growing.

3. OVERVIEW OF THE PETROLUEM SECTOR IN GHANA

The crude oil sector comprises of the upstream, midstream and downstream. Activities in these sectors involve geographic expedition, production, transit and selling of crude oil merchandises. Major merchandises traded include premium gasolene, gas oil, and residuary fuel oil, LPG and Premix. About 30 % of the merchandises are imported and the staying 70 % refined locally by TOR.[ 12 ]

3.1 Demand FOR PETROLEUM PRODUCTS IN GHANA

The demand for crude oil merchandises has been increasing over the old ages. This may be attributed to one-year addition in population and economic growing. In 2011, the entire crude oil merchandises consumed was about 2.8 million metric tons.[ 13 ]

Figure 2: Consumption OF PETROLEUM PRODUCTS FROM: 2000-2011

Beginning: Compiled by Author utilizing NPA Data Ghana, 2012.

From figure 2, ingestion of crude oil merchandises fell in 2010 and began to lift in 2011. The autumn may be attributed to the proficient enlistment at the TOR ensuing from the pumping of sea H2O into the boilers doing harm to residuary fluid Catalytic cracker and the rough distribution unit ( CDU ) taking to the closing of the installation for about two hebdomads.[ 14 ]

3.2 IMPORT AND EXPORT OF PETROLUEM PRODUCTS IN GHANA

In 2011, the entire crude oil merchandises imported was about 2.1 million metric tons and merchandises exported stood at 665,900 metric tons.[ 15 ]Ghana is a major importer of petroleum from Nigeria. The entire imported refined crude oil merchandises for twelvemonth 2000-2010 was about 259 ( 000, barrels ) .[ 16 ]Ghana is a major importer of petroleum from Nigeria. The state imported about 10 billion barrels of petroleum for refinery operations and electricity coevals in 2011.[ 17 ]

Figure 3: Import AND EXPORT OF PETROLUEM PRODUCTS: ( 2000-2011 )

Beginning: Compiled by Author utilizing informations from Tema Oil Refinery, 2012.

From figure 2, import of crude oil merchandises increased in 2011. This was as a consequence of addition in crude oil merchandises imported from Nigeria worth $ 113 million dollars compared to entire import worth $ 81.76 dollars in 2010.[ 18 ]Export of crude oil merchandises began to lift instantly after 2007. This may be attributed to get down of petroleum production in commercial measures from the Jubilee field in 2011.

4. METHODOLOGY AND DATA ANALYSIS

This subdivision of the paper makes mention to the methodological analysis used for prediction and reading of the consequences.

4.1 RESEARCH METHODOLOGY AND DATA

The attack to the research was adopted from a similar survey undertaken in India to calculate the demand for crude oil merchandises and natural gas.[ 19 ]The variables used in their survey were GDP per capita, monetary value of crude oil merchandises and population. Time series informations was used and single demand theoretical accounts were developed for each crude oil merchandise. The prediction tool used was based on Log-linear equations.

For the intent of this survey, demand projections for crude oil merchandises by 2015 is centred on demand theoretical accounts developed for each crude oil merchandise. This is to supply an penetration into the variables and indexs used.[ 20 ]The Time series for the survey ( 2011-2015 ) was chosen based on the handiness of informations and the state ‘s quest to accomplish a in-between income position by 2015.

Indexs for the prognosis considered population, GDP per capita, and monetary value of crude oil merchandises as independent variables and energy demand taken as the dependent variable.ie. Edd= degree Fahrenheit ( GDP/P, P, POPN )

Where GDP/P represents Gdp per capita, P is the monetary value of crude oil merchandises ; POPN represents entire population and Edd for energy demand.

An econometric log- additive equation is developed for each crude oil merchandise based on the consequence from the arrested development analysis. The choice of the econometric theoretical account was considered dependant on R2 values and goodness of tantrum. The R2 consequences for each crude oil merchandise showed a high per centum of fluctuation in the dependant variable explained by the independent variable.[ 21 ]

The growing rate based method was used to calculate for all the variables. This method is used for short term prediction[ 22 ], therefore suited for the forecast period 2011-2015. The one-year growing rates for all the variables were calculated and future projections were done based on that. Data for the survey was sorted from the Ghana Statistical Service, Ghana Energy Commission, National Petroleum Authority and the World Bank.

4.2 FORECAST FOR INDEPENDENT VARIABLES

This part of the paper forecasted for the variables used for the projection period.

The growing rate based method is used for short and average term prediction. The method was used to calculate for future GDP, monetary value for the assorted crude oil merchandises and population for the period 2011-2015. This is indicated as follows.

I? = u ( 1 + A? ) A¦

Where u is GDP in the base twelvemonth

A? is the growing rate = ( c/b ) ^ ( 1/n ) -1.i.e. where degree Celsius is the basal twelvemonth, B is the current twelvemonth and n the figure of old ages.

A¦ is the future twelvemonth

4.3 PROJECTED POPULATION FROM 2011-2015

The population of Ghana is turning quickly and is expected to increase to 27 million by 2020.[ 23 ]In 1948, the population growing rate fell from 4.2 % to 2.4 % in 1960.[ 24 ]Since so, the state ‘s population increased by 2.6 % in 1984 and farther increased to 2.7 % in twelvemonth 2000.[ 25 ]The current population of Ghana stands at 24 million.

Table 1: Initial POPULATION FROM 2007-2015 ( MILLION )

Year

2007

2008

2009

2010

2011

Entire Population

22,712430

23,264176

23,824,402

24,391,823

24,965,816

Beginning: World Bank

Table 2: FORECASTED Population: 2011-2015

Year

2012

2013

2014

2015

Entire Population

25,440167

25,923,530

26,416,077

26,917,982

Beginning: Writers Construct, 2013.

From the analyses, the one-year growing rate of the population stood at 1.9 % . The jutting population for the twelvemonth 2015 stood at about 26 million. There is an expectancy that as population grows the demand for crude oil merchandises is expect to increase “ all other things being equal ” .

4.4 RATIONAL FOR PRICING PETROLUEM PRODUCTS

In Ghana monetary values of crude oil merchandises are determined by the National Petroleum Authority ( NPA ) based on the automatic crude oil merchandise pricing expression ( APPPF ) .[ 26 ]It is worthy to observe there are four different pricing expression used in the pricing of crude oil merchandises in Ghana.[ 27 ]

Ex-Refinery Price= CIF + related charges

Related charges= Off – lading Cost + In-transit Losses+ Inspection+ L/C Cost+ Financial Cost + Storage Cost + In-plant Losses + Rack Loading Cost + Operating Margin

Ex-pump Price= Ex- refinery Price + Taxes/ Levies + Margins

CIF = Cost ( FBO ) + Insurance + Freight

Table 3: EX- PUMP PRICE OF PETROLUEM PRODUCTS FROM 2007-2011 ( GP/Lt )

A

Gasoline

Diesel

Kerosene

LGP

2007

101.99

102.63

93.55

106.14

2008

82.00

88.99

70.00

65.00

2009

116.98

118.05

91.00

83.81

2010

116.98

118.05

91.00

83.81

2011

175.48

177.09

91.00

136.19

Beginning: NPA, 2013.

Table 4: PROJECTED EX-PUMP PRICE FOR PETROLUEM PRODUCTS:

2012-2015 ( GPA?/Litre )

Gasoline

Diesel

Kerosene

LGP

2012

194.78

196.56

91.00

142.99

2013

216.20

218.19

89.18

150.14

2014

239.99

242.19

88.29

157.65

2015

266.39

268.83

87.41

165.53

Beginning: Writers Construct, 2013.

From the projected consequences, the monetary value of gasoline continues to lift at an mean rate of GHA?2.29 for the period. The monetary value of kerosine continues to drop over the old ages due to low backing. This may be as a consequence of a displacement in the usage of kerosine to LPG which is considered much cleaner and environmentally friendly to kerosene. This is extremely apparent in the drastic addition in the monetary value of LPG. Diesel recorded the highest monetary value addition over the period. This reflects the current state of affairs in Ghana.

4.5 GDP FORECAST

Harmonizing to the Ghana Statistical Service, GDP estimates for 2012 stood at 7.1 % .[ 28 ]The service sector accounted for the highest growing of 8.8 % , industry 7.0 % and the Agricultural sector lending the lowest growing of 2.6 % .[ 29 ]Prognosis for GDP was computed by first ciphering the one-year growing rate for GDP from 2007-2011 which was later used to project for the subsequent old ages utilizing the growing rate based method.

Table 5: Prognosis FOR GDP 2012-2015 ( Billion 2000 US DOLLARS )

Year

GDP

2012

10.7

2013

11.4

2014

12.2

2015

13.1

Beginning: Writers Construct, 2013.

4.6 DEMAND MODEL FOR FORCASTING

The theoretical account for calculating demand was derived from the arrested development consequences obtained for each crude oil merchandise. Therefore the general theoretical account for prediction is:

I?= I± + a?? log ( PRICE ) + a?… log ( GDP ) + a?‰ log ( POPN )

Where I? represents the fuel type

Monetary value denotes the retail monetary value for crude oil merchandises

GDP/P establishes the gross domestic merchandise per capita

POPN represents the population

a?? a?… a?‰ are the coefficients and I± is the intercept

4.7 INDIVIDUAL DEMAND MODELS

Econometric theoretical accounts were developed for each fuel type dependant on the arrested development consequences.

4.7.1 MODEL FOR LPG

Demand for LPG in Ghana has been projected to stand at 250,000-300,000 metric tons annually.[ 30 ]This figure is non surprising due to its current benefit it offers to the state for transit and domestic usage. The demand is expected to increase by 2015 per the projections of the survey. The ground accounting for its high demand is the transition of some public conveyances into utilizing LPG as discussed earlier. It is deserving adverting that the debut of the LPG promotional programme has besides projected the demand for LPG as an alternate fuel to charcoal and firewood.[ 31 ]

LPGDD = -175.529 + 0.086 ( PRICE ) -5.035 ( GDP/P ) +25.104 ( POPN )

R2 = 0.841

Consequences from the analysis indicates that demand for LPG will go on to be inelastic meaning an addition in monetary value will non necessary have consequence on the measure demanded. This is apparent in the high demand for LPG in Ghana due to its importance to the economic system.

4.7.2 MODEL FOR PETROL

Petrol is a major beginning of fuel for transit intents in Ghana. In 2011, it accounted for 871.6 ( ktoe ) of concluding energy ingestion.[ 32 ]

PETDD = -58.653 + 0.312 ( PRICE ) -1.877 ( GDP/P ) + 8.886 ( POPN )

R2 = 0.999

From indicants, the monetary value of gasoline is less than 1. This implies monetary value of gasoline is inelastic. This implies monetary value additions will impact demand.The instance in Ghana is no different from this consequence since commercial cab drivers are switching off from the usage of gasoline owing to monetary value additions.

4.7.3 MODEL FOR KEROSENE

Kerosene in Ghana is used for cookery and a beginning of illuming. The demand for kerosine is worsening particularly in the urban countries due to its wellness and environmental concerns. The authorities ‘s attempt at cut downing the usage of kerosine in the rural countries is backed by its “ Energy for all Policy ” .[ 33 ]In the meantime, the authorities is supplying solar illuming systems and programs to link most rural communities to the national electricity grid.

KERODD = -27.055 + 2.269 ( PRICE ) -1.364 ( GDP/P ) +3.886 ( POPN )

R2 = 0.637

The coefficient of monetary value is greater than 1, intending the monetary value for kerosine is elastic. This implies alterations in monetary value, will hold an inauspicious consequence on the demand. In other words, addition in kerosene monetary values will ensue in a lessening in demand for it “ all other things being equal ” .

4.7.4 MODEL FOR DIESEL

Diesel is really of import to the Ghanese economic system. Diesel is used to power most heavy responsibility machines in the industrial sectors. It is besides a beginning of fuel for transit and coevals of power during power outages. Its portion of part to concluding energy ingestion in 2011 stood at 1,545.7 ( Mtoe ) .[ 34 ]

DSLDD = 24.918 + 0.176 ( PRICE ) +1.292 ( GDP/P ) -2.764 ( POPN )

R2 = 0.835

The monetary value of Diesel in this instance is inelastic. Any change addition in monetary value does non truly affect demand. Consumers will go on to bear the cost unless there is any other option.

4.8 DISCUSSION OF RESULTS FOR PROJECTED DEMAND

Entire demand for crude oil merchandises from 2012 to 2015 is represented below.

Table 6: F0RECASTED Demand FOR PETROLUEM PRODUCTS BY 2015

A PRODUCTS/ Year

2012

2013

2014

2015

LPG

472,282.506

485,348.9364

498,440.1

511,557.6

Gasoline

227,030.211

238,120.54

249,9441

264,406.7

kerosine

27,755.20

27,535.85

27,524.87

27,515.78

Diesel

1,302,657.11

1,354,792.28

1,411,127.0

1,472,126.0

Entire

2,029,725.02

2,105,797.60

4,436,532.97

2,275,606.08

Beginning: Writers Construct, 2013

From the tabular array above, it is apparent the demand for crude oil merchandises increases yearly as population grows. Consequences from the analysis shows that the demand for Diesel has been increasing over the old ages at an mean growing rate of 3 % from 2012 – 2015.In Ghana, Diesel is by far the most extensively used fuel in the transit, industrial and agricultural sectors of the economic system. In 2011, Diesel recorded the highest import of 1,296.6 ( ktoe ) of the state ‘s energy balance.[ 35 ]The demand for gasoline continues to turn in the subsequent old ages but the growing has been rather slow due to the competition LPG poses to it in footings of transit.

LPG recorded the 2nd highest demand with one-year growing rate of 2 % . Rapid addition in demand for LPG is non surprising due to its current demand in the transit and domestic sectors of the economic system. As stated earlier, most commercial vehicles in Ghana have converted their engines into utilizing LPG which is relatively cheaper to diesel and petrol. This has resulted in frequent deficits in recent old ages. The demand for kerosine has been diminishing over the old ages. In 2011, kerosine recorded the lowest crude oil merchandise consumed at 62.4 kilo-tonnes. In Ghana, kerosine is usually used for cookery and lighting in the rural countries. Decrease in its backing over the old ages may be attributed to the authorities “ Energy for all policy ” and the national electrification strategy to link all rural countries to the national grid by 2020. The jutting entire demand for crude oil merchandises by 2015 stood at about 2.3 million metric metric tons as compared to 2.49 million metric metric tons projected by the Energy Commission by 2015.

5. Decision

Energy is critical to a state ‘s socio-economic development. The battle for energy by states in the yesteryear has reflected in their current phase of development. The United States, China, Germany, and Russia among others have demonstrated how of import energy is to their economic systems. Ghana as a developing state is coupled with some challenges in its energy sector and for that affair the spread between demand and supply of crude oil merchandises over the old ages. The deficit of these merchandises has been attributed to several factors both locally and internationally. The major issue to be addressed from my point of position is to reply the inquiry “ how much energy do we necessitate in the hereafter ” ? This inquiry calls for equal planning and execution. An analysis into the capable affair therefore “ Demand prediction for crude oil merchandises in Ghana by 2015 ” has provided an penetration for determination shapers in the crude oil sub-sector to set the necessary logistics in topographic point in run intoing the demand.

5.1 RECOMMENDATIONS

There is the demand for authorities to spread out the bing 45000bb/d capacity of the Tema oil refinery to do room for future demand

The demand to upgrade the bing or construct a new refinery, to be able to polish petroleum from the jubilee field which is considered to be ‘sweet light oil ” and non compatible with the bing substructure at TOR.

Promotion of private sector engagement or engagement in the downstream value concatenation.

The authorities must set in topographic point the necessary legal constructions to penalize retail merchants who hoard crude oil merchandises in expectancy of future monetary value addition thereby making unreal deficit.