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PROJECT TOPIC: TIME SERIES MODELLING OF NIGERIAN CRUDE OIL EXPORTS DATA (A CASE STUDY OF U.S IMPORTS OF CRUDE OIL FROM NIGERIA)

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CHAPTER ONE

GENERAL INTRODUCTON

1.1    INTRODUCTION

Decades ago, Nigeria depended solely on agriculture for its economic survival. As far as agricultural products were concerned, there were three geopolitical zones that were notably popular because of their active involvement in agriculture. These include the north that was very popular with groundnut pyramids, the west was popular with cotton and cocoa and the south east was very popular with its palm products.

       However, since the discovery of crude oil in Nigeria in 1956, it has become the main stay in the economy. Crude oil plays increasingly significant role not only in Nigeria but in the world economy. Nearly two-third of the world Energy consumption comes from the crude oil and natural gas (Alvarez-Ramirez 2003). World-Wide consumption of crude oil exceeds $ 500 billion approximately 10% of U.S Gross Domestic Product (GDP). Crude oil is also the world’s largest and most actively traded commodity according to (Verleger: 1993). This account for about 10% of the total world trade (Verleger:1993).

        Crude oil is traded internationally among many different players: oil producing nations, oil companies, individual refineries, oil importing nations and oil speculators. This trade in turn yields big revenue for Nigeria. Crude oil price is basically determined by its supply and demand and it is strongly influenced by many irregular (past, present and future) events like weather, stock levels, GDP growth, politics and people’s expectation. Furthermore, since it takes considerably time to ship crude oil from one country to another, oil price vary in different parts of the world. These facts lead to a strong fluctuation and interacting market where the fundamental mechanism governing the complex dynamic is not understood. Maurice (1994), reported that the oil market is the most volatile of all the markets. In addition, as sharp oil price movements are likely to distort aggregate economic activity, a volatile oil prices are of considerable interest to many researchers and institutions. Crude oil changes may potentially have significant effects on the economic performance of both oil importing and exporting nations (as in our case: US and Nigeria) The reasons are two fold: on one hand, sharp increase of crude oil prices adversely affects the economic growth and causes inflation, on the other hand, crude oil prices falls like the one in 1998 create serious budgetary problems for oil exporting countries (Abosedra et al. 2004). If these are true statements, then Nigeria should begin to work on such warning signals as was said by president Obama of the US that his country will soon find an alternative energy source in gas apart from crude oil. Otherwise, should we be taken unprepared, then it would better be described as economic disaster than the present melt down.

1.2          STATEMENT OF PROBLEM

           For some decades now, the US government and Nigerian government have had a bilateral agreement on importation and exportation of goods and services. One of the items on their agreement is crude oil and gas which has been so versatile in our economy. President Obama of the United State of America came out on the 7th day after his inauguration to say that America will not depend on petroleum to generate its energy but must look for an alternative source to generate its energy, meaning that US may not be buying oil from Nigeria again or reduce her volume of importation of crude oil from Nigeria. This definitely will affect our economy because US has been our major trading partner.

          Our interest is to determine the economic effect of US on Nigeria over the years through crude oil imports and exports and probably to check to what effect the stoppage of crude oil importation or reduction in volume of imports will have on Nigeria economy.

1.3    OBJECTIVES OF THE STUDY

          The objectives of this research work include:

i.             Fitting a model that would describe the Nigeria crude oil exports to US for the period under study.

ii.            Determining Nigeria’s exports rate of crude oil to US.

iii.           Determining Nigeria’s exports in term of forecast for the nearest future.

1.4    RESEARCH QUESTIONS

          There are so many questions that arise from this research since it has to do with Nigeria’s crude oil as it relates to her economy. But restriction is made to the following questions:

 I.        Does the US import of crude oil from Nigeria have any effect on the Nigerian economy?

II.        Will an alright stoppage or reduction in the volume of crude oil importation have any significant influence on the Nigerian economy?

1.5      RESEARCH HYPOTHESES

In the course of this research, the following hypotheses shall be tested:

H01: The importation of crude oil from Nigeria by US has no significant effect on the Nigeria economy.

H11: The importation of crude oil from Nigeria by US has a significant effect on the Nigeria economy.

H02:  An alright stoppage or reduction in the volume of crude oil importation would not have significant influence on the Nigeria economy.

H12:  An alright stoppage or reduction in the volume of crude oil importation would have a significant influence on the Nigerian economy.

1.6    SIGNIFICANCE OF THE STUDY

The study which records the monthly US imports of crude oil from Nigeria measured in thousands of barrel per day helps in the future planning of export volume from Nigeria to US. For instance, the volume of export in a particular year would help in predicting the volume of crude oil export in the next year depending on the pattern either increasing or decreasing. The predicted volume of export would then be useful in checking the future volume of exports.

      This study will also enable policy makers to diversity their plans to also accommodate agriculture which initially was the main stay of Nigeria’s economy before the discovery of oil in the Niger Delta.

1.7    SCOPE OF STUDY

            The study is confined to monthly data collected for thirty five (35) year period. The research work is limited to the data obtained as recorded by the Nigeria Energy Information Administration. Thus, inferences and conclusions made herein shall only apply to the findings on the monthly crude oil import of US from Nigeria for the period under study.

1.8    DATA COLLECTON

The data for this work was extracted from the monthly Energy Review of the Nigeria Energy Information Administration. It was made available in the internet via the web site.


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