Global Energy Crisis

Mitigating the Global Energy Crisis: Implications & Solutions

Today on Global Energy Crisis

  • Nigerians are switching from private transport to public transport because of the high price of fuel (the cost of filling an Average Nigerian car is N12,350), also People in the UK are switching to bikes and buses to avoid high fuel prices. 
  • More people have started taking buses since March, while cycling trips have doubled their average level.
  • Russia’s invasion of Ukraine has sent global fuel prices surging. The cost of filing a car in Nigeria with fuel has increased from N162/L to N200/L and from N290/L in March to N759/L for diesel consumers in August. This has increased the cost of running engines thus drastically increasing the cost of operating project sites and offices. 
  • In other parts of the world like Britain, the number of Brits taking the bus weekly rose from 12% to 15% from March to May. 
  • The cost of aviation fuel wasn’t left out in the spike, causing a major increase in the cost of flight tickets, and drastically reducing the number of people traveling by air. 
  • Meanwhile, eBay saw a 27% spike in the UK searches for second-hand bikes from March to May, and on the car sales website AutoTrader, more than 1 in 5 advert views is for an electric car. 
  • The National Bureau of Statistics (NBS) has said N74 billion was used to import motorcycles in the first quarter of 2022 in Nigeria. 
  • The energy crisis could boost the uptake of clean, green transport.

Causes of Global Energy Crisis

  • Overpopulation
  • Overconsumption
  • Aging Infrastructure
  • Energy Waste
  • Poor distribution system
  • Unexplored renewable energy option
  • Delay in commissioning power plants

Factors Influencing Crude Oil Prices

Gasoline prices are determined largely by the laws of supply and demand. Gas prices also respond to geopolitical events that impact the oil market.

According to the EIA (Energy Information Administration), four main factors influence the price of gas:

  • The Cost of Crude Oil
  • Distribution and marketing cost
  • Taxes
  • Refining Costs and profits

The Cost of Crude:

Crude oil is the raw commodity used to make gasoline, so crude oil prices play the most important role in setting gasoline prices. Prices have surged above $100 a barrel on coordinated production quotas by the Organisation of the Petroleum Exporting Countries (OPEC) and Russia’s invasion of Ukraine. “Crude oil price hit $139 per barrel on Monday 1st August, but Minister of State for Petroleum Resources, Chief Timipre Sylva, said recently that the country would be comfortable with the price range of between $70 and $80 per barrel”.

Global Energy Crisis graph

Distribution and Marketing:

Once crude is refined into gasoline, the fuel has to be shipped to a storage tank and eventually distributed to local gas stations. Those stations require staff and maintenance. The nations that have the most oil reserves include Venezuela (300 billion bl), Saudi Arabia (266.5 billion bl), and Canada (170.8 billion bl).

Refining cost and profits:

Before it can be used, crude oil must be refined into gasoline. The two main factors that influence refining costs are:

  • Refinery utilization rates (ratio of output to capacity)
  • Shutdowns (weather, accidents, maintenance)

Tax

The tax also plays a major role in determining the price of gas. About 5% of the profit generated on Crude oil sales is taxable by the Federal government. This is paid by the IOCs to the FIRS. To make room for more profit after tax, the prices of Crude have continually increased and this is evident with PMS increasing by over 100% from 2015.

How this has affected businesses in Nigeria?

In our last issue, we discussed the global energy crisis and some of the factors affecting crude oil prices. The effect of these on businesses can not be overlooked.

High inflation and energy costs continue to take a toll on businesses in the form of increased production costs, elevated operating costs across sectors, declined profit margins, a slump in turnover and sales, and risk in business sustainability in many segments of the Nigerian economy.

With inflation of 18.6% in June 2022, a 5-year record, there has been a varying effect on the cost of construction as construction firms and developers alike have found it difficult to come to terms with the revision of existing rates.

Global Energy Crisis inflation

In reality, the cost it is said is borne by the end user and thus affordable housing and infrastructure goals are left further intricate.

It is left for industry professionals to take a holistic look at the problem and come up with solutions that benefit all. Some of these solutions have been discussed in this report.

Solutions for the Global Energy Crisis

It is recommended that we:

  1. Reduce Dependence on Non-Renewable Resources: The best course of action is to lessen global reliance on non-renewable resources and to increase conservation efforts in general.
  2. Conduct an energy audit: An energy audit is a process that enables you to pinpoint the places in your house or workplace where energy is being lost and the actions you can take to increase energy efficiency.
  3. Energy Simulation: To rebuild the building unit and save operating company energy costs, large businesses and organizations might utilize energy simulation software.
  4. Buy Energy-Efficient Products: Whether on-site or at home, replace traditional bulbs with CFLs and LEDs.
  5. If we must use crude oil products in running our equipment and machines, it is encouraged that we maintain proper schedule and operations management. Machines and equipment that need not be running should be turned off to reduce the consumption of energy.

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