ANALYSIS OF NIGERIAN NATURAL GAS CONSUMPTION (1990 – 2020). A VECTOR ERROR CORRECTION MODEL APPROACH

Abstract

This paper investigates the relationship between natural gas consumption, natural gas price, crude oil price, Foreign direct Investment and per capita GDP in Nigeria to ascertain their causal effects and dependencies by using time series data from 1990 to 2020 in an econometric platform using Vector Error Correction model (VECM). The result of VECM estimate, Granger causality test and Variance decomposition test all suggest the presence of a strong positive correlation between natural gas consumption and economic growth (represented by per capita GDP) in Nigeria, even though the price of natural gas is not consumption determined. This implies that economic policies that encourage production of goods and services in Nigeria will tend to boost natural gas consumption in Nigeria. Finally, foreign direct investment showed negligible impact on natural gas consumption but was more impacted by crude oil price.   This suggests that the rate of influx of foreign investment into Nigeria is more influenced by international crude oil price not necessarily by the Nigerian natural gas consumption, all things being equal.