Imperatives for Modelling and Forecasting Petroleum Products Demand for Nigeria

Modelling and forecasting petroleum products demand is a key input for energy use planning and policy formulation. This paper employs the Structural Time Series Model to estimate and forecast demand for two key petroleum products – gasoline and diesel in Nigeria. The STSM can account for structural changes in an economy through the underlying energy demand trend. STSM incorporate stochastic rather than deterministic trend which is more general and therefore argued to be more appropriate in this study. The result suggests that the demand for petroleum products in Nigeria is both price and income inelastic and fall within the range reported in the literature while the underlying demand trends were generally stochastic in nature. The demand models were forecast under three scenarios; reference case, low and high demand. The reference or base scenario describes the future based on current economic and policy environment, that is, without any specific policy shock. Under the reference case scenario, gasoline and diesel demand were forecast to reach 45.3 and 8.03 million litre per day in 2030 representing demand increase of 42% and 66% for gasoline and diesel respectively in the next fifteen years. This presents a significant challenge towards attaining self-sufficiency in meeting Nigeria’s petroleum products demands through local refining. There is therefore urgent need for the government to revamp existing refineries and encourage private investors to build new ones in order to reduce dependence on product imports