Is Biofuel Financially Viable In Nigeria Environmental Sciences Essay

Nigeria is blessed with both non- renewable and renewable resources and there is demand for her to take a bold new enterprise to diversify her mono-culture economic system, specifically in the country of gross coevals, so as to run into the challenges in front, in order to complement the present concern and investing attempts of the state.Nigeria is rich in varied energy resources and occupies an enviable place in the planetary energy mix and balance.

Such enviable potency can likely throw the state into an energy crisis and disequilibrium, if mismanaged.[ 1 ]In malice of this tremendous and varied potency in Nigerian energy resources ( of which oil and gas are preponderantly ) , production, export and selling of crude oil entirely contribute over 90 % of Nigeria ‘s export net incomes, approximately 80 % of her entire gross, over 75 % of her entire foreign exchange and 12 % of her gross domestic merchandises ( GDP ) .[ 2 ]There is no uncertainty that fossil fuels are the cheapest signifier of energy and shall stay the major beginning of energy in the universe over for many decennaries. Experts have however put a clip bound on the productive potency of the proved militias of all crude oil bring forthing states. For illustration, at the present rate of production, Nigeria ‘s oil is expected to last for the following 45 old ages and her gas for the following 90 old ages.[ 3 ]A feasible policy aimed at developing the other energy beginnings has hence become imperative.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now

As a complement to the present energy state of affairs, the authorities has now realized the demand to advance renewable energy resource options as a feasible beginning of gross coevals and investing in Nigeria.Nigeria has an estimated population of over 149 million as at July, 2009.[ 4 ]However, from the current United Nations population projection, there will be an addition in the universe population and Africa holding the highest population growing rate at 3 % per annum.[ 5 ]From the foregoing, it is clear that there is an pressing demand for Nigeria to take a bold new enterprise to diversify her mono-culture economic system, specifically in the country of gross coevals, so to as to run into the challenges in front. In a nutshell, there is demand for appropriate and specifically designed microeconomic policies directed towards alternate beginnings of gross coevals, in order to complement the present concern and investing attempts of the state.This research will supply an overview of the Nigerian bio fuels concern environment, the concern potencies of a bio fuels market in Nigeria and the viability of bio fuel and Clean Development Mechanism ( CDM ) undertaking in Nigeria.

A fiscal analysis will be carried out to look into the viability of a bio fuels undertaking.


The rise in planetary demand for energy fuelled chiefly by China and India and the relentless rise in the monetary values of petroleum oil has led to increased involvement in alternate beginnings of energy, renewable energy beginnings in peculiar.[ 6 ]A prognosis of 60 percent addition in energy ingestion in the following 25 old ages by the universe energy mentality, predicts that a majority of this addition will happen in developing states. Fossil fuels will go on to hold a major portion in the planetary energy mix which comes its effects such as increased nursery gas ( GHG ) emanations, energy security issues etc.

[ 7 ]The above diagram shows us the instability particularly political faced in the hydrocarbon resource rich states and the intensifying tendency of rough oil monetary values over the old ages taking to intensive hunt for alternate energy, particularly Bio fuels. There are besides concerns in the country of fossil fuel depletion globally particularly in the United States and the United Kingdom which has accordingly increased import dependance.Renewable energy has tremendous benefits in extenuating the challenges faced in the planetary energy demand. The development of bio energy has faced positive development and commercialisation peculiarly in bio fuels. Bio fuel is one of the renewable engineerings that is having attending. There are assorted signifiers of advanced bio energy engineering that are fast growth and going cost competitory as they make usage of locally produced resources. Bio energy besides has immense benefits in footings of cost film editing on fuel.

[ 8 ]Bio fuel is a major country of renewable energy that has been acquiring attending. As at 2005, the entire supply of bio fuels came up to 40 billion litres with bio ethyl alcohol holding the major ball of 90 % and bio Diesel with 10 % . Bio fuels had a portion of 1 % in the planetary conveyance fuel demand as at 2004 ; this shows that the industry has faced enormous growing since 2000 harmonizing to IEA ( 2007 )[ 9 ].Major participants of the bio fuels market are the European Union ( EU ) , Brazil and the United States of America ( USA ) with the EU being the chief participant in bio Diesel and USA and Brazil in the bio ethyl alcohol market.Beginning: IEA 2007The figure above is a graphical representation of the chief participants in the bio fuel market in 2004.Bio fuels are derived from cereal and oil based harvests. In Brazil and the US the chief beginning of bio ethyl alcohol is derived from sugar cane and maize ( corn ) severally.


1 Business Environment – The Brazilian Experience

Globally, Brazil is the leader in ethanol production and has shown enormous attempts in spread outing into bio Diesel and other bio mass fuels. Its long history of ethyl alcohol usage has necessitated this research to look briefly into its extended and back uping substructure in this major market.[ 10 ]Brazil started bring forthing ethyl alcoholThe Brazilian enterprise for Bio fuels was ignited for the undermentioned grounds:It was a rough oil importerIt sort fuel variegationSourcing for alternate and internal solutionBrazil has made head manner in successfully developing effectual engineerings to prolong its bio energy and has done this for over three decennaries and increase in exports due to growing in foreign demand.

[ 11 ]In the early 1900s, Brazil started bring forthing ethyl alcohol from sugar cane and had a demand of 5 % of ethyl alcohol in gasolene as at 1931. Besides in response to the planetary oil crises, Brazil implemented the National Alcohol plan in 1973. Since so Brazil has dedicated to bring forth ethanol vehicles in mass and soon has its authorities authorization of intermixing 25 % ethyl alcohol in gasolene.[ 12 ]

Fuel Consumption by Vehicle in Brazil ( 2004 )

2.1.1 Social Benefit of Brazilian Ethanol Project

The benefits from a 80,000 hectares of land are:500,000,000 litres of ethyl alcohol produced20,000 direct occupations have been created60,000 indirect occupations have been createdThe purpose to to the full implement the usage of Bio fuel as a replacement fuel was achieved when Brazil launched its first auto runing 100 % ethyl alcohol.[ 13 ]


2 Current Status in Brazil

Since 1976 the authorities made it compulsory to intermix ethyl alcohol ( Anhydrous ) with gasolene, fluctuating between 10 % to 22 % . Brazil is the universe ‘s 2nd largest manufacturer of ethyl alcohol ( US being the first ) and the universe ‘s largest exporter. In 2008 Brazil produced 24.5 billion liters which represents 37.3 % of the universe ‘s entire ethyl alcohol used as fuel.[ 14 ]

2.1.3 Key Success factors for Brazil

Economic LiberalizationDeregulationFavorable Ethanol PoliciesBrazil, with its climatic conditions achieved the above reference so the Nigerian concern environment is set to boom.

2.2 Global Present and Future of Ethanol Trading

Worldwide, IOCs, NOCs and Food companies are progressively puting in Bio fuels.PDVSA, the National Oil Company of Venezuela is developing 100,00 hectares of sugar cane to construct five ethanol refineries.

CNOOC, the Chinese National Off-shore Oil Company has gone into a joint venture ( JV ) to develop a $ 5.5billion bio Diesel works in Malaysia and Indonesia. To advance the cleaner energy plan, Chevron is constructing a big graduated table bio Diesel works in the United States, puting up to $ 400million/year.All these developments and more in other parts of the universe are done in the pursuit for Energy Security.


2.1 Factors Driving Ethanol Market:

High oil monetary valuesNational energy security considerationsEthanol revenue enhancement inducementsImproved technology- lower cost of ethanol productionClimate alteration concerns

2.2.2 Biofuels: World Domestic Current Snapshot

There is enormous political and popular supportThere are two chief liquid bio fuels – Ethanol and Bio Diesel.Ethanol is the most popular, it has the best economic sciences, cardinal use is feasible even without revenue enhancement inducements, reasonably concentrated production basicss, imported in big quatities to the United States and Europe.Sugarcane is the lone existent feedstack competition to maize in the United States.Commercially feasible production from cellulose still mostly theoreticalBio Diesel can be easy integrated into bing substructure, extremely disconnected production basicss. Popular as an export merchandise from the United States and Brazil.

With multiple feedstocks.Other alternate fuels- solar, air current, hydro, biomass mostly a non-liquid fuel application.Food V Fuel statement, rising prices, environment issues are of concern.Additional mandated market based merchandises ( Carbon Credits, etc ) critical to long term.

[ 15 ]

3.0 NIGERIAN BIOFUEL: Background

The Nigerian National Biofuels Programme was lauched in August 2005 following a Federal Government directive to NNPC to spearhead the Biofuels enterprise. The primary aim is to better the environment by the decrease of Green House emanations ( GHG ) , link the Petroleum sector of the economic system to the Agricultural sector and make occupations for Nigerian in general and alleviate poorness. This will besides bit by bit cut down the state ‘s dependance on fossil fuels and beef up the economic system by liberating more rough oil into export market.[ 16 ]A three pronged attack was developed to guarantee the smooth take off of the industry.Domestic Biofuels industry developmentSeeding Programme developmentBiofuels Policy and inducementsAn Inter-ministerial Steering Committee was set up in 2005 for the bio fuels programme with the undermentioned footings of mention ;Guaranting the development and constitution of appropriate land policy guidelines, to besides do certain appropriate inducements are created to pull private sector engagement in the industry programme and guarantee that stakeholders peculiarly at province and local authorities degree are encouraged to concentrate on the necessary infrastructural development needed to drive the industry programme.


1 Nigerian Biofuels Policy

The intent of the bio fuels policy is to heighten the decrease of green house gas in the environment, pull domestic and international investings to the Nigerian Bio fuels industry, create an efficient and effectual bio fuels industry and supply inducements to cut down cost in the Nigerian Biofuels industry on both agricultural and industrial sides. The benchmarks used in developing the Nigerian Biofuels Policy was tailored after five countries/regions viz. ; Brazil, India, Thailand, USA and Europe.

Analysis will be carried out financially and the financial inducements for investors will be looked at ;Accord Bio fuels industry innovator positionLong term discriminatory loans agreements will be made available to bio fuels investors.Exemption from revenue enhancement, keep backing revenue enhancement and capital additions revenue enhancement on foreign involvement, dividends and services.Waiver on value added revenue enhancement on all servicesInsurance screen will provided by the Nigerian Agricultural Insurance Corporation.Waiver on import and imposts responsibilities and other revenue enhancements on the importing and exportation.

[ 17 ]

3.2 Nigerian Energy Resources

Nigeria is rich with energy resources in both renewable and conventional. All these show a good adequate capacity for her to efficaciously develop a healthy national energy program.

Energy resources in Nigeria include Crude Oil, Natural Gas, Coal, Tar Sand and Renewables ( Biomass, Hydro, Solar, Wind etc. ) As at 2006 its estimated Oil modesty stood at 35.9 billion barrel, Natural Gas at 185 trillion cft and Coal and Lignite militias estimated at 2.75 billion dozenss.[ 18 ]An mean day-to-day production of 2.

2million barrel will consume the 35.9 billion barrels within 36 – 40 old ages ( modesty to production ratio ) . With this scenario, Nigeria needs to believe of developing alternate beginnings of energy. Hopefully renewable energy will increase in supply and cut down the demand on Oil modesty.[ 19 ]

3.2.1 Nigeria ‘s Renewable Energy Potentials

Energy Source


Hydropower14,750mw ( high potency )BiomassHigh PotentialSolar Radiation3.5 – 7.

0 kwh/m2/dayWind2 – 4 m/s ( one-year norm )Geothermal2 Numberss known in Nigeria ( Ikogosi warm spring in Ekiti and Wiki springs in Bauchi )Ocean, Tidal and Wave energyLow chances in NigeriaBeginning: National Energy Master PlanFrom the given, Solar energy has a sensible size and the engineering should be given overriding consideration. Nigeria lies in the equatorial and tropical zone, which is fortunate for us to utilize harvest and wood plantations as beginnings for the supply of renewable energy.[ 20 ]

3.2.2 Nigeria ‘s Bio fuels Demand Potentials

Bio fuels type

Time frame




Bio ethyl alcohol ( demand in billion liters/yr )1.3 ( at 10 % blend with PMS )2.72 ( at 15 % blend with PMS )9.

22 ( at 50 % blend with PMS )Bio Diesel ( demand in billion liters/yr )0.233 ( at 10 % blend with AGO )1.2 ( at 20 % blend with AGO )3.5 ( at 50 % blend with AGO )Adapted from the National Energy Master Plan

Nigerian Automotive Fuel Consumption

Beginning: NNPC Annual Statistical BulletinThe above graphical representation shows us the day-to-day ingestion of PMS and AGO in million litres from 2000 to 2007.In order to run into our automotive fuels for energy demand locally, the undermentioned extenuation steps need to be taken:Invest in the development and building of more crude oil refineries-modular etcInvest in Bio fuels undertakings to augment crude oil distillation fuels.Ensure adequate energy mix from assorted beginnings as no individual energy beginning would vouch energy security in the long term.


3.4.1 Resource Availability in Nigeria for Biofuels

Nigeria has approximately 33 million Hectare of cultivable land and merely approximately 10 % is under cultivation. It besides has favourable climatic and ecological conditions across the state. Fiscal establishments are willing to take part ; hence, there is a strong capital base.

Nigeria besides has a big of skilled and unskilled labor, an already bing countrywide substructure ( NNPC ) and research establishments ( NCRI, IITA, NRCRI, NIFOR, Universities etc )



Huge industrial experiencePool of extremely competent professionalsSpeed to marketNNPC retail mercantile establishments countrywideHigh Quality direction system


Relevant cognition spread in CDM and biofuels concernInadequate supportInconsistent policies


Large market for CERs and BiofuelsAccess to engineeringGlobal clime alteration consciousnessExport potenciesCollaboration with local research institutesQuicker pay-back period than traditional E & A ; P concernRelatively Cheap Labor handinessSuitable Land handinessFavorable agro-climatic conditions


Frequent alterations in directionInconsistent policiesTransportation of cardinal staffLack of equal legislative modelIdentifying the strengths, failing, chances and strengths shows that Nigeria has a strategic place to drive the bio fuels concern. Our determination will be to put in feasible undertakings.[ 21 ]



1 Food and Fuel non Food V Fuel

Bio fuel undertaking are all integrated ( works and plantation ) and as such will non falsify current nutrient supply. Presently there is no commercial graduated table Biofuel production in Nigeria, therefore the lifting costs of nutrient in Nigeria is due to causes other than bio fuels production, the bio fuels undertaking would besides hike Agriculture and add to Nigeria ‘s nutrient production through mechanized agriculture.

4.2 Readiness of the Nigerian Business Environment

At the federal degree, the National Biofuels Policy was gazette on the 20th of June, 2009. This will make the enabling environment for the execution of the biofuel programme.

Memorandum of Understanding ( MOU ) has been executed with Gombe, Ondo, Benue and Cross River States. Cross River State authorities has a MOU to supply 20,000 hectares of cultivable land and to find the viability of set uping Oil Palm Plantations and bio Diesel processing works. At the Local degree, the communities are excited and trusting to research the possibilities of take parting in the bio fuels undertaking.[ 22 ]


2.1 National Biofuels Feedstock Map

Beginning: NNPC Annual Statistical BulletinThis map shows us possible sites for a bio fuels feedstock undertaking to be carried out. Some States have potencies for more than one harvest.For the intent of our analysis we would transport out a survey on possible sugar cane – ethyl alcohol undertaking that would be sited at Agasha-Guma in Benue State, Nigeria. Reason being that the site has the best favourable agronomic variables such as rainfall handiness, and propinquity to H2O for irrigation.


3 Undertaking Premises





Exchange Rate

# 150 to 1 USD


Interest rate

8 %


Discount rate

17 %


Ethanol price/Litre



Monetary value of natural sugar

$ 470


Size of Land

20,000 hour angle



116,000 tpa


Ethyl alcohol

75m lit dad


Corporate Tax rate ( waived for the first 10 year )

30 %

Beginning: Writer ‘s digest


4 Operating Cost

Operating cost will include direct costs such as labour and stuffs and overhead costs dwelling of gross revenues, general and administrative disbursals, preparation, overhead staff for both plantation and works. Operating will worsen as shown in the appendix. It is will be assumed that it will be inclusive of direction fee for expatriate staff whose contract would run out in 3 – 5 old ages.

4.5 Model Description

Net Present Value ( NPV ) of the undertaking would be calculated with the undertaking premises. Once the NPV is positive so the undertaking would be deemed feasible.

From the appendix the hard currency flows after revenue enhancement are expected to average $ 43.65mm/year over the class of the undertaking. The undertaking has negative hard currency flows in the first few old ages because of important investing in capital substructure and equipment every bit good as incline up in production.

5.0 Decision

From the fiscal analysis, the undertaking gives us an NPV of $ 44.34mm and a payback period of 7 old ages which shows that the undertaking is financially and commercially feasible with present conditions.

Bio fuels concern in Nigeria is long delinquent and attracts huge fiscal and environmental benefits. It will besides gain C credits and contribute towards contending clime alteration.Surely, the economic benefits from this concern can supplant our expected projection.


I'm Ruth!

Would you like to get a custom essay? How about receiving a customized one?

Check it out