TIME SERIES ANALYSIS OF MONTHLY SALES OF PETROLEUM PRODUCTS (A CASE STUDY OF NIGERIAN NATIONAL PETROLEUM CORPORATION, NNPC – ENUGU, FROM 1996 – 2003)
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CHAPTER ONE
Introduction 1
1.1 Development of oil industry in Nigeria 1
1.2 Motivation and Statement of Problem 8
1.3 Aims and Objectives of the Study 8
1.4 Scope of the study 9
CHAPTER TWO
Literature Review 10
CHAPTER THREE
Research Methodology 17
CHAPTER FOUR
Data presentation and analysis 34
4.1 Data presentation 34
CHAPTER FIVE
Summary, conclusion and recommendations 49
5.1 Findings 49
5.2 Recommendation 50
Appendix 51
CHAPTER ONE
INTRODUCTION
1.1 DEVELOPMENT OF OIL INDUSTRY IN NIGERIA
The search of oil in Nigeria started as early as 1937, but the discovery was not until 1956. The sole of petroleum products began in December 1957, managed by a consortium of Royal Dutch Shell and British Petroleum BP Now known as Shell Petroleum Development Company SPDC.
G.A, Aga (1993) stated that Nigeria was the second oil producing nation in Africa after Libya and sixth in the world. In May 1971, the Nigeria National Oil Company was established under the company and Allied matter Act of 1958 as applicable then. NNOC was the government Agency Mandated by law to engaged in all phases of oil production and sales, NNOC was later in 1977 amalgamated into a full flex ministry of petroleum to form the Nigeria National Petroleum Corporation (NNPC), which is in partnership with several oil company from different countries operating in Nigeria. Before October 1965, Nigeria Crude Oil was refined overseas and all the processed oil needs were imported. The first refinery plant came into operation in 1965 located at Alesa Eleme near Port-Harcourt. Later Warri and Kaduna Petro-chemical refineries were established in 1978 and 1980 respectively. Similarly, Pipeline and Products Marketing Company Ltd (PPMC) Enugu Depot was commissioned in 25 August 1975 by the then military Governor of the old Anambra State; colonel D.S. Abubakar.
The last w as the second refinery in Port-Harcourt. It is however worthy of note that NNPC has several subsidiary company e.g Pipeline and Products Marketing Company PPMC.
1.1.1 NIGERIAN NATIONAL PETROLEUM
CORPORATION (ITS ROLE IN SALE OF
PETROLEUM PRODUCTS)
The NNPC’s role in Oil Industry is so much that it cannot handled it alone. This is the reason for the establishment of subsidiary company like pipeline and Products Marketing Company Ltd PPMC.
The Nigerian National Petroleum Corporation Manages the affairs of the oil industry in Nigeria, while the PPMC under the corporation is in charge of sales of petroleum products.
Government policy on oil matter such sales is been conveyed by the Petroleum Products Price Regulatory Agency (PPPRA) currently headed Alhaji Gbalamosi. NNPC therefore, works in conjuction with PPRA to implement government policy such as prices of petroleum products. Nigerian National Petroleum Corporation carries out its function as such in both local and international.
1.1.2 OIL PRODUCING AND EXPORTING
COUNTRIES (OPEC)
Nigeria became a member of OPEC in 1971 after its establishment in September 1960. Its oil policies were since in line with other member countries. For instance, she had reserved for herself the right to acquire participating interest in Agip oil as early a 1966, exercise such an option by acquiring 33.3% in EIF oil in 1971. By April 1971, Nigeria had established the Nigerian National Oil Company to give effect to the governments desire to participate effectively in strategic industries as expounded in the first National Development Plan (1962 – 1968). This with production level of about 1.5 million barrel per day in 1971, representing about 3% of the total work oil production and 6 – 7% of the OPEC production. Currently Nigeria production. Nigeria had established herself a substantial net exporter of crude oil. In view of the fiscal policies already taking to be I line with other member countries of OPEC, Nigeria had already fulfilled all the basic requirements of OPEC. It has also in the mutual interest of the other oil exporting countries that Nigeria should become a member. In order to add force to the control from the major forien oil companies briefly, the functions of OPEC is to stabilize and control the world oil output and price of crude in the world market.
1.1.3 THE OIL GLUT AND NIGERIAN ECONOMIC CRISIS
The price of crude oil rose from US$0.90 per barrel in 1970 to the peak of $4.00 per barrel in 1980. This period is generally referred to as the ‘Oil Boom’ in Nigeria. However, the world economic recession set-in-mid 1981 both the demand and prices of oil fell by 1986 to below US$12.00 per barrel. Thus, Nigeria’s crisis began in mid 1981. This crisis was due to structure imbalance caused by the neglect of the agricultural sector, solid mineral. In 1967/68, mining and oil sector accounted for only 13.5% of the National Revenue while agricultural sector accounted for 55.9%. Unfortunately since the beginning of oil boom in the early 1970’s agriculture has been on the decline and its consequence has been large – scale. Importation of food and raw material for use by local industries. Government dependence on oil as a source of revenue grew from 0.8% in 1958/59 to 13.9% in 1967/68 and 87.23 in 1976/77.
Following the glut in the world oil market, which actually began in 1977, there was a major decline in the oil revenue to 71.46% in 1981 and further to 62.4% in 1983. However, the main causes of this glut were the entry into the world oil market by the North Sea Oil Produce. The UK and Norway, they did not only increase the supply of world oil but also reduced their crude oil price to US & 35 per barrel. This force is that crude oil from Nigeria Libya and Algeria have the price with the North sea oil which led to the mass dissertation of their usual customers. Also, the result of the high price of world oil during the 1970 demanded for oil fall and alternative sources of energy were explored. France, for example which was at the one time dependent on oil for the generation of electricity then had up to 60% of her power needs supplied by nuclear power. By plant began commercial operation in many countries. Emphasis was given to energy saving investment hence, the demand for crude oil fail in early 1980 and a worldwide economic rececesion set-in in the following year.
Observing sales locally, the utility potential of petroleum products is high considering the population, base in Nigeria. Over 70% (percent) of about 100 million Nigerian depend petroleum products for daily business unfortunately, however the frequent upward review of t he prices of petroleum products has not augur well for Nigerian local business environment. The instability of oil prices has resulted proximate instability of prices.
1.1.4 CONTRIBUTION OF OIL TO NIGERIAN
ECONOMY
The oil industry in an integral part of the Nigeria economy. It provides among other things, the greater part of foreign exchange earnings and revenue for the country’s development employment opportunities have increased greatly by the oil industry. It should be noted that the oil industry is capital and equipment intensive, hence it employees relatively small number of perpous.
In regards to manpower training, the petroleum training institute (PTI) in Kalarri, Delta State for training and Promotion of skills needed in various aspect of petroleum technology. Scholarships have been awarded to many qualified Nigerians for the relevant course in the Nigerian Universities. Grants have equally been given to universities and polytechnics toward the development of departments that offer courses relevant to oil industry. Infrastructural development is another area the oil industry has made great contributions. The building of hospitals and pipe borne water etc are some example of the contributions.
1.1.5 NEGATIVE ASPECT OF OIL TO THE
NIGERIAN ECONOMIC
On industry as can be seen from the above has contributed immensely to the development of the economy. It is still contributing, but some of its shortcomings cannot be overlooked.
The high emphasis of government on oil has posed a serious neglect of other facet of Nigeria economy. The fluctuation of oil prices especially at the world market have seriously affected the government in the implementation of her budget. The idea of Nigeria being a ‘Mono-product economy’ has caused a serious imbalance in the economy resulting in unemployment, oil spillage and environmental pollution in the oil producing areas. This constitutes a serious problem to mankind and his environment.
1.2 MOTIVATION AND STATEMENT OF PROBLEM
Over the years, the frequent review of prices of petroleum products has gain a space in the heart of Nigerians, and most of the time, the out of stock of produces at depot for sales is also rampat.
In view of the above statement, the project examines total monthly sales of petroleum products in Nigeria National Petroleum Corporation in Enugu State and build a stochastic model for the data obtained.
1.3 AIMS AND OBJECTIVES OF THE STUDY
- To determine the stationarity of sales of petroleum products.
- To construct an autoregressive model of a suitable order for the process.
- To forecast the series for sales in 2004 quarters.
- To make recommendation based on the findings of the research.
1.4 SCOPE OF STUDY
The scope of this study covers the monthly sales of petroleum products by Nigerian National Petroleum Corporation for the past eight years (1996 to 2003) and the figures used are in million naira. STOCHASTIC TIME SERIES MODELS were used as appropriate.
CHAPTER TWO
LITERATURE REVIEW
In view of that fact that it is necessary to up grade standard in other to meet the text of time and improved models on ground. The researcher is poised to consolidate on the work done by some researchers in the past on related topics. This chapter therefore, reviews that works of past researchers and their reports as contained in textbooks, Newspapers, Bulletin and Journals on sales of petroleum products in Nigeria.
Prof Jubril Aminu, Hon Minister of Petroleum Resources (1990) sees sales of petroleum products as a function of production since research is abundant. He emphasis that investment has been low in all OPEC nations in general and Nigeria in particular. He stress that unless we increase our investment, production would decline and this would adversely affect sales.
Dr. T.M John (1990) in his speech said that “there is too much waste in NNPC, the management style and habits are most wasteful”. He emphasized that waste abounds in NNPC namely at the plants, in projects and in support services. He said in NNPC we replace rather than maintain and repair, we buy in excess of our requirement at prices higher than commercial average and from source capabilities lower than commercial standard.
The society’s view is that the general purpose of sales of petroleum products is to add comfort and well being of mankind. The way of fulfill this purpose is to produce meaningful work for the members of the society as well to produce distribute adequate oil and services to he needs of member of the society.
Unfortunately, government policy of the day seems to be inimical to this concept. The frequent increases in prices of petroleum product over the year has not address the plight of the masses. It is however hoped that economic reform program embarked upon by the present administration of President Olusegun Obasanjo will meet the need and yearning of the people
TIME SERIES DEFINITION
A time series is the name given to the values of some statistical variables measured over a uniform set of time points which may represent the historical performance of some economic or business variable. Examples of time series are total monthly sales receipts in a departmental store, total monthly sales of petroleum products, total monthly production by company, consumption of electricity in kilowatts data on population motor registration.
STOCHASTIC MODELS
MOVING AVERAGE PROCESS
As the researcher mentioned earlier:
Yt = åt – qåt-1
The process is an example of a moving average process. The general expression for such a process is
Yt = åt – q1åt-1 – q2åt-2 ……………qqåt – q
Where; q1, q2, ………qq are constants this will be referred to as finite moving average process of order q, M(q).
AUTOREGRESSIVE PROCESS
The general Pth order autoregressive is define by
Yt – q1Yt-1 – q2 Yt-2 – …………qp Yp-p = åt
Where q1, q2, …………… qq are constants this will be referred to as finite moving average process of order q, M(q),
AUTOREGRESSIVE PROCESS
The general pth order autoregressive is define by
Yt – f1 Yt – 1 – f2 Yt – 2 – ……………… fP YP – P+ = åt
Where f1, f2 ……… fP are constant and the model is denoted AR(P).
STATIONARY AND AUTOCORRELATION FUNCTION
Consider the two autocorrelation functions correlogram
The diagrams above represent typical examples of type of time series. Considering the stationary time series, the autocorrelation functions drops off as lag K becomes larger. While the non-stationary time series keeps fluctuating along the horizontal line.
FORECASTING
Considering the use of stochastic models in forecasting. That is, the models in which the random element plays the dominant role in determining the structure of the model in the previous model, the disturbance element åt was simply an added ‘error’, added separately at each time moment to a strictly deterministic function consider the model below
Yt = fY4 + 1 + åt
Where the independent disturbance element åt are identically distributed with zero mean and s2 and f is a parameter. This type of process is called an Autorepresive process since its form represents a regression of Yt on Yt + 1.
We may rewrite the expression above for one time unit forward as;
Yt-1 = fYt + 1 + åt + 1
It can be seen that both Autoregressive and moving average model can be expressed in terms of weighted moving sum (either infinite or finite) of the sequence å. It may be of help if we margin there model to be formed by a physical process in which the åI value form the input to some mechanism or process and the Yi values the output. Suppose that when a particular process, there is only a single unit input at time 1 and no further input, then the system response by giving output of 1 at time 1, f, at time 2, f2 at time 3 and so on. Such sequence is often referred to as impulse respond of the system – Box – Jeakins. It can be seen that the forecast for the Autoregressive model of order 2 as used by the researcher in this work is given as
Ŷt = f1 yt + f2 yt – 1.