Nigeria's energy need is on the increase, and its increasing population is not adequately considered in the government’s energy development program. The present urban-centered energy policy is deplorable, as cases of rural and sub-rural energy demand and supply do not reach the center stage of the country's energy development policy. People in rural areas depend on burning wood and traditional biomass for their energy needs, causing great deforestation, emitting greenhouse gases, and polluting the environment, thus creating global warming and environmental concerns. The main task has been to supply energy to the cities and various places of industrialization, thereby creating an energy imbalance within the country's socioeconomic and political landscapes. Comparing the present and ever increasing population with the total capacity of the available power stations reveals that Nigeria is not able to meet the energy needs of the people. The rural dwellers still lack electric power.
The nature of Nigeria's energy crisis can be characterized by two key factors. The first concerns the recurrent severe shortages of the petroleum product market of which kerosene and diesel are the most prominent. Nigeria has five domestic refineries owned by the government with a capacity to process 450,000 barrels of oil per day, yet imports constitute more than 75% of petroleum product requirements. The state-owned refineries have hardly operated above a 40% capacity utilization rate for any extended period of time in the past two decades. The gasoline market is much better supplied than kerosene and diesel because of its higher political profile. This factor explains why the government has embarked on large import volumes to remedy domestic shortages of the product. The weaker political pressures exerted by the consumers of kerosene (the poor and low middle class) and diesel (industrial sector) on the government and the constraints on public financing of large-scale imports of these products, as in the case of gasoline, largely explain their more severe and persistent market shortages.
The second dimension of Nigeria's energy crisis is exemplified by such indicators as electricity blackouts, brownouts, and pervasive reliance on self-generated electricity. This development has occurred despite abundant energy resources in Nigeria. The electricity market, dominated on the supply side by the state-owned Power Holding Company of Nigeria (PHCN), formerly called National Electric Power Authority (NEPA), has been incapable of providing minimum acceptable international standards of electricity service reliability, accessibility, and availability for the past three decades.
Though the peak electricity demand has been less than half of the installed capacity in the past decade, load shedding occurs regularly. Power outages in the manufacturing sector provide another dimension to the crisis. In 2004, the major manufacturing firms experienced 316 outages. This increased by 26% in 2005, followed by an explosive 43% increase between 2006 and 2007. Though no published data exist, the near collapse of the generating system to far below 2,000 MW for prolonged periods of time suggests a reason for the number of outages in 2008 to be very high. This poor service delivery has rendered public supply a standby source, as many consumers who cannot afford irregular and poor quality service, substitute more expensive captive supply alternatives to minimize the negative consequences of power supply interruptions on their production activities and profitability. An estimated 20% of the investment into industrial projects is allocated to alternative sources of electricity supply.