Energy consumption in Yemen: Economics and policy (1970-1990)

Abstract

This dissertation examines the consumption of commercial energy, electricity and petroleum products in Yemen for the period 1970-1990. The main objectives are: (1) analyzing the energy consumption in Yemen; (2) investigating the determinants of demand for electricity and petroleum products (3) projecting the values of petroleum consumption for the years 1991-2000; and (4) recommending measures to curb the rate of increase in the demand for energy and to reduce the dependence upon imported oil. This study found that economic growth in Yemen has had a major impact upon the demand for electricity and petroleum products, and that energy intensity had increased over time, indicating that economic growth of Yemen has been very energy intensive. The models that have been chosen in this study are based on the theory of demand. According to this theory, the demand for a good is a function of own price, price of substitutes, and income. The estimates given by the model for aggregate electricity over the period 1975-1990 improved when the number of customers was included in the demand equation. Income and the number of customers are the major determinants of electricity demand in Yemen; the estimated coefficient for price of electricity over the period was not statistically significant at the 5% level. In the case of the demand for electricity by sectors, the results are more useful than for aggregate electricity demand. Electricity consumption for the residential, commercial and industrial sectors was well modeled as a function of only price and income. Demand for electricity in the agricultural sector, however, was described best by a stock adjustment model. The estimated models for individual petroleum products showed that price for fuels and income are major determinants in explaining the variation in demand for these products. Overall, this study found that the future energy outlook in Yemen calls for increasing electricity and petroleum consumption. Moreover, current fuel efficiencies and the estimated fuel demand equations indicate increasing fuel prices, given growth rates of population and per capita GDP. Thus, issues to be considered by energy policy include welfare and economic growth implications of increasing fuel prices, energy conservation, and expanded domestic petroleum production.