GDP Growth and Missing Energy

Reacting to my observation on the negative correlation between Oil Imports and GDP per capita, commenter UPn Student suggested that:

"you should chart out BTU-consumption versus GDP, not oil-importation versus GDP."

I think that suggestion made sense so i did some research. I divided the Final Energy Consumption* figures in my preceding post by the applicable population for a given year and mapped the result to GDP per capita** as follows:

Figure 1: GDP per capita and Energy Consumption per Capita
Click on image to enlarge
I then computed the correlation coefficients between per capita GDP and Energy Consumption during the three periods of expansion under Cory, FVR and GMA as well as the two periods of contraction that are sandwiched in between as shown in the diagram below.

Figure 2: Correlation Coefficients: GDP per Capita and Energy Consumption per Capita
Click on image to enlarge
For the periods of GDP expansion (1986 to 1989, 1993 to 1997 and 2002 to 2005), the above show similar patterns of correlation between per capita GDP and Energy Consumption as my previous computation which was based on Oil Imports. (As can be seen, for the three periods of expansion, the values of the correlation coefficients are practically identical.)

The first two post-EDSA expansions under Cory and FVR shows the expected positive correlation between per capita GDP and per capita Energy Consumption. By contrast, the current expansion under Gloria Arroyo shows a negative correlation. Even after factoring in the contributions of Malampaya's Natural Gas starting in 2002, the strangeness remains.

The next step would be to identify the 'missing' component and match that to the sector of the economy that seems to be consuming less energy than it normally does. Among the three components of Final Energy Consumption for the period 2002 to 2005, both Coal and Electricity has shown a positive correlation. In contrast, Petroleum has shown an almost perfect negative correlation:

Energy Source	Correlation Coefficient
Coal	+0.99
Petroleum	- 0.99
Electricity	+0.86

Table 1: Correlation Coefficients: GDP per Capita and Energy Consumption by Source (2002 to 2005)
So the missing energy turns out to still be Petroleum (which is derived from Crude Oil).

Which sector of the economy then has been consuming less and less Petroleum per capita as per capita GDP increases? Of the three broad categories of power consuming sectors of the Philippine Economy, i.e. Industry***, Transport**** and Others***** (which includes the Residential and Commercial Sectors), all have shown negative correlations when it comes to Petroleum consumption and GDP per Capita:

Economic Sector	Correlation Coefficient
Industry	- 0.84
Transport	- 0.88
Others	- 1.00

Table 2: Correlation Coefficients: GDP per Capita and Petroleum Consumption by Economic Sector (2002 to 2005)
It may again be argued that Petroleum is not the only source of energy of the above sectors so we need to consider the possibility of substitution of Petroleum by other sources (e.g. Electricity and Coal). If we take into account all those other sources of energy (i.e. Electricity and Coal) used by these sectors into the computation of the Correlation Coefficient, we get the following results:

Economic Sector	Correlation Coefficient
Industry	+ 0.83
Transport	- 0.88
Others	- 0.62

Table 3: Correlation Coefficients: GDP per Capita and Energy Consumption by Economic Sector (2002 to 2005)
The above shows that for the Industry Sector, substitution of Petroleum by other sources may offer a plausible explanation for the reduction in its usage. However, for the remaining sectors such as Transport and Others (includes Commercial and Residential), the question of missing energy is still unresolved. The alternative explanations i can think of are the following:

1. We have become more efficient in consuming energy to the extent that energy consumed per person is actually decreasing even as incomes are increasing. This, however, is highly unlikely as it goes against the pattern of increasing energy consumption that goes with increasing incomes.
2. Energy consumption is being understated. It may be that the smuggled oil is not being accounted for in the Energy Balance Tables.
3. GDP growth has been overstated and corresponding per capita GDP has not really increased as much as has been reported. This is more consistent with the results of the 2003 to 2006 Family Income and Expenditure Survey (FIES).
   

I would welcome inputs and alternative explanations from the readers.

Update 7:00pm: In the comments section, Gabby asks how i determined whether a given sector substitutes between energy sources. For each sector, i computed the correlation coefficient using Petroleum Consumption (in the green cells) and did the same with Total Energy Consumption (in the yellow cells) as follows:

Year	Industry Sector
	Petroleum	Coal	Electricity	Total
2002	2357	622	1172	4151
2003	2088	770	1299	4157
2004	2186	1055	1291	4532
2005	2054	1208	1368	4630
Correlation Coefficient	-0.84			+0.83

Table 4: Final Energy Consumption (in ktoe)
Industry Sector (2002 to 2005)
As seen above, with Petroleum alone, the Correlation Coefficient was negative (at -0.84) but if we include other energy sources i.e. Coal and Electricity, the value turns positive (at +0.83). This means that the increase in the alternative Energy Sources more than compensated for the relative decrease in Petroleum. The same cannot be seen for the rest of the sectors as shown in the following tables where the coefficients have remained in negative territory:

Year	Transport Sector
	Petroleum	Electricity	Total
2002	8424	5	8429
2003	8673	5	8678
2004	8662	6	8668
2005	8444	8	8452
Correlation Coefficient	-0.88		-0.88

Table 5: Final Energy Consumption (in ktoe)
Transport Sector (2002 to 2005)

Year	Others Sector
	Petroleum	Electricity	Total
2002	2308	2145	4453
2003	2269	2363	4632
2004	2173	2494	4667
2005	2128	2540	4668
Correlation Coefficient	-1.00		-0.62

Table 6: Final Energy Consumption (in ktoe)
Others Sector (2002 to 2005)

Update Nov-16-2008: Economist-blogger Tyler Cowen of Marginalrevolution, takes a similar over-all approach to the above and applies it to China. He speculates that the year-on-year change in generated electrical power in China for the month of October may be a more reliable indicator than government-reported GDP statistics.

Update Jan-27-2009: In response to GabbyD's query in the comments section, here is the relative share of the Transportation Sector to total GDP (1990 to 2008).

Year	Transportation & Communications Sector GDP	Total GDP	Relative Share
1990	41,108	720,690	5.7%
1991	41,291	716,522	5.8%
1992	41,870	718,941	5.8%
1993	42,941	734,156	5.8%
1994	44,764	766,368	5.8%
1995	47,366	802,866	5.9%
1995	47,366	802,866	5.9%
1995	47,366	802,866	5.9%
1995	47,366	802,866	5.9%
1995	47,366	802,866	5.9%
1996	50,878	849,121	6.0%
1997	55,067	893,151	6.2%
1998	58,640	888,000	6.6%
1999	61,726	918,160	6.7%
2000	68,174	972,960	7.0%
2001	74,181	990,042	7.5%
2002	80,805	1,034,093	7.8%
2003	87,747	1,085,071	8.1%
2004	97,605	1,154,296	8.5%
2005	104,766	1,211,452	8.6%
2006	111,412	1,276,873	8.7%
2007	256,877	1,368,740	18.8%
2008	90,590	1,035,303	8.8%

Table 7:Relative Share of Transportation & Communications Sector to GDP (1990 to 2008)******


*Source: APEC Energy Database
**Source: NSCB for 1994 to 2006 and Virtual Philippines, Biz Pack, Statistics - GDP and Economic Indicators for 1986 to 1993.
***Industry Sector includes Iron and Steel, Chemical (incl. Petro-Chemical), Non Ferrous Metals, Non Metallic Mineral Products, Transportation Equipment, Machinery, Mining and Quarrying, Food, Beverages and Tobacco, Pulp, Paper and Printing, Wood and Wood Products, Construction, Textiles and Leather.
****Transport Sector includes International Civil Aviation, Domestic Air Transport, Road, Rail, Inland Waterways, Pipeline Transport.
*****Others Sector includes Commerce and Public Services, Residential, Agriculture and Fishing.
******Source: NEDA