Nigeria has become the first country to completely stop selling oil to the United States of America, the world’s largest oil producer and consumer, due to the impact of the shale revolution – an astounding reversal – as the country was only four years ago one of the top five oil suppliers to America.
According to the US Department of Energy, Nigeria did not export a single barrel of crude to US-based refiners in July for the first time since records started in 1973.
Preliminary data suggest the trend continued in August and September.
Many oil producers have seen their exports to the US drop as domestic production rises thanks to the use of new technologies such as horizontal drilling and hydraulic fracturing, or fracking. But Nigeria is the first to fully stop exporting crude.
At its peak in February 2006, the US imported 1.3 million barrels per day (mb/d) from Nigeria – equal to roughly one super tanker the size of the Exxon Valdez every day. By 2012, Nigeria was just selling 0.5m b/d, but was still one of the top five suppliers to the US, alongside Saudi Arabia, Canada, Mexico and Venezuela. Earlier this year, sales dropped to a trickle of about 100,000 b/d. And in July, they completely stopped.
Nigeria, a member of the Organisation of the Petroleum Exporting Countries (OPEC) oil cartel, is Africa’s largest oil producer and international companies from ExxonMobil to Royal Dutch Shell and from Total to Chevron operate some of the country’s major oil fields. But most of them are divesting of these assets in the country, as they undertake a portfolio rotation of their assets to divert more resources in shale oil production.
The shale revolution has affected US oil suppliers unevenly, hitting particularly hard those in Africa such as Nigeria, Algeria, Libya and Angola, which produce high quality crude similar to the one pumped in the new oil fields of North Dakota.
Middle East producers such as Saudi Arabia and Kuwait have suffered far less as they pump crude oil of a lower quality that US refiners continue to buy. Saudi crude oil exports year-to-date to the US have increased over the 2013 level. Kuwait has also sold more crude to the US so far this year than in 2013.
Overall, US crude oil imports hit a peak of 10.8m b/d in July 2005. Since then, they have fallen by roughly a third to hit 7.6m b/d in July as domestic production boomed.
The dramatic collapse in Nigerian crude oil exports to American refiners corroborates a warning a year ago by the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, that shale was “one of the most serious threats for African [oil] producers”.
Nigeria has offset the impact of the drop in US sales lifting exports towards Asia, with India supplanting the US as Nigeria’s largest importer of her crude oil.
According to Platts, a specialised information service for the oil industry, Nigerian oil sales to Asia’s four largest oil importers – China, Japan, India and South Korea – have risen more than 40 per cent so far this year over the 2013 level.
Oil analysts believe that Africa-US oil trade could completely stop in the next two to three years as other leading exporters, including Angola, Libya and Algeria, suffer the same fate as Nigeria. If that materialises, Africa will have to find new customers for its oil, going head-to-head with Middle East producers in the key Asian market.
Analysts see the fate that has befallen Nigeria’s crude oil as a warning that the country must diversify its economic base if it must remain competitive on the global stage. As other major African oil producers and the Middle East search for alternative markets in Asia that consume less crude oil than the US, producers would be forced to sell at a discount to attract their custom.
Even more worrisome, said an analyst, is the fact that Nigeria would be mistaken by relying on Asian buyers, as the shale revolution has made almost every country in the world a potential oil producer. Added to this are several other African countries such as Ghana, Cote d’Ivoire, South Sudan, Equatorial Guinea, Ethiopia and Kenya, among many others, that have made commercial oil discoveries or are in the process of doing so.
What this portends is that some years down the line, the crude oil market would turn from a sellers’ market to a buyers’ market, as the likelihood of an oil glut forces prices down.
Nigeria has been complacent for too long. The time it should have acted on the diversification of its economy has probably passed the country by. It has failed to take advantage of its enormous gas resources by investing more in gas development for domestic use and new liquefied natural gas plants for export. The same could be said of other solid mineral resources, which largely remain untapped.
However, the reality of the US slamming the door firmly against Nigeria’s oil exports could be the wake-up call she needs. Nigeria, without doubt, has enormous natural and human resources that could still be tapped to stem her over-reliance on hydrocarbon exports.
However, Nigeria’s leaders would be mistaken it they think that advanced countries in the West and Asia got to where they are today by solely exporting raw natural resources that could be subjected to exogenous price movements over which they have control. It was through manufacturing, the services sectors, trade and tourism that sustainable diversification was achieved. That is the path Nigeria must follow, otherwise its future looks bleak.