Shale oil revolution – A serious threat to Nigeria and OPEC members
The US shale oil revolution is reportedly set to take a huge toll on Nigeria’s economy.
The Organisation of Petroleum Exporting Countries (OPEC) predicted recently that the world would need less of its crude in 2014 owing to competing supply sources.
In its recently released oil market report, OPEC forecast that demand for its crude would slip by 300,000 barrels a day next year to 29.6 million barrels a day.
The dependence on OPEC’s crude continues to slip as the US and Canada increase their output by unlocking unconventional oil supplies from deep underground shale deposits with new drilling techniques
Nigeria, a member of OPEC, is currently the fifth largest supplier of crude to the US and Western Europe. Nigeria’s economy is also heavily dependent on crude oil revenue, which accounts for more than 80 per cent of government revenues.
According to US government data the United States imported less than three million barrels of OPEC crude oil a day (mb/d) in February, the first time that has happened since January 1994, .
As the shale boom in the US shrinks the US import market, Nigeria and Angola are feeling the impact.
Nigeria and Angola combined exported 0.6mb/d to the US in 2012, the lowest in 25 years, and an indication that the shale boom will soon erode oil demand from producing countries.
According to a Citigroup report. U.S. imports from the two countries dropped to 700,000 barrels a day at the end of 2012, down from 1.6 million barrels in 2007. Citigroup forecasts that by the end of 2013, the market for Nigerian oil at Gulf Coast refineries could entirely dry up.
Nigeria says it is looking to make up the shortfalls by focusing on increased export to India but India is also getting in on developing its shale exploration.
India will soon unveil a Shale Gas Exploration Policy as it looks to exploit unconventional hydrocarbon resource to meet its growing energy needs.
The policy, based on which the government will launch its first auction of shale gas block by 2013-end. Its been widely reported that six basins – Cambay (in Gujarat), Assam-Arakan (in the North-East), Gondawana (in central India), KG onshore (in Andhra Pradesh), Cauvery onshore and Indo Gangatic basins hold shale gas potential.
IOC’s are starting to invest in shale oil exploration and production outside the US, including sites in China, Argentina, Australia and Russia.
Argentina has the fourth largest shale reservoir according to a recent study by the US energy department mostly located above the Neuquen basin in Patagonia.
“The potential magnitude of the impact of shale oil makes it a profound force for change in energy markets and the wider global economy. It is therefore critical for companies and policy makers to consider the strategic implications of these changes now,” according to the PwC report.
EIA suggest that shale oil production in the US will rise more slowly in the future to about 1.2 million barrels per day by 2035 (equivalent to 12% of projected US production). The report hinted that these projections seem conservatively relative to other market analysts, who forecast US shale oil production of up to 3-4 million barrels per day by that date.
Outside the US, the development of shale oil is still at an early stage. There are indications that point to large amounts of technically recoverable resources distributed globally. Global shale oil resources are estimated at between 330 billion and 1,465 billion barrels. Shale oil is projected to make the largest single contribution to total US oil production growth by 2020, with the proportion of production from conventional sources remaining relatively stable.
Given these developments and trends what happens to these African countries that are so dependent on oil revenue. Nigeria has squandered billions of dollars over the last 25 years. Major infrastuctures in the country as a whole do not reflect on this as they are practically non existent. Population continues to grow at an alarming rate and there are no major industries to fall back on. The business communities have to start addressing these issues as if left to the government it might be too late to avoid a total devastation of a stagnant third world oil producing country.
Angola, a relative newcommer will probably adjust better as they seem to be investing wisely in there economy and managing their oil revenue better.