Following the recent announcement by Nigeria’s Minister of Petroleum that tangible oil exports to the United States has ceased, some stakeholders are expressing concerns over the broad impact of this on the oil & gas industry and the Nigerian economy at large; given the size and position of US’ patronage of Nigerian oil. As a background, this development can, at least in part, be attributed to the Shale Oil and Shale Gas revolution in the United States. New breakthroughs in technology – such as hydraulic fracturing and horizontal drilling – have enabled energy producers to tap previously inaccessible shale oil resources, which has led to a Shale boom in the country, thereby reducing its import and overall dependence on oil imports. Shale oil is a relatively new type of crude oil, known also as kerogen oil or oil-shale oil. It is an ‘unconventional’ oil produced from oil shale rock fragments by pyrolysis, hydrogenation, or thermal dissolution. These processes convert the organic matter within the rock (kerogen) into synthetic oil and gas. The resulting oil can be used immediately as a fuel or upgraded to meet refinery feedstock specifications by adding hydrogen and removing impurities such as sulfur and nitrogen. The refined products can be used for the same purposes as those derived from crude oil. Global technically recoverable reserves of shale oil are estimated by the EIA at 345 billion barrels and 21% of these lies in the United States of America. Over the past five years, U.S. oil production has soared, while oil imports, especially from OPEC members fell significantly. A development which, according to the Nigerian Minister of Petroleum Resources and her other OPEC counterparts, was of “grave concern”. But then, as impactful as this development is, should it cause panic about the immediate, short, medium and long term economic potentials of Nigeria? One would argue not. The loss of American patronage for Nigerian oil is not really the issue. In the short term, Nigeria will simply source new markets for its oil. There are promising new and existing markets to explore. (See table below for consumption pattern of some selected countries). Argentina recently ordered for a consignment of Nigerian Bonny Light. The sustained situation in the Middle East (with subsisting sanctions on Iran) will continue to turn India and other Asia patrons towards Nigeria. However, the immediate worry to Nigeria, as well as other OPEC countries, would be drop in oil prices. Typically, the response would be a cut in production to shore up prices, but in the long run, drop in volumes, even at shored up prices, will still lead to reduced revenue and does not really assuage the concerns. Given the present importance of this sector to the Nigerian economy, a broader value chain enhancement strategy would be required for the long term, and the country is already looking into this.
Posted on: Tue, 24 Jun 2014 06:33:12 +0000
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