Increased US Oil Output to Hurt Africa’s Producers
From Daily Monitor
By George Wachira
In his 2008 election manifesto, President Barack Obama promised to make USA less dependent on imported oil through a raft of measures.
According to a recent report by the Citi Bank, USA has actually increased its oil production from about 8 million barrels per day in 2007 to 11.2 million in 2012. This now makes USA the largest world oil producer, and by-passes Saudi Arabia which produces about 10 million.
The Citi report also says that USA domestic demands for oil are decreasing mainly due to fuel efficiencies and substitutions to non-oil fuels. In the same period USA has increased its share of global products exports.
The net effect of increased production, reduced consumption and increased products exports is a net reduction of about 5 million of petroleum imports by USA in the past five years.
The report also projects that by 2020, USA (and Canada) may have a substantial petroleum surplus. According to the Citi report, USA has become self-sufficient in natural gas as the country continues to develop shale gas resources, thus significantly reducing their requirements of imported liquefied natural gas.
The emergent hydrocarbons supply/demand scenario has definitely introduced a definite market threat to the traditional oil exporters into the USA, namely West Africa, Middle East, Mexico and Venezuela. This will also re-align global hydrocarbons shipping routes as exports target the demand growth markets of the Far East.
Reduced dependency on oil imports has simultaneously increased USA global political flexibility and leverage. It is no wonder that USA, under a scenario of increased local oil supplies, could dare the Iranians with economic sanctions which include Iranian oil exports. The resultant Iranian oil export reduction has not resulted in any noticeable global oil shortfalls.
Increased production from USA may also have enabled the world to sail through production disruptions in Libya and Sudan over the past two years with minimal impacts on global oil supply. The USA fortunes may also be gradually loosening OPEC stranglehold on control of global oil prices.
The report points to a future global surplus oil and gas situation which will have the impact of lowering prices to levels below what we are currently experiencing.
The Citi report estimates that the Brent marker crude oil price could be in the range of $80-90 by the end of this decade. Today the price is $118 per barrel.
This is a good prospect for net oil and gas importers; but bad news for net oil and gas exporters. For those countries that are heavily dependent on oil revenues, it will be difficult to balance their national budgets and this may result in socio-political unease with their populations.
The Citi report mentions Nigeria which has always depended on USA markets for their high premium light and sweet crude oils already is seeking alternative markets, and this is happening with reduced price premiums.
Oil and gas export outlets for West African producers (Nigeria and Angola) will have to target Europe and the more distant Far Eastern countries and rigorously compete with Middle East, Russia and Australia.
In a global supply surplus environment, it will not be good news for those companies and countries that are exploring for oil.
In East Africa, we have so far been lucky to muster sufficient investor interest and capital, because global oil and gas prices have been high for some years now. It has been easy to justify risks in exploration and production projects, and to eventually support commercial discoveries.
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