African oil firms desperately seek new buyers

Increased domestic oil production has led to a sharp decline in US demand for African oil. With many African states dependent on exporting oil, new markets in the east are being desperately sought

African countries are desperately seeking buyers for their oil, as their economies suffer from price drops

US oil volumes have surged in regent years. This has been the outcome of a boom in shale and tight oil production. As a result, the US has increasingly begun to consume more domestically produced oil, reducing dependence on foreign imports. As the US Energy Information Administration noted: “In 2014, about 27 percent of the petroleum consumed by the US was imported from foreign countries, the lowest level since 1985.”

Nigeria in particular has suffered from the decline in US demand. The most populous country in Africa was the fifth-largest oil supplier to the US in 2005

US imports of foreign crude peaked in July 2005, at 10.8 million barrels a day. By July 2014, this figure had fallen by roughly a third, declining to 7.6 million barrels a day. Until the shale boom, in a bid to diversify its hydrocarbon sources, the US looked towards African oil, ramping up its imports from the region. However, the US’ shift to domestic production is now having a profound impact on Africa’s oil-producing nations. African exports of oil to the US have collapsed, declining by 87.7 percent by 2014. Whereas in 2007, producers on the continent were sending 2.4 million barrels a day to the US, by 2014 this had fallen to a mere 0.29 million barrels.

Delta danger
Nigeria in particular has suffered from the decline in US demand. The most populous country in Africa was the fifth-largest oil supplier to the US in 2005. At its peak in 2006, Nigeria was sending 1.3 million barrels of oil a day to the US. Nigeria had proven an attractive supplier for US oil importers, due to the similarity of the sweet crude produced in Nigeria to that of the US. By 2010, 40 percent of Nigeria’s oil exports were sent to the US. Even in 2012, when US import demand was already in decline, Nigeria still ranked alongside Saudi Arabia, Canada, Mexico and Venezuela as one of the key exporters of oil to the US.

However, by 2014 the country was only exporting 58,000 barrels a day to the US, falling again to 57,000 barrels per day in 2015. This represented a major decline from 900,000 barrels per day in 2010. In that year, the US was the largest importer of Nigerian oil – by 2014 it was the 10th largest, with Nigeria accounting for only one percent of US oil imports. Combined with the current low price of oil, the drying up of US demand is putting increasing strain on the economy of Nigeria. According to the Journal of International Affairs, this decline in demand, alongside other factors such as oil theft and leakages, has resulted in “revenue losses totalling an estimated $1.7bn per month, which represents 7.7 percent of Nigeria’s GDP”.

Out of Africa
Other west African nations have also faced the brunt of declining demand from the US. Angola, after decades of civil war, has become an increasingly important oil producer. The state saw its oil production grow by an annual rate of 15 percent on average between 2002 and 2008. In 2005, Angola was the seventh-largest supplier of oil to the US. Much of the country’s increased production went to US buyers, with over half a million barrels per day heading for US shores by 2006.

This remained steady until 2008, when the amount exported to the US began to decline. In 2009, the US was the destination for 31 percent of Angola’s crude oil – by 2014, this had tailed off to a meagre eight percent. Indeed, by 2015, Angola’s total oil exports to the US had reached a paltry 124,000 barrels a day.

Less significant west African oil producers have also felt the cold shoulder of US demand. Equatorial Guinea is only a marginal producer on the world stage, but its meagre production is vital for its own economy. Oil accounts for 90 percent of state revenue and the vast majority of its export revenue. In 2009, exports from the country heading to the US totalled 89,000 barrels per day. By 2015, this had plummeted to just 5,000. Likewise, Gabon was sending half of its oil to the US in 2010 – as of 2014, it was only sending 15 percent.

Go east

Nigeria has been looking increasingly towards the rapidly growing economies of Asia to find a new export market. The Financial Times reported in 2014 that “Nigerian oil sales to Asia’s four largest oil importers – China, Japan, India and South Korea – have risen more than 40 percent so far…over the 2013 level”. Nigeria has also become the biggest source of imported oil in India, overtaking Saudi Arabia.

However, while importers in the east have picked up some of the slack left behind by diminished demand from the US, a solid new consumer base for Nigerian crude is yet to be found. The many new and high-tech refineries in Asia mean that cheaper grades of crude can be refined much more easily, making Nigeria’s less heavy and more expensive crude not so attractive to buyers from this region.

When it comes to Angola, it has also looked east for new buyers. Nearly half of Angola’s oil exports now head to China, and the country is now the second-largest supplier of oil imports in China. The world’s second-largest economy has been steadily building relations with Angola over the past decade, with a particular emphasis on hydrocarbons.

China, despite concerns over its economy slowing, still achieved 6.7 percent GDP growth in Q1 of 2016, according to the country’s National Bureau of Statistics – meaning its demand for oil is unlikely to dry up any time soon. Whether or not it, and other economies such as India, can plug the gap of softened US demand is yet to be seen, however.

Regional stability
Plugging the gap left by reduced US demand is important, but perhaps the biggest threat this decline poses to west Africa is US disengagement from the region. West Africa increasingly faces a security crisis, from the insurgent group Boko Haram now extending its reach across northern Nigeria and its neighbours such as Cameroon, to Al-Qaeda in the Islamic Maghreb asserting its power in the Sahara Desert.

For many countries, the US has played a vital part in maintaining security in the region. However, as the US has less of an interest in west Africa – as it relies less and less upon the region’s oil – there is the possibility it may relinquish its role as guarantor of stability. Whether or not the US will disengage is uncertain. However, with each state in the region now boasting fewer financial resources to spend on security, as a result of declining exports and soft prices, any degree of US disengagement at all simply could not come at a worse time.

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