Nigeria Bearing Brunt Of U.S. Shale-Oil Boom
By Sarah Kent, Wall Street Journal
ABUJA—Nigeria is suffering from reduced demand for its oil from North America, in a sign of what could be in store for other OPEC members.
The U.S. had long been one of the main customers of oil from Nigeria, the largest African member of the Organization of the Petroleum Exporting Countries. But a recent rise in production of domestic crude in the U.S., largely attributable to the introduction of shale-rock drilling technology, has reduced the reliance on imported oil in the world's largest economy.
As a result, exports of Nigerian oil to the U.S. have fallen to their lowest levels in decades, according to data from the U.S. Energy Information Administration, disquieting political elites in a country where oil export is the mainstay of the economy.
Analysts say it may be a taste of what is to come for other OPEC members, even though the group has largely shrugged off the threat presented by the U.S. shale-oil boom.
For many years, the biggest problems facing Nigeria have been attacks on oil infrastructure in the Niger Delta and the difficulties in passing new laws to overhaul of the oil industry, which encompass everything from tax rates to environmental laws to the structure of Nigeria's state-owned oil company.
But at a conference in Nigeria's capital, Abuja, last month, rising U.S. oil production was the hot topic.
"Shale oil and the increase in their gas production is already affecting our exports to the United States," said Nigerian Oil Minister Alison Madueke.
Exports of Nigerian oil to the U.S. almost halved between 2011 and 2012, according to EIA data. In the late 2000s, Nigeria regularly shipped around one million barrels a day of crude to the U.S., but last year that number was just 405,000 barrels a day.
Other members of OPEC have also been affected. Exports from both Angola and Algeria fell more than 30% last year. But the impact has been the most severe in Nigeria, which has historically sent the bulk of its oil exports to the U.S., and the country has been forced to react.
"Nigeria is repositioning its exports in the light of this emergent threat," and has so far been able to find alternative markets for its crude, said Andrew Yakubu, group managing director of Nigeria's state oil company, Nigerian National Petroleum Corp.
But traders and analysts say Nigeria has experienced difficulty finding a home for its crude, and it has had to cut prices.
Weak demand forced Nigeria to sell some cargoes of its oil below the official selling price in January, said a report from analysts at Ecobank. Cargoes of Qua Iboe crude, one of Nigeria's benchmark grades, sold for almost 40 cents a barrel below the official price, the bank said.
This is just a fraction of the total selling price, but would still see the country lose $380,000 on a typical cargo, according to calculations by The Wall Street Journal.
Many Nigerian oil cargoes are being redirected to the Mediterranean or the North Sea, said one trader active in the West African crude market, who didn't wish to be named for reasons of commercial confidentiality. But it wasn't clear whether Europe, where oil demand is falling, could be a long-term market for Nigerian crude, the trader said.
Fast-growing Asia is an obvious destination, but prices would have to fall to gain the interest of Chinese buyers, the trader said.
Oil revenue accounts for 40% of the Nigerian government's budget, so a sustained decline could have a sizable impact.
Much of Nigeria's population lives in poverty, while the government is struggling to contain an Islamist insurgency in the north and widespread theft of oil from pipelines in the south.
But the effects could spread further. Rising production in the U.S. "is a major challenge for Nigeria and the rest of OPEC," said Bright Okugo, director general of the Nigerian budget office. OPEC's own projections now show that demand for its oil will be fairly stagnant over the next four years, even as global consumption rises. "We can't stand still and think the world will wait for us," Mr. Okugo said.
A landmark report by the International Energy Agency published in October forecast that the U.S. could be producing more oil than Saudi Arabia by 2020, a development that would force OPEC members to adapt to rapidly changing trade patterns and even result in them competing with U.S. exports for market share.
OPEC has largely dismissed the threat that shale oil poses to its historic dominance, highlighting the stumbling blocks that could still hamper the growth of this kind of production.
"A high level of risk is associated with non-OPEC supply forecasts on political, price, economic, weather, environmental and geological factors," the group of major oil producers said in its most recent monthly oil market report.
So far, the largest OPEC suppliers to the U.S.—Saudi Arabia and Venezuela—have barely been affected. In fact, both increased their shipments to the U.S. in 2012. They have been insulated from the effects of the shale boom because, unlike Nigeria, they produce heavy, high-sulfur crude that isn't as easily swapped for light, low-sulfur shale oil.
But industry experts say that could soon change.
"Starting this year, North American output should start to have a tangible impact both on global prices and trading patterns and will eventually turn the global geopolitics of energy on its head," CitigroupC +2.25% said in a research note.
New pipeline capacity could by 2014 allow large volumes of high-sulfur Canadian crude to reach the U.S. Gulf Coast, competing directly with crude from other OPEC members, which will either have to discount their oil to preserve market share or look elsewhere, Citigroup said.
"Venezuela will take a hit," said Amrita Sen, an oil analyst at consultancy Energy Aspects. Like Nigeria, it is also looking to offset this by diversifying into Asian markets, she said. "If you look at Venezuela's Indian imports, it's picked up a lot."
The Venezuelan state oil company didn't respond to emailed requests for comment.
Venezuela's oil minister, Rafael Ramirez, has said in the past his country doesn't lose out by exporting more oil to Asia, even though it is farther away than the U.S., because it ships oil there in larger and more-efficient vessels.
OPEC members in the Persian Gulf, which already send significant volumes of their oil to Asia, are better placed to adapt to these shifts in trade, Mrs. Sen said.
—Jenny Gross and Kejal Vyas contributed to this article.
ABUJA—Nigeria is suffering from reduced demand for its oil from North America, in a sign of what could be in store for other OPEC members.
The U.S. had long been one of the main customers of oil from Nigeria, the largest African member of the Organization of the Petroleum Exporting Countries. But a recent rise in production of domestic crude in the U.S., largely attributable to the introduction of shale-rock drilling technology, has reduced the reliance on imported oil in the world's largest economy.
As a result, exports of Nigerian oil to the U.S. have fallen to their lowest levels in decades, according to data from the U.S. Energy Information Administration, disquieting political elites in a country where oil export is the mainstay of the economy.
Analysts say it may be a taste of what is to come for other OPEC members, even though the group has largely shrugged off the threat presented by the U.S. shale-oil boom.
For many years, the biggest problems facing Nigeria have been attacks on oil infrastructure in the Niger Delta and the difficulties in passing new laws to overhaul of the oil industry, which encompass everything from tax rates to environmental laws to the structure of Nigeria's state-owned oil company.
But at a conference in Nigeria's capital, Abuja, last month, rising U.S. oil production was the hot topic.
"Shale oil and the increase in their gas production is already affecting our exports to the United States," said Nigerian Oil Minister Alison Madueke.
Exports of Nigerian oil to the U.S. almost halved between 2011 and 2012, according to EIA data. In the late 2000s, Nigeria regularly shipped around one million barrels a day of crude to the U.S., but last year that number was just 405,000 barrels a day.
Other members of OPEC have also been affected. Exports from both Angola and Algeria fell more than 30% last year. But the impact has been the most severe in Nigeria, which has historically sent the bulk of its oil exports to the U.S., and the country has been forced to react.
"Nigeria is repositioning its exports in the light of this emergent threat," and has so far been able to find alternative markets for its crude, said Andrew Yakubu, group managing director of Nigeria's state oil company, Nigerian National Petroleum Corp.
But traders and analysts say Nigeria has experienced difficulty finding a home for its crude, and it has had to cut prices.
Weak demand forced Nigeria to sell some cargoes of its oil below the official selling price in January, said a report from analysts at Ecobank. Cargoes of Qua Iboe crude, one of Nigeria's benchmark grades, sold for almost 40 cents a barrel below the official price, the bank said.
This is just a fraction of the total selling price, but would still see the country lose $380,000 on a typical cargo, according to calculations by The Wall Street Journal.
Many Nigerian oil cargoes are being redirected to the Mediterranean or the North Sea, said one trader active in the West African crude market, who didn't wish to be named for reasons of commercial confidentiality. But it wasn't clear whether Europe, where oil demand is falling, could be a long-term market for Nigerian crude, the trader said.
Fast-growing Asia is an obvious destination, but prices would have to fall to gain the interest of Chinese buyers, the trader said.
Oil revenue accounts for 40% of the Nigerian government's budget, so a sustained decline could have a sizable impact.
Much of Nigeria's population lives in poverty, while the government is struggling to contain an Islamist insurgency in the north and widespread theft of oil from pipelines in the south.
But the effects could spread further. Rising production in the U.S. "is a major challenge for Nigeria and the rest of OPEC," said Bright Okugo, director general of the Nigerian budget office. OPEC's own projections now show that demand for its oil will be fairly stagnant over the next four years, even as global consumption rises. "We can't stand still and think the world will wait for us," Mr. Okugo said.
A landmark report by the International Energy Agency published in October forecast that the U.S. could be producing more oil than Saudi Arabia by 2020, a development that would force OPEC members to adapt to rapidly changing trade patterns and even result in them competing with U.S. exports for market share.
OPEC has largely dismissed the threat that shale oil poses to its historic dominance, highlighting the stumbling blocks that could still hamper the growth of this kind of production.
"A high level of risk is associated with non-OPEC supply forecasts on political, price, economic, weather, environmental and geological factors," the group of major oil producers said in its most recent monthly oil market report.
So far, the largest OPEC suppliers to the U.S.—Saudi Arabia and Venezuela—have barely been affected. In fact, both increased their shipments to the U.S. in 2012. They have been insulated from the effects of the shale boom because, unlike Nigeria, they produce heavy, high-sulfur crude that isn't as easily swapped for light, low-sulfur shale oil.
But industry experts say that could soon change.
"Starting this year, North American output should start to have a tangible impact both on global prices and trading patterns and will eventually turn the global geopolitics of energy on its head," CitigroupC +2.25% said in a research note.
New pipeline capacity could by 2014 allow large volumes of high-sulfur Canadian crude to reach the U.S. Gulf Coast, competing directly with crude from other OPEC members, which will either have to discount their oil to preserve market share or look elsewhere, Citigroup said.
"Venezuela will take a hit," said Amrita Sen, an oil analyst at consultancy Energy Aspects. Like Nigeria, it is also looking to offset this by diversifying into Asian markets, she said. "If you look at Venezuela's Indian imports, it's picked up a lot."
The Venezuelan state oil company didn't respond to emailed requests for comment.
Venezuela's oil minister, Rafael Ramirez, has said in the past his country doesn't lose out by exporting more oil to Asia, even though it is farther away than the U.S., because it ships oil there in larger and more-efficient vessels.
OPEC members in the Persian Gulf, which already send significant volumes of their oil to Asia, are better placed to adapt to these shifts in trade, Mrs. Sen said.
—Jenny Gross and Kejal Vyas contributed to this article.
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