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Nigeria's Economy Tanking as U.S. Oil Exports Dry Up
http://www.nbcnews.com/news/investigations/needle-zero-nigerias-economy-tanking-u-s-oil-exports-dry-n256236
"......Nigeria became the first formerly flush oil producer to essentially lose its entire share of the U.S. market, leaving it scrambling for new customers, less able to fund its internal war on terror and less important to the U.S.
"Nigeria is facing a sea change in relations with the United States, a sea change in its geopolitical position in the world," says Peter Pham, director of the Africa Program at the Atlantic Council, searching for words to capture the magnitude of the moment.
Experts are just beginning to sort through the implications of the U.S. switching from being the biggest single consumer of petroleum to a producer and - eventually perhaps - a competitor. They see Nigeria, which generates 70 percent of its budget from oil sales, as a test case that may hold important clues about how other oil-rich nations like Iran, Iraq, Saudi Arabia and Russia will react as their oil-driven economies come under additional pressure.
"The collapse of the price of oil brought on by the rise in American production is fundamentally changing the world," said John Campbell, former U.S. ambassador to Nigeria and now director of the Ralph Bunche Center at the Council on Foreign Relations. "This energy shift is akin to the collapse of the Soviet Union in its foreign policy implications."
Daniel Yergin, an energy researcher with IHS Cera and author of "The Quest," a history of oil and geopolitics, said that, in the near term at least, the road will remain rocky for the government of Nigerian President Goodluck Jonathan.
"Nigeria as a country has three big issues: The loss of its biggest market in the U.S.; secondly, the price decline has really hit them; and the third thing is, of course, they're suffering this insurgency in the north," he said.
John Kilduff, a veteran oil trader with Again Capital, agrees that Africa's most populous nation faces "a rough decade" as it struggles to find new customers for the oil formerly exported to the U.S. In the interim, he said, he expects "economic upheavals and social unrest."
The financial impact already is getting serious.
Nigeria's Finance Minister Ngozi Okonjo-Iweala announced last week that a 6 percent drop in oil revenue would force the government to cut non-essential spending, raise more revenue and spend half of its $4.1 billion sovereign wealth fund - down from $11.5 billion at the start of 2013 -- to cover budgetary shortfalls. There also have been calls for the government to print more of its national currency, the naira, to cushion the impact of the recent oil price declines, though Okonjo-Iweala has so far rejected them.
The government in Abuja is simultaneously struggling to address the violent Islamic insurrection in the north, where Boko Haram continues to terrorize the citizenry with bombings, butchery and mass abductions. The government recently announced it has authorized taking out a billion dollar loan from Western banks to finance the war against Boko Haram.
Will 'bunkering' of oil cease?
Campbell, the former U.S. ambassador to Nigeria, says that the country could descend into chaos if the price of oil falls beyond its current $78-a-barrel price, because its finances already have been pushed to the breaking point by oil "bunkering" - or theft by Nigerian officials - which he estimates represents around 10 percent of Nigerian production.
"That oil finances the patronage, clientage network," he said. "It is all illegal (but) it's the grease to the system, and as the value falls … the grease dries up and the system doesn't work."
And Carl Levan, a professor at American University and author of "Dictators and Democracy in African Development," says turmoil in Nigeria could quickly spread through west Africa, already beset by long-running civil wars, an Ebola epidemic and political crises.
Many observers say the shift in oil production also will have broad ramifications outside of west Africa. It could lead the U.S. to focus on new priorities -- including Asia - and make it less likely to intervene when faraway national or regional conflicts don't threaten its economic wellbeing. That, in turn, could mean that small battles will become global ones, without a superpower willing to check them in their infancy, they say.
And the situation could get even worse for oil-reliant nations -- and regions. With U.S. production soaring at the same time its consumption is declining, the U.S. may become a competitor in the longer term, with an ability to undercut producers like Nigeria.
Although it isn't discussed much in political debates, U.S. officials are well aware of the possible ramifications.
"A dramatic expansion of U.S. production could … push global spare capacity to exceed 8 million barrels per day, at which point OPEC could lose price control and crude oil prices would drop, possibly sharply," the National Intelligence Council, the U.S. intelligence community's internal think tank, said in its "Global Trends 2030" report in December 2012. "Such a drop would take a heavy toll on many energy producers who are increasingly dependent on relatively high energy prices to balance their budgets."
The day of reckoning may not be as far off as 2030. As Citigroup noted in Energy 2020, its own analysis of the oil trade, issued early this month, "Eight years ago, in August 2006, the U.S. imported, net, a little over 13.4 million barrels a day of crude and products; recently the net import number has fallen to 4.7 million barrels a day."
As a result of the shift, U.S. relations with oil exporters will grow far more complicated as the haves become economic have-nots. It's already happening with Nigeria, says Pham.
Earlier this month, a delegation from the Council on Foreign Relations visited the Nigerian Embassy in Washington where they were lectured by Ambassador Ade Adefuye on the lack of U.S. support for his government's operations against Boko Haram. Adefuye told the visitors that Washington at first refused to share intelligence with the Nigerian government and also withheld "lethal equipment that would have brought down the terrorists within a short time on the basis of allegations that Nigeria's defense forces have been violating human rights of Boko Haram suspects when captured or arrested."
The comments were posted on the front page of the embassy's website, which Pham said wouldn't have happened without approval from the Nigerian goverment. And the angry rejoinder itself wouldn't have happened at all in the past, when relations between the countries were considered too important to risk ruffling feathers in Washington.
Pham suggested that the lack of oil trade also could lead the U.S. to step back or even away from Nigeria.
Six years ago, he noted the U.S. played a key role in negotiations between the Nigerian government and a group of insurgents known as the Movement for the Emancipation of the Niger Delta (MEND), who felt they had been left out of the economic boom fueled by oil production in the delta. When they rose up, a third of the nation's oil production was cut off.
"The U.S. coaxed Nigeria into peace talks with amnesty payments, training, etc., (and) successive U.S. ambassadors were involved," noted Pham. "Would they be involved again? Although U.S. companies, like Chevron would be affected, the U.S. oil supply would not. Would it be easier for a U.S. administration to not make it a priority?"
The answer to that question may be revealed soon. The Nigerian government's agreement with MEND expires next year and must be renewed. It is not clear if the U.S. intends to get involved in those negotiations.
"......Nigeria became the first formerly flush oil producer to essentially lose its entire share of the U.S. market, leaving it scrambling for new customers, less able to fund its internal war on terror and less important to the U.S.
"Nigeria is facing a sea change in relations with the United States, a sea change in its geopolitical position in the world," says Peter Pham, director of the Africa Program at the Atlantic Council, searching for words to capture the magnitude of the moment.
Experts are just beginning to sort through the implications of the U.S. switching from being the biggest single consumer of petroleum to a producer and - eventually perhaps - a competitor. They see Nigeria, which generates 70 percent of its budget from oil sales, as a test case that may hold important clues about how other oil-rich nations like Iran, Iraq, Saudi Arabia and Russia will react as their oil-driven economies come under additional pressure.
"The collapse of the price of oil brought on by the rise in American production is fundamentally changing the world," said John Campbell, former U.S. ambassador to Nigeria and now director of the Ralph Bunche Center at the Council on Foreign Relations. "This energy shift is akin to the collapse of the Soviet Union in its foreign policy implications."
Daniel Yergin, an energy researcher with IHS Cera and author of "The Quest," a history of oil and geopolitics, said that, in the near term at least, the road will remain rocky for the government of Nigerian President Goodluck Jonathan.
"Nigeria as a country has three big issues: The loss of its biggest market in the U.S.; secondly, the price decline has really hit them; and the third thing is, of course, they're suffering this insurgency in the north," he said.
John Kilduff, a veteran oil trader with Again Capital, agrees that Africa's most populous nation faces "a rough decade" as it struggles to find new customers for the oil formerly exported to the U.S. In the interim, he said, he expects "economic upheavals and social unrest."
The financial impact already is getting serious.
Nigeria's Finance Minister Ngozi Okonjo-Iweala announced last week that a 6 percent drop in oil revenue would force the government to cut non-essential spending, raise more revenue and spend half of its $4.1 billion sovereign wealth fund - down from $11.5 billion at the start of 2013 -- to cover budgetary shortfalls. There also have been calls for the government to print more of its national currency, the naira, to cushion the impact of the recent oil price declines, though Okonjo-Iweala has so far rejected them.
The government in Abuja is simultaneously struggling to address the violent Islamic insurrection in the north, where Boko Haram continues to terrorize the citizenry with bombings, butchery and mass abductions. The government recently announced it has authorized taking out a billion dollar loan from Western banks to finance the war against Boko Haram.
Will 'bunkering' of oil cease?
Campbell, the former U.S. ambassador to Nigeria, says that the country could descend into chaos if the price of oil falls beyond its current $78-a-barrel price, because its finances already have been pushed to the breaking point by oil "bunkering" - or theft by Nigerian officials - which he estimates represents around 10 percent of Nigerian production.
"That oil finances the patronage, clientage network," he said. "It is all illegal (but) it's the grease to the system, and as the value falls … the grease dries up and the system doesn't work."
And Carl Levan, a professor at American University and author of "Dictators and Democracy in African Development," says turmoil in Nigeria could quickly spread through west Africa, already beset by long-running civil wars, an Ebola epidemic and political crises.
Many observers say the shift in oil production also will have broad ramifications outside of west Africa. It could lead the U.S. to focus on new priorities -- including Asia - and make it less likely to intervene when faraway national or regional conflicts don't threaten its economic wellbeing. That, in turn, could mean that small battles will become global ones, without a superpower willing to check them in their infancy, they say.
And the situation could get even worse for oil-reliant nations -- and regions. With U.S. production soaring at the same time its consumption is declining, the U.S. may become a competitor in the longer term, with an ability to undercut producers like Nigeria.
Although it isn't discussed much in political debates, U.S. officials are well aware of the possible ramifications.
"A dramatic expansion of U.S. production could … push global spare capacity to exceed 8 million barrels per day, at which point OPEC could lose price control and crude oil prices would drop, possibly sharply," the National Intelligence Council, the U.S. intelligence community's internal think tank, said in its "Global Trends 2030" report in December 2012. "Such a drop would take a heavy toll on many energy producers who are increasingly dependent on relatively high energy prices to balance their budgets."
The day of reckoning may not be as far off as 2030. As Citigroup noted in Energy 2020, its own analysis of the oil trade, issued early this month, "Eight years ago, in August 2006, the U.S. imported, net, a little over 13.4 million barrels a day of crude and products; recently the net import number has fallen to 4.7 million barrels a day."
As a result of the shift, U.S. relations with oil exporters will grow far more complicated as the haves become economic have-nots. It's already happening with Nigeria, says Pham.
Earlier this month, a delegation from the Council on Foreign Relations visited the Nigerian Embassy in Washington where they were lectured by Ambassador Ade Adefuye on the lack of U.S. support for his government's operations against Boko Haram. Adefuye told the visitors that Washington at first refused to share intelligence with the Nigerian government and also withheld "lethal equipment that would have brought down the terrorists within a short time on the basis of allegations that Nigeria's defense forces have been violating human rights of Boko Haram suspects when captured or arrested."
The comments were posted on the front page of the embassy's website, which Pham said wouldn't have happened without approval from the Nigerian goverment. And the angry rejoinder itself wouldn't have happened at all in the past, when relations between the countries were considered too important to risk ruffling feathers in Washington.
Pham suggested that the lack of oil trade also could lead the U.S. to step back or even away from Nigeria.
Six years ago, he noted the U.S. played a key role in negotiations between the Nigerian government and a group of insurgents known as the Movement for the Emancipation of the Niger Delta (MEND), who felt they had been left out of the economic boom fueled by oil production in the delta. When they rose up, a third of the nation's oil production was cut off.
"The U.S. coaxed Nigeria into peace talks with amnesty payments, training, etc., (and) successive U.S. ambassadors were involved," noted Pham. "Would they be involved again? Although U.S. companies, like Chevron would be affected, the U.S. oil supply would not. Would it be easier for a U.S. administration to not make it a priority?"
The answer to that question may be revealed soon. The Nigerian government's agreement with MEND expires next year and must be renewed. It is not clear if the U.S. intends to get involved in those negotiations.
There's 50yrs worth of oil in the ground in the middle-east. There's 50-75yrs worth of oil here in the U.S. There's another 50-75 yrs worth of oil left in the ground around the rest of the globe. Tell me how that DOESN'T equate to 200 years of oil left in the ground?
And with our dependence on fossil fuels being reduced by the more fuel efficient vehicles coming out, and finding better and better ways to use hydroelectric and solar energy, how will there NOT be oil left in 200+ years?!?
"Peak Oil" won't be reached for at least another 20-30 years.
And please... take a step back and look at the BIG picture. It's not just OIL and gasoline we're talking about here.
See that thing your typing on with all the letters of the alphabet, and the screen on which your reading this email, and that cell-phone in your pocket, and the car in which you got to work? All of those things contain a VAST amount of plastic, which is a by-product of petrochemicals. Oil & gas is the tip of the iceburg. All PLASTIC and anything that has PLASTIC in it, comes from Oil.
In order to reduce our dependence on Oil, we need to invent a new material to make EVERYTHING our of. E-V-E-R-Y-T-H-I-N-G.
And with our dependence on fossil fuels being reduced by the more fuel efficient vehicles coming out, and finding better and better ways to use hydroelectric and solar energy, how will there NOT be oil left in 200+ years?!?
"Peak Oil" won't be reached for at least another 20-30 years.
And please... take a step back and look at the BIG picture. It's not just OIL and gasoline we're talking about here.
See that thing your typing on with all the letters of the alphabet, and the screen on which your reading this email, and that cell-phone in your pocket, and the car in which you got to work? All of those things contain a VAST amount of plastic, which is a by-product of petrochemicals. Oil & gas is the tip of the iceburg. All PLASTIC and anything that has PLASTIC in it, comes from Oil.
In order to reduce our dependence on Oil, we need to invent a new material to make EVERYTHING our of. E-V-E-R-Y-T-H-I-N-G.
http://www.nbcnews.com/science/environment/were-kidding-ourselves-2-degree-global-warming-limit-experts-n257006
Let me know how that whole "200yrs" thing works out, say, about 20yrs from now.
brice: With gas predicted to go below $2 before summer, I'd no sooner expect a reasonable fossil fuel strategy than I'd expect expect a crack addict to put down his pipe.
Amazing that given the stock market, the unemployment rate, the union busting, the lack of enviornmental controls, the hate machine for the President keeps cranking. I guess that's the mentality that no matter how much you give some people, they always want more.
Let me know how that whole "200yrs" thing works out, say, about 20yrs from now.
brice: With gas predicted to go below $2 before summer, I'd no sooner expect a reasonable fossil fuel strategy than I'd expect expect a crack addict to put down his pipe.
Amazing that given the stock market, the unemployment rate, the union busting, the lack of enviornmental controls, the hate machine for the President keeps cranking. I guess that's the mentality that no matter how much you give some people, they always want more.
I do commend the President for allowing us to extract oil at the current rate in which we are doing it.
Domestic (ie: here in the United States) oil exploration & production is UP, UP, UP and increasing monthly.
I've been in the oil & gas sector for going on 20 yrs now, and it's at an all time high at present.
The reason? "drill baby drill", and also, technology has gotten MUCH, MUCH better.
Domestic il is notoriously hard to get at (ie: you have to drill through multiple fault-lines to get to it, or it's below a shale-layer, or in between shale-layers, etc).
U.S. oil companies have mastered the art of directional drilling and gotten it down to a science, to where even Mom & Pop oil companies/drilling companies can lease a directional tool for a month, and hit target in a short period of time.
The "hard to reach" oil that's always been there, is now readily accessible and EASY to get at, not to mention all the frac'ing that's going on.
We're pulling more oil out of the ground than ever before, here in the U.S., and there's about 200yrs of oil left in the ground, for our children and their children and their children.
Middle-Eastern oil will make up less than 5% of U.S. oil imports, but 2020, mark my words.
From where I sit, this is what's going on.
I've been in the oil & gas sector for going on 20 yrs now, and it's at an all time high at present.
The reason? "drill baby drill", and also, technology has gotten MUCH, MUCH better.
Domestic il is notoriously hard to get at (ie: you have to drill through multiple fault-lines to get to it, or it's below a shale-layer, or in between shale-layers, etc).
U.S. oil companies have mastered the art of directional drilling and gotten it down to a science, to where even Mom & Pop oil companies/drilling companies can lease a directional tool for a month, and hit target in a short period of time.
The "hard to reach" oil that's always been there, is now readily accessible and EASY to get at, not to mention all the frac'ing that's going on.
We're pulling more oil out of the ground than ever before, here in the U.S., and there's about 200yrs of oil left in the ground, for our children and their children and their children.
Middle-Eastern oil will make up less than 5% of U.S. oil imports, but 2020, mark my words.
From where I sit, this is what's going on.
Older, but broader and more comprehensive report on the topic.
http://investigations.nbcnews.com/_news/2013/04/01/17519026-how-the-us-oil-gas-boom-could-shake-up-global-order?lite
http://investigations.nbcnews.com/_news/2013/04/01/17519026-how-the-us-oil-gas-boom-could-shake-up-global-order?lite
I wouldn't have realized how the steep the increase in domestic production was if I hadn't spent 2012-2013 threading my way around tanker trucks whenever I tried to get into Midland-Odessa. License plates on pickups from every State and a lot of other Countries, weekly news reports of traffic fatalities where at least one driver was undocumented, and billboards for lawyers advertising "Have you been injured on the job?" And this is just the tip of the iceberg compared to North Dakota. Up there is so much burn off from sour gas you can see it from space at night.
Good media manipulation from both sides that most people don't realize our President has been more 'Drill Baby, Drill' than Palin in order to keep the economy on track.
Good media manipulation from both sides that most people don't realize our President has been more 'Drill Baby, Drill' than Palin in order to keep the economy on track.
This is very interesting. I was aware that my knowledge of “The Oil Market” or “The World of Oil” hasn’t been one my strengths but I didn’t know just how ignorant I was until I read this. I didn’t even know we could choose who we bought oil from. According to this site, we only buy 10.3% of our oil from Nigeria. I was also shocked to find out, we only purchase less that 13% of our oil from the Middle East. I thought we were far more dependant on their Oil.
http://www.npr.org/2012/04/11/150444802/where-does-america-get-oil-you-may-be-surprised
Did I miss something, somewhere?
Is it we don’t need there 10.3% of Oil anymore? Are we going to increase imports from Latin America, and/or Canada, increase US Inshore/ Offshore Drilling, or a Chess move for the Pipeline?
If we don’t need the 10.3% anymore, that’s great but I find that hard to believe. The 10.3% has to be made up from somewhere. I’m really going to be suspicious if we increase our Oil Imports from Persian Oil.
http://www.npr.org/2012/04/11/150444802/where-does-america-get-oil-you-may-be-surprised
Did I miss something, somewhere?
Is it we don’t need there 10.3% of Oil anymore? Are we going to increase imports from Latin America, and/or Canada, increase US Inshore/ Offshore Drilling, or a Chess move for the Pipeline?
If we don’t need the 10.3% anymore, that’s great but I find that hard to believe. The 10.3% has to be made up from somewhere. I’m really going to be suspicious if we increase our Oil Imports from Persian Oil.
Pham also recalled that several years ago the U.S. Navy's Sixth Fleet helped coordinate a response to pirate attacks on Nigerian oil tankers, but has not been as forceful in recent months, despite an increase in the attacks.
"The pirates in the Gulf of Guinea are aggressive, but if piracy is not affecting our supply, there is a danger that our response won't be as robust, particularly when there are so many other demands on a U.S. Navy that has fewer ships," he said.
If the U.S. adopts a lower profile in Africa as a result of its diminished hunger for the continent's oil, Nigeria and other nations will look to China and, to a lesser extent, India to take up the slack.
Some experts believe that China may fill the void to some extent, both as a customer for African oil and as an investor and influencer.
Military analyst William M. Arkin is among them, saying the U.S. Africa Command believes that China is ready to step into a leading role in Africa, targeting its vast mineral resources. "China is exceeding U.S. investments in Africa and that, too, changes the geopolitics," he said.
But Levan, the American University professor and Africa expert, says it is "questionable" whether India and China can make up for Nigeria's lost U.S. sales, in part because refineries in both countries are set up to process cheaper heavy crude oil, not light, sweet crude oil. He also notes that India is more likely to get its oil from nearby Iraq and Iran, assuming the latter is freed from international sanctions, while China is looking to fracking to become energy independent.
Kilduff, the oil trader, agrees that China will not be the savior for Nigeria or other diminishing oil economies."
"The pirates in the Gulf of Guinea are aggressive, but if piracy is not affecting our supply, there is a danger that our response won't be as robust, particularly when there are so many other demands on a U.S. Navy that has fewer ships," he said.
If the U.S. adopts a lower profile in Africa as a result of its diminished hunger for the continent's oil, Nigeria and other nations will look to China and, to a lesser extent, India to take up the slack.
Some experts believe that China may fill the void to some extent, both as a customer for African oil and as an investor and influencer.
Military analyst William M. Arkin is among them, saying the U.S. Africa Command believes that China is ready to step into a leading role in Africa, targeting its vast mineral resources. "China is exceeding U.S. investments in Africa and that, too, changes the geopolitics," he said.
But Levan, the American University professor and Africa expert, says it is "questionable" whether India and China can make up for Nigeria's lost U.S. sales, in part because refineries in both countries are set up to process cheaper heavy crude oil, not light, sweet crude oil. He also notes that India is more likely to get its oil from nearby Iraq and Iran, assuming the latter is freed from international sanctions, while China is looking to fracking to become energy independent.
Kilduff, the oil trader, agrees that China will not be the savior for Nigeria or other diminishing oil economies."
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