Oil & Gas: Adapting to a changing universe
Close
Oil & Gas: Adapting to a changing universe

Oil & Gas: Adapting to a changing universe

The global oil and gas industry is changing rapidly, particularly with the exploitation of shale-based hydrocarbons by the US. This has severely damped demand for African crude. However, despite this and other worries, the exploration and development of new fields is going on apace. Report by Neil Ford.

The current African star is undoubtedly Mozambique with its massive gas reserves. LNG exports to Asia should commence in four years’ time. Tanzania in not far behind and, indeed, the rest of East Africa, Kenya in particular, is seeing a great deal of activity.

Perhaps the most heartening news for South Africa in a long while is the discovery that it has vast deposits of shale oil as well as rich offshore reserves of oil and gas. We also look at how to manage the often-fickle revenues from hydrocarbons to ensure a prosperous future in this special Sector Focus on the oil and gas industry in Africa. 

The destination of Africa’s oil exports has changed massively in recent years because of two associated developments: China’s emergence as a huge oil importer and the North American shale oil boom.

US oil imports from Nigeria fell from 359m barrels in 2010 to 87m in 2013, making Nigeria now just the eighth – biggest foreign oil supplier to the world’s biggest economy

Chinese imports from the Gulf of Guinea were expected to reach 1.2m b/d in September, making China by far the most important market for the region’s oil, as the world’s second-biggest economy continues to grow at an impressive rate. Yet developments on the other side of the Pacific Ocean are having even more impact on the direction of African oil tankers.

US imports of African oil have fallen from 2.7m b/d in 2008 to a projected figure this year of less than 500,000 b/d, a massive decline by any standards. The emergence of shale oil has much to do with this collapse, as dozens of large-scale shale oil projects have displaced potential African imports in the US and Canadian markets.

Canada’s own shale oil and gas fields are helping to satisfy US demand. There is, however, something else at play here, as African producers have borne far than their fair share of the brunt of falling US demand.

Middle Eastern suppliers have not been affected by anything like the same amount and, indeed, oil exports from the Gulf Cooperation Council states to the US have actually increased over the past five years. On top of everything else, this has come over a decade in which Washington has sought to reduce its dependence on Middle Eastern oil in favour of African supplies.

The explanation is that most of the oil produced in North Africa, the Gulf of Guinea and on North American shale oil fields is light and sweet. The international oil sector is often portrayed as a single, homogenous industry concerned with a single commodity but different refineries handle different types of oil, depending on its density and the proportion of sulphur it contains.

US refineries have therefore turned away from African supplies in favour of local production. This should not be a problem in the long term as light, sweet oil is higher quality, cheaper to refine and therefore more attractive than heavy oil. Providing there is reasonable security of supply, the necessary refining capacity will eventually be put in place. In the short term, however, African producers are fortunate that Chinese and other Asian importers have been able to step into the breach.

The previous importance of oil in US-African trade is reflected in the fact that total trade between the two regions is now worth less than it was in 2006. Some reports in the US suggest that US exports of refined petroleum products to Nigeria are now worth almost as much as Nigerian shipments of crude oil in the opposite direction.

US oil imports from Nigeria fell from 359m barrels in 2010 to 87m in 2013, making Nigeria now just the eighth-biggest foreign oil supplier to the world’s biggest economy. However, based on the figures for imports in the first three months of 2014, imports from Nigeria this year are likely to total just 22m barrels.

Related Posts

Join our mailing list

If you would like Independent, Informative and Invaluable news analysis on the African continent, delivered straight to your inbox, join our mailing list.

Help us deliver better content