By Robert
Windrem
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Oil containers sit at a train
depot on July 26, 2013 outside Williston, North Dakota. Train yards are one of
the primary ways oil is exported from the state. Andrew Burton/Getty Images
|
When
the terrorist group Boko Haram kidnapped more than 250 Nigerian schoolgirls
last spring, many news reports noted that Nigeria had long been one of the
biggest suppliers of oil to the United States, suggesting that economic
relationship gave Washington a strong incentive to help track down the
kidnappers.
That was wrong.
In April, the same month the girls
were snatched from an elementary school in Chibok, only 4.5 million barrels of
Nigerian oil arrived at U.S. ports, down from a record high of 40 million
barrels seven years earlier.
And by July, the spigot was
shut off completely. Over the next six weeks, not a single drop of Nigerian
light, sweet crude arrived in the U.S. - all of it replaced at Gulf Coast
refineries by fracked oil from fields like the Bakken formation in North Dakota
and Eagle Ford in Texas.
The
big fat zero was a milestone not only on the United States' journey toward
energy independence, but a signpost pointing to a new world. With it, 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.
Oil
containers sit at a train depot on July 26, 2013 outside Williston, North
Dakota. North Dakota has been experiencing an oil boom recently, bringing tens
of thousands of jobs to the region, lowering state unemployment and bringing a
surplus to the state budget. Train yards are one of the primary ways oil is
exported from the state.
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 government. 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.
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.
"Every
OPEC member facing this crisis has a nice PowerPoint presentation showing how
Chinese exports will replace U.S. purchases," he said sarcastically.
In reality, declining growth in
China and the rest of East Asia is going to mean the market is going will
shrink worldwide just as more and more oil goes on line, Kilduff said. That
could result in a further drop in prices, maybe as low as $50 a barrel, at
which point he says Nigeria might be forced to curtail production or store
crude, he said.
Experts and oil traders say
that Nigeria is the first of several smaller OPEC countries to see their
connection with the U.S. change as their crude exports drop. Already, Angola
has seen nearly all its U.S. market share vanish, and Venezuela is likewise
looking for alternative markets for its heavy crude, Citigroup's "Energy
2020" report states.
"Smaller oil exporter
countries like Iraq and Kuwait may be able to hold on to their market share,
but only by accepting lower prices," it said. "… Going forward,
Colombia, Brazil, Russia, Angola, Ecuador, Iraq, and Kuwait could also see
their market share dwindle."
Campbell, the former U.S.
ambassador to Nigeria, says the nations that are most dependent on oil revenue
will be the biggest loser.
"The consequences for
petro-states, particularly states that have never diversified their economies,
is enormous," he said.
Source: http://www.nbcnews.com
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