US fracking boom puts West African oil economies at risk

Is the sun setting on West African oil? A platform in Limbe, Cameroon. VirginieVV, CC BY

After the terrorist attacks of 9/11, the US made a point of diversifying its sources of oil to reduce dependence on the Middle East. It was a strategic move which promised a huge boost to West African oil exporters around the Gulf of Guinea, but those same countries now face the comedown as the rise and rise of US domestic fracking whisks the opportunity away so quickly after it arrived.

It had all the trappings of a gold rush. Nigeria, Angola, Gabon and Equatorial Guinea in particular were identified as attractive sources of oil and therefore destined to become increasingly important to the post-9/11 US energy strategy. West African crude is of high quality, the region was perceived as less hostile to US interests than the Middle East, and the Atlantic Ocean waterways are a more secure shipping corridor compared to those in the Persian Gulf.

A 2001 National Energy Policy Report, often referred to as the “Cheney Report” as it was chaired by the then US vice president, identified energy security as a top US trade and foreign policy priority. A wide range of industry experts and commentators predicted that 25% of all US oil imports would come from West Africa, thus expanding the US’ presence in the region. The establishment of the United States Africa Command (AFRICOM) in 2007 was considered a manifestation of the “securitisation” of Africa, relating not only to the US-led war on terror but also to the need for the US to secure energy supplies. And US oil imports from its six key suppliers in sub-Saharan Africa (Angola, Cameroon, Chad, Gabon, Nigeria and the Democratic Republic of the Congo) increased by 40% from 2001 to 2010, whereas total US oil imports increased by only 16%.

In the past few years, however, we have seen a rapid increase in US shale gas and oil production, a revolution in energy production with major implications for the global energy trade. This has fundamentally upended widely held assumptions about both the future of US energy imports and the role of West African petro-states in supplying them. The question now is not whether the US will depend on West Africa for a quarter of its (diminishing) oil imports, but whether it will be importing West African oil at all.

By 2012, US oil imports from sub-Saharan Africa had declined by 59% from peaks only a few years earlier, compared to a less drastic 23% decline in overall US oil imports. Nowhere is this rapid shift felt more acutely than in Nigeria. In three years alone US crude oil imports from Nigeria have decreased by 75%, from nearly 359m barrels in 2010 to 87m in 2013. Based on the US Energy Information Agency’s figures for the first quarter of 2014, US imports will drop by another 75% this year alone to about 22m barrels. Edward Morse, head of commodities research at Citigroup Global Markets, predicts that the US and Canada will completely cease importing crude oil from West Africa some time this year.

Nigerian oil minister Diezani Kogbeni Alison-Madueke speaks at an OPEC meeting in 2013. Herbert Neubauer/EPA

Nigeria is an instructive case study for thinking about how the shale revolution will impact developing states dependent on energy export revenues, in West Africa and elsewhere. There is great concern in Nigeria about the rapidly dwindling US export market, which has been by far the most important destination for Nigerian oil. Nigeria’s oil minister, Diezani Alison-Madueke, identifies US shale oil as “one of the most serious threats” to Africa’s oil exporters as Nigerian oil is now being displaced by abundant and cheap US shale oil and increasing US imports from Canada. The loss of Nigeria’s most important export market is compounded by the ongoing troubles surrounding the country’s domestic production.

Exploration for customers

Oil theft, sabotage of infrastructure and the general corruption and social conflict that have arisen in the wake of Nigeria’s oil boom are now resulting in international oil companies pulling back from the country. Royal Dutch Shell, Chevron and ConocoPhillips have begun to divest themselves from higher risk onshore and shallow water oil fields, with Nigerian and emerging market (in particular Chinese) national oil companies stepping in to fill the gaps. Nigeria and other producers in the region will reorient exports to the EU and Asia. However, these markets, too, will eventually be affected by US production. And the EU is hardly a long-term prospect for West African oil given its move towards cleaner fuels such as renewables and also lower overall energy consumption.

With the potential of fracking for shale gas and oil to significantly increase production in other parts of the world, such as China, Argentina, South Africa and the UK, there will likely be increasing insecurity and volatility ahead for producers of conventional oil.

In particular the petro-states of West Africa who are highly dependent on oil export revenues and are perhaps least equipped to deal with unpredictable revenue flows and the costs of reorienting their export markets. Oil and gas will remain crucial resources for financing development in an increasing number of African states, but as the “oil curse” has proven, high risk remains ever present.