11/29/14, "Needle on Zero: Nigeria's Economy Tanking as U.S. Oil Exports Dry Up," Robert Windrem, nbcnews.com
"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' [theft] 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.
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 losers
"The consequences for petro-states, particularly states that have never diversified their economies, is enormous," he said."
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