The threat of Shale gas
The organisation of petroleum exporting countries (OPEC) in its recently released World Oil Outlook 2013 alerted its members of the huge impact production of shale resources, especially in North America, would have on crude oil and gas production and the economies of countries that heavily depend on crude oil as their main source revenue earnings.
OPEC, which had in 2011 said shale oil should not be viewed as anything more than a source of marginal additions to global supply, has now woken up to the reality that the shale oil boom is negatively affecting the oil production and revenues of its members.
Already, export of crude oil and liquefied natural gas (LNG) from Nigeria to the United States has continued to decline in the past few years following the shale oil and gas boom.
The US, which was once the largest importer of Nigeria’s crude oil, accounting for 36 percent of the country’s total oil exports in 2009 and 40.7 percent in 2010, is now making spirited efforts to become energy self-sufficient. The International Energy Agency (IEA) in its annual World Energy Outlook published November 12, 2013, stated that the US will become the world’s leading oil producer by 2015 surpassing Saudi Arabia and Russia.
US imports of crude oil from Nigeria have reduced to about 10 percent, adversely affecting the revenue derivable from oil. According to the ministry of finance, October oil revenue from crude sales was N443.05 billion ($2.7 million), 5 percent lower than it projected.
Nigeria relies on crude oil exports for about 80 percent of its total annual government revenue and more than 90 percent of its foreign exchange earnings.
The Central Bank of Nigeria had recently noted that oil revenues had continued to decline in spite of the relative stability in oil price and output when compared with preceding years, describing the development as a major risk.
Aside from the reduction in US imports occasioned by the shale oil boom, the global marketability of Nigerian crude oil export is also under serious threat because of the sweet nature of the US crude which is comparable to Nigeria’s Bonny Light, a major export crude grade.
The shale trend bodes ill for Nigeria’s economy, precisely because, alternatives to light crude are being discovered in some parts of America that until recently were the major importers of the Bonny Light.
Industry analysts have said that the development of shale gas across the globe, especially in North America, is a threat to the future of the Nigerian LNG industry as it is gradually eroding the anticipated prospects and hope of natural gas as a major income stream of the Federal Government.
The situation is likely to stall new LNG projects with implications for Nigeria’s huge gas resources.
We believe it is high time the government began to take more seriously the threat posed by the shale oil boom and develop effective strategies to forestall further drastic impact on the economy. To continue to shadow-box on this issue is tantamount to dragging the nation on the path of economic under-development.
The government should go beyond lip –service, and pursue vigorously the diversification of the economy from oil to ensure maximum revenue generation from other sectors such as agriculture.