African oil exports under pressure as US output grows

February 22, 2013 - During the week ending February 22, Nigerian oil minister Diezani Alison-Madueke lamented that her country's economic lifeline, its crude exports, were coming under increasing pressure from rising US domestic production, which has reduced the need for imports.

"US shale oil and an increase in their gas production is already affecting our exports to the United States. Bear in mind that the United States is one of our major importers in this sector," the minister said.

Alison-Madueke has good reason to be worried. Just five years ago, in 2007, the US imported an average 1.084 million b/d of Nigerian crude, the fourth consecutive year that volumes from the African producer had averaged more than 1 million b/d.

But by 2011, US crude imports from Nigeria had fallen to an average of 767,000 b/d. The US Energy Information, statistics arm of the Department of Energy, has yet to publish final import figures for 2012, but with the January-November average working out at just 422,000 b/d, a sizeable year-on-year drop looks likely.

Over January-November 2011, imports from Nigeria averaged 792,000 b/d.

Angola has also seen its US market shrink, from a 513,000 b/d peak in 2006 to 335,000 b/d in 2011.

And 2012 is likely to have seen a further drop, with volumes over the January-November averaging 231,000 b/d compared with the 333,000 b/d imported over the same 11 months of 2011.

Another former key African supplier, Algeria, has experienced a big fall in volumes to the US in recent years, from 443,000 b/d in 2007 to 178,000 b/d in 2011.

The average of the volumes imported from Algeria during the first 11 months of last year is just 121,000 b/d. Over the same 11-month period of 2011, crude imports from Algeria averaged 180,000 b/d.

Barclays, in a note to clients last week, points out that imports of light crude into Gulf Coast refineries in November 2012 averaged 462,000 b/d -- 251,000 b/d below the November 2011 volume and 689,000 b/d below the November 2011 volume.

"Nigeria, which in 2010 exported close to 350,000 b/d of light crude to Gulf Coast refineries, accounted for none of the November imports, while Algerian light crude flows were 85% lower than the 2010 average of over 230,000 b/d," Barclays said.

"The time when there is total displacement of light crude oil imports into US Gulf Coast refineries is now very close. The substitutability of other imports is more limited, inducing a period of unrestrained direct competition between incremental domestic supplies and a remapping of price relationships."

Last month, two US refiners, Valero and Phillips 66, said they were no longer taking in light sweet crude imports at their Gulf Coast plants. Valero said it had replaced all its foreign light oil imports -- typically from Brazil, Nigeria and North Africa -- with domestic crude from Eagle Ford, the Bakken and Louisiana at its Gulf Coast and Memphis, Tennessee, plants during the fourth quarter of last year.

Phillips 66 said it had "backed out all light sweet crude imports into the Gulf Coast." Indeed, says Citi in a recent report, such is the extent to which supply of domestically produced crude has increased that by the summer of this year the US will no longer need to import light sweet crude into the US Gulf Coast.

The US Energy Information Administration, statistics arm of the Department of Energy, says that US crude production increased by 790,000 b/d between 2011 and 2012 -- the biggest annual output increase since commercial crude production began in the United States in the middle of the 19th century.

The agency is forecasting further increases of 815,000 b/d this year and 570,000 b/d in 2014, with total US oil production set to rise from 6.89 million b/d in November 2012 to 8.15 million b/d in December 2014.

"Most of the US production growth over the next two years will come from drilling in tight rock formations located in North Dakota and Texas," the EIA says.

"While oil production from other sources will continue to account for most of the country’s output, production volumes from tight formations such as the Bakken, Eagle Ford, and Spraberry are forecast to steadily increase tight oil’s production share, reaching about one-third of total US oil production by 2014."

Bentek Energy, a unit of Platts, forecast in an August 2012 report that US crude production would hit 9.768 million b/d in 2016, thanks to accelerated drilling activity.

By 2022, it said, production would rise to 11.553 million b/d while waterborne imports would plummet by 5.782 million b/d to an average of just 874,000 b/d in 2022.

It's not just increasing domestic US production that will be pushing foreign crude away. The Citi report says that by the end of 2014 there will be an increasing abundance of sour Canadian crude making its way via new pipelines to the US Gulf Coast at the same time as surplus sour, heavier crude from Canada moves there from the US midcontinent.

"When that happens, the main suppliers of imported crudes into these markets will join today’s West African producers in seeing their markets challenged. These exporters include Saudi Arabia, Iraq, and Kuwait in the Middle East. They also include nearby Venezuela and Mexico, whose exports are likely to be pushed out by competitive Canadian suppliers, favorably linked to the US Gulf Coast market by pipeline. Or, they may have to discount their crudes to preserve market share in the US," Citi says.