Africa Chapter Event "U.S. Transition from Net Energy Importer to Net Energy Exporter: What This Means for Africa?s Producing Countries":

I had the pleasure of joining industry professionals and analysts, at an  event organized by the Association of international Petroleum Negotiators (“AIPN”) sponsored by Centurion Law Group. This was AIPNs first Africa chapter event in Ghana and was put together to discuss the future of Africa, due to the recent turn of events which sees the US shale crude coming on stream, therefore potentially changing the direction of global trade flows and transforming the US to a net exporter of crude oil, from the role it has played for years now as a net importer of crude oil. 

The Panelists included Barbara Andoh - Energy Analysts for IMANI, Paa Kwasi Anamua Sakyi - Institute of Energy Security (IES) and myself. Moderated by Adaku Ufere - Head of Energy Practice for Centurion Law Group.

Sharing with you a transcript of my responses to some of the questions asked and discussed with the panel as well as a video of the event;

Moderator: Do you think U.S. plan to become a net exporter was in any way motivated by the success of OPEC member countries cutting production?

Afetsi: No, not in my opinion. I don’t think so. The US always had plans and worked towards becoming a net exporter of not just oil but gas and coal as well. Over the years, the cost of production relative to cost of oil, made no business case for the US as the technology available then for producing shale made US crude less competitive in pricing, as compared to conventional methods of production used by other producers like Saudi Arabia, Venezuela and Qatar.

However, with improved technology the cost of production today is cheaper and profitable as compared to global oil prices, making a much viable business case for the US.

And going by the indications of the EIA’s analysis the US largely didn’t have much of a choice but to lift its ban on crude oil exports and aim to become a net exporter if it manages to achieve the projected volumes put out by the EIA and others.

The question is whether the world will embrace the US crude or not. With onshore output of the lower 48 projected to exceed 11 million b/d by 2023 the US seems poised to certainly become one of the world’s largest producers.

Moderator: If the U.S. becomes a net exporter of crude, how will this affect oil prices, going by the ups and downs of the past two years?

Afetsi: Crude prices have largely been determined by demand and supply, as well as geopolitics. In recent times, production cuts by OPEC for its member countries which stimulated demand whilst controlling supply, has driven prices up. Even though production cuts had an impact on pricing, crude figures have largely stayed away from the recorded $147 per barrel of about 10 years ago which could be due to the stocks of non-OPEC member nations continuing to make an impact on supply.

The US is currently the world’s largest consumer of oil, and becoming a net exporter ensures that besides meeting demand for domestic consumption, it also creates surplus to be released into the general market. A world in which the US is trying to offload its significant reserves is one in which supply might overtake demand, at least in the beginning stages.

An overflow of product is sure to drive prices down. Which may in fact be favorable for the US as high oil prices tend to mean high domestic gasoline prices in-country. As was seen recently when international oil prices surged to almost $75 a barrel, U.S. gasoline increased to its highest in almost three years. Prompting a twitter tirade by President Trump in which he accused OPEC of keeping oil prices artificially high, particularly the Saudi’s.

Moderator: Now that the US has decided to stop importing in the next 5 years and focus more on exporting, who will they sell to? What markets do you see them targeting, and what will the competition be like for other producing countries?

Afetsi: There are several possibilities.

Let’s look at flows from two perspectives: sinks and sources. The sources are the main origins of the flows: The key exporting regions such as the Middle East, Latin America and West Africa. As for the sinks, they are key regions to which these barrels drain into.

It makes sense that US will look to Europe first in the short term to absorb most of its crude volumes because refining values are higher in Europe and transport costs are lower, so it makes business sense for the US.

However, US crude grades will have to battle African crudes which seem to have huge presence in the European market for market share, so US crudes will need to be further discounted to stay even more competitive.

Another possibility is Asia. Asia continues to be an ever-growing sink for global crude flows, with waterborne discharge in the region clocking in at around 25 million barrels per day. Deliveries to Asia from the North Sea, the U.S. and West Africa averaged just under 3 million barrels per day in 2017 and has continued soaring this year, with deliveries to Asia from the three sources climbing above 3.5 million barrels per day as at January.

In terms of who they will sell to? It’s really an open market for the most competitive price but I see them targeting Europe and Asia, particularly Asia.

Moderator: What will be the impact on African producing countries given US surge in oil production and venturing into Africa’s traditional markets? And how can the impact be mitigated if found to be negative?

Afetsi: African producing nations such as Nigeria that has been the love child of the US being a net importer will begin to look towards supplying other markets probably focusing on West Africa. The challenge may be the fact that most African countries are now also producing countries not forgetting that the US also imports a lot of crude from Equatorial Guinea out of one of its most lucrative wells operated by Exxon. As Exxon is a US company, it may strategically decide to relinquish its producing and non-producing assets in Africa, that will leave Nigeria in stiff competition with other producing African nations in a race to capture the available free market in the region.

An area of focus will have to be in supply chain infrastructure. Refineries, storage and jetty terminals, pipelines and stabilization in forex exposure or a regionally accepted trade currency if not the US Dollar. With Dangote’s refinery expected to come on stream soon coupled with Nigeria’s currency swap deal with China’s Yuan, they seem to be taking a few right steps in preparation for this subject matter.

However, in all this sustainability should be the topic for discussion. 

It was our intention and eventual conclusion, that the event generate a healthy discourse and hopefully proffer solutions which will prove to be a guideline for African governments in embracing and conquering this new global position.