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US shale boom could hit Africa's oil producers

For years, African crude has been a viable substitute for Middle Eastern oil. But the shale revolution in the United States could stem the flow. African oil exports to the US, a major buyer, have dropped to its lowest in decades.

SINGAPORE: Foreigners have been pouring money into Africa. Last year, foreign direct investment in Sub-Saharan nations hit a near record US$43 billion, boosted by new oil and gas discoveries. Asian markets like China and India are lapping up the continent's fuel but the US shale boom could turn the fortunes for Africa's oil producers.

For years, African crude has been a viable substitute for Middle Eastern oil. Sub-Saharan Africa produced 5.8 million barrels of liquid fuels a day in 2013, making up 6.5 percent of global oil production. Sub-Saharan Africa oil production has been growing at 3 percent a year on average for the past 10 years, according to US Energy Information Administration.

But the shale revolution in the United States could stem the flow. African oil exports to the US, a major buyer, have dropped to its lowest in decades, a development not missed by Africa Singapore Business Forum in Singapore. The conference on August 27-28 threw up different views about how the US shale boom will affect the African oil and gas sector in the long term. Some business leaders at the forum were confident that growing domestic demand within Africa will absorb new discoveries, but others were less hopeful.

Ammar Kutait is the CEO of Aurora Progress, a private Swiss company investing in the trade, supply, transport and storage of refined petroleum products. He said: "When you have a foreign off-taker, it's more secure - in my opinion, from a finance point of view. When you have local demand, take for example, power, the government has to come up with a comprehensive plan. But then they also have to guarantee they get the money paid by the users. Sometimes this can pose as a complicated situation."

For now, there is demand from emerging markets. Kola Karim, CEO of Shoreline Energy International, said: "In the last six months, the biggest buyers of Nigerian crude have been Brazil and India. So think about it. What America's not bought, Brazil, India, China are taking in. So the only time we'll feel an adverse effect on the continent is when all these countries slow down. If they do, then we have a problem. But not that big a problem in Africa. I'll tell you why - because Africa has not even tested its own internal consumption."

Only one in five people in Sub-Saharan Africa has access to electricity today, according to the World Bank. But there is no guarantee this thirst for energy will not be met by cheaper fuel from elsewhere, like the US. A lot will depend, observers say, on whether Africa can overcome its own infrastructure crises and turn its rich energy resources into power for the continent.
 

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