Africa at risk of ‘trade shock’ as China and US pursue shale, report warns

Out-Law News | 15 May 2014 | 5:01 pm | 3 min. read

A massive increase in shale gas production in China is projected to mean the superpower will import 40% less gas, with a big impact on some of the world’s poorest countries, according to a new report.

This increased production could lead to smaller markets and lower incomes for countries such as Ghana and Nigeria, said the report by the UK’s Overseas Development Institute (ODI) (42-page / 1.86 MB PDF).

In addition a larger number of countries such as Nigeria, Angola and Congo are exposed to a “potential trade shock” emerging from a change in US oil imports as fracking increases there, the report said.

Last year, the Chinese government announced a number of policies and incentives designed to "accelerate" the development of the country's shale gas industry.

"As a result of fracking in the future, Chinese imports of gas could be 30-40% lower in 2020,” the ODI said. “An increase in fracking in China with the same size in the (US) trade shock would double the effect.”

In China’s 12th five-year plan (2011-15) the government set an ambitious production target of 6.5 billion cubic metres (bcm) of shale gas production by 2015, rising to possibly 60-100 bcm per year by 2020, and higher thereafter.

According to the ODI, Angola and the Republic of the Congo are predicted to suffer a 13% hit to their national earnings because of increased energy production by China. Equatorial Guinea and Sudan could lose 5% and Yemen 4%.

Meanwhile US oil imports from Africa have dropped significantly and US gas imports have “collapsed” over the last 5-10 years, as tight oil and shale gas production in that country have increased, the ODI said. “We estimate that US imports of oil and gas may have been 50% lower as a result of fracking in 2012.”

The total estimated effects from a reduction in US oil imports from African countries amounts to $32 billion, of which $14 billion is in Nigeria, according to the ODI’s report. The net impacts on exporters “will depend on their ability to find other markets, and the conditions under which they do so”.

The ODI cited data from the US Department of Energy showing that actual exports to the US from three of the Organization of the Petroleum Exporting Countries’ (OPEC) African members – Nigeria, Algeria and Angola – have fallen to their lowest levels in decades, dropping 41% in 2012 from 2011, “largely because of shale oil”.

The ODI said that in 2012, Nigeria supplied some 5.6% of US petroleum and products and related materials, compared to a 10.4% share in 1993.

The effects of a change in demand for exported products could have “subsequent repercussions” on economies where there is a high dependence on such fuel exports to markets such as the US, the report said. According to the report, the value to South Africa of coke/coal/briquette exports to the US was nearly 2% of gross domestic product in 2012.

“In the case of suppliers of US oil and related products, a much larger number of countries seem particularly exposed to a potential trade shock induced by fracking,” the report said. “We conclude that fracking has been an important technological shock with potentially large consequences for developing countries, certainly in terms of trade. Several energy exporters lose out from lost export revenues, but other developing countries might gain from lower oil prices and faster world growth. Some of this may have already happened, but some may still happen into the future. It is important that developing countries account for this in their future economic projections.”

In 2013, Nigeria's petroleum resources minister Diezani Alison-Madueke said in an interview with CNBC: “Africa does need to have continuous exports to important destinations such as the US. There is a balance to be looked at, not just for Nigeria but for Africa as a whole. It is of grave concern for us, even though we respect the integrity of the US to be self sufficient in terms of oil and gas.”

Last week, Alison-Madueke reportedly called for Nigeria’s long-awaited Petroleum Industry Bill, currently being considered by legislators, to be “broken up” to speed its passage through parliament.

The group managing director of the Nigerian National Petroleum Corporation warned earlier this month that maintaining the country’s position as a leading oil producer depended on lawmakers passing the bill, to “remove the uncertainty surrounding the future fiscal framework in the oil and gas sector”.