US Shale Oil Boom Threatens Nigeria’s Oil Revenue in 2023

How Nigeria can cope with the rising competition from the US shale oil industry in 2023

by Motoni Olodun

Nigeria, one of the largest oil producers in Africa, is facing a potential threat to its oil revenue as the US shale oil industry is expected to rebound in 2023. The US shale oil production, which caused a global oil glut and a price crash in 2014, has been recovering from the impact of the Covid-19 pandemic and is projected to reach a record high of 12.61 million barrels per day (bpd) in 2023, according to the US Energy Information Administration (EIA).

This could pose a challenge for Nigeria and other members of the Organization of the Petroleum Exporting Countries (OPEC), who have been trying to balance the oil market and support prices by cutting their output. OPEC and its allies, known as OPEC+, agreed in November 2022 to extend their production cuts of 2 million bpd until the end of 2023. However, the rising US shale oil supply could undermine their efforts and put pressure on their market share and revenue.

Nigeria relies heavily on oil exports for its foreign exchange earnings and government revenue. According to the Nigerian National Petroleum Corporation (NNPC), oil and gas exports accounted for 86.4% of the total export value in 2020. The 2023 budget of Nigeria is based on an oil price benchmark of $75 per barrel and an oil production estimate of 1.69 million bpd. However, these assumptions could be jeopardized by the increasing competition from the US shale oil industry, which has become more resilient and efficient over the years.

According to analysts, the US shale oil producers have learned from their past mistakes and have adopted a more strategic approach to their operations. They have consolidated their assets, reduced their costs, improved their technology, and focused on generating cash flow and returning capital to shareholders. They have also benefited from the rising oil prices, which have increased their profitability and attractiveness to investors.

The US shale oil industry is not only a threat to Nigeria’s oil revenue, but also to its energy security and transition. Nigeria has been struggling to reform its oil sector and attract investment to its upstream and downstream activities. The country has also been facing challenges in meeting its domestic energy demand and reducing its dependence on oil imports. The Petroleum Industry Act (PIA), which was signed into law in August 2021, aims to address these issues and create a conducive environment for the development of the oil and gas industry and the diversification of the energy mix.

However, the PIA has been criticized by some stakeholders for being inadequate and unfair. Some oil-producing communities have protested against the allocation of 3% of the annual operating expenditure of oil companies to a trust fund for their development, arguing that it is too low and should be increased to 10%. Some environmental groups have also expressed concern over the lack of provisions for reducing greenhouse gas emissions and promoting renewable energy sources in the PIA.

Despite these challenges, Nigeria has the potential to overcome the threat of the US shale oil boom and achieve its economic and energy goals. The country has abundant natural resources, a large and young population, and a vibrant entrepreneurial spirit. With the right policies, incentives, and partnerships, Nigeria can harness its comparative advantages and create a sustainable and inclusive future for its people.

Source: Business Day

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