Nigeria’s oil exports face more competition amid output decline
At a time the global oil benchmark, Brent crude, has increased significantly, Nigeria has suffered a decline in crude oil production, coupled with a rising competition in the global market.
Brent, against which Nigeria’s oil is priced, was hovering around $79 per barrel on Friday, compared to a record low of $27 per barrel in January 2016.
The steep fall in oil prices in 2014 when the international benchmark peaked at $115 per barrel, took a heavy toll on the nation’s economy, which slid into recession in 2016 for the first time in 25 years.
Nigeria relies heavily on earning from oil exports, and the recent production decline constitute a setback for an economy that is struggling to recover from recession.
The nation’s oil production including condensate fell to 1.83 million barrels per day in May from an average of 2.06 million bpd, according to latest data obtained from the Ministry of Petroleum Resources.
The country suffered the biggest decline in crude oil production in the Organisation of Petroleum Exporting Countries in May as its output fell by 114,500 bpd.
OPEC, in its Monthly Oil Market Report for June, put Nigeria’s output at 1.516 million bpd in May, down from 1.63 million in April and 1.861 million bpd in December 2017.
Reuters reported on June 11 that Nigeria’s oil exports were expected to fall in July to just 1.43 million bpd, the lowest level so far this year, according to loading plans.
The export plan comprised 48 cargoes, compared with 60 cargoes and a daily rate of 1.796 million bpd in June, due in part to an outage on the Bonny Light stream, which has been under force majeure since May.
Nigerian crude oil has struggled in the past few months with erratic supply, and with unfavourable arbitrages that have made it more economical for major buyers to take other crudes, including United States’ shale.
The nation’ oil cargoes have particularly found increasing competition from US light sweet grades.
In April this year, The PUNCH reported that the US crude oil exports had surpassed that of Nigeria as shale oil production surged.
The Energy Information Administration, the statistical arm of the US Energy Department, said the US crude oil exports rose by 582,000 barrels per day in the third week of April to an all-time record high of 2.331 million bpd.
An analysis of data obtained by our correspondent from the EIA showed that the US crude oil exports averaged 1.12 million bpd last year, with the highest daily export of 1.73 million bpd recorded in October.
Light sweet Nigerian crude is very similar to the light oil produced in the US shale.
Last week, Thailand’s PTT and Taiwan’s CPC have taken US crude oil in tenders, while Indian refiner HCPL, a habitual consumer of Nigerian crude, is believed to have taken Azeri oil, in a further blow to demand, according to Reuters.
Taiwan’s CPC bought five million barrels of WTI Midland crude for delivery between August and September. The refiner bought seven million barrels of US oil back in May for delivery over July and August.
Thai refiner PTT bought WTI Midland crude at a tender for delivery between August 15 to September 10. It bought 1.8 million barrels of US crude in May.
India’s HPCL was believed to have awarded a tender to Socar to purchase one million barrels of Azeri light crude.
With unrest in Libya now disrupting flows to the tune of around 450,000 bpd and possibly more, Nigerian crudes could reap the benefit, traders said.
Traders said around a dozen July-loading cargoes of Nigerian crude were still available for sale.
Shipments of Bonny Light remain under force majeure, while flows of Forcados are still restricted by an ongoing outage on the Trans-Ramos pipeline, according to a spokesperson for Royal Dutch Shell.
The August programme for the Usan grade, which averaged around 82,000 bpd in supply in the first half of the year, had still not emerged, traders said, and force majeure remained in place on exports of Bonny Light.
The shutdown of two pipelines since last month may have caused oil firms and the nation a huge loss of revenue estimated at $674.25m.
Shell Petroleum Development Company of Nigeria Limited, on May 17, 2018, said it had declared force majeure on exports of Bonny Light crude, one of the country’s major sources of oil revenue.
Force majeure is a legal clause that allows companies to cancel or delay deliveries due to unforeseen circumstances.
The SPDC, the Nigerian subsidiary of Royal Dutch Shell, said the shutdown of the Nembe Creek Trunk Line had prompted the force majeure.
The NCTL, operated by Aiteo Eastern Exploration and Production Company, feeds the Bonny export terminal in Rivers State. Its shutdown has taken a toll on Shell and some indigenous firms who depend on the pipeline for exports.
Exports of Bonny Light were expected to run at around 195,000 bpd last month.
On May 25, the nation’s crude oil exports suffered another setback as the SPDC shut down production following the discovery of leaks on its Trans Ramos Pipeline in the swamps of western Niger Delta.
The pipeline, which supplies crude oil to the Forcados export terminal, has a capacity of around 100,000 bpd.
Using an average oil price of $75 per barrel since Brent crude, against which Nigerian oil is priced, has been trading around $70 and $80 in recent months, the decline of 295,000 bpd in the nation’s oil exports means a loss of $674.25m in a month.
When contacted for an update on the force majeure on Bonny Light exports and the shutdown of Trans Ramos Pipeline, a Shell’s spokesperson, Mr Bamidele Odugbesan, said on Wednesday that the Bonny terminal was not shut.
He added, “There is a force majeure on exports of Bonny Light because the NCTL is down. So, we are not getting supply from the NCTL, which means we cannot operate at full capacity to meet outstanding obligations. So, there is still subsisting force majeure on Bonny Light exports, and this is so because Aiteo’s force majeure on the NCTL is still subsisting.
“The Trans Ramos pipeline is still shut following the leaks announced, and joint investigation visits are ongoing at the two major areas, namely Aghoro in Bayelsa State and Odimodi in Delta State. We are getting close to the completion of the JIVs, which will give us an idea of the cause and the impact, in terms of how much volume was spilled.”