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Nigeria: Losing fortunes to bearish oil sales

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Nigeria: Losing fortunes to bearish oil sales

The bearish sales at the global market have forced Nigeria to cut down prices of her crude grades. Adeola Yusuf examines how this development made the country to suffer $13.95 million revenue deficit in just one month

 

 

Despite her considerable triumph over hurdles at the home front, Nigeria’s crude oil grades are faced with myriads of issues at the global level. From quota cut to international oil politics, the country – a member of the Organisation of Petroleum Exporting Countries (OPEC), is now contending with growing apathy of buyers for its crude grades.

Saved from problem within
One of the cardinal problems being confronted by crude oil prosperity in Nigeria is militancy. At a point in 2015, this menace dragged the volume of production from the country down from 2.3 million barrels per day to 1 million barrels per day.
Meanwhile, a militant group, Niger Delta Greenland Justice Mandate (NDGJM), which rejected the ceasefire agreement with the Federal government, had explained why it suspended the bombing of pipelines.
The group said in a statement by its spokesman, Gen. Aldo Agbalaja, that the suspension was for strategic reasons. In the statement, which it titled ‘It’s Silence Not Death,” the group said it had not changed its position on the Pan Niger Delta Forum (PANDEF) headed by Edwin Clark.
The NDGJM claimed that they had been following the events in the region, monitoring developments and designing a possible line of action in the New Year.
According to the statement, “We have remained quiet all along for strategic reasons and to clear any doubt that the Federal Government or their partners in crimes, the oil multinationals, had cut down our comrades in the struggle.”
The group said there was no much activity currently at the Forcados Terminal (FOT), even though the Federal Government had brought new investors into the area.
The group also condemned some leaders in the region, whom they accused of using the region’s problems to enrich themselves.

A fresh woe from outside
Penultimate weekend, the Federal Government and international oil companies (IOCs) operating in Nigeria’s multi-million dollars oil and gas industry were forced to agree to a whooping $13.95 million revenue deficit on crude oil sale in just 31 days.
This deficit, data obtained by New Telegraph showed, is to be suffered on sales of about 1.8 million May crude oil production.
The Nigerian National Petroleum Corporation (NNPC)’s, May crude loading schedule sighted by this newspaper showed, offered Nigeria’s May crude at $0.25 lower than the April crude price.

Though spot for W’ African grades
Just last March, demand for spot cargoes was slow with majors offering plenty of Nigerian and Angolan.
Even as at April, less than 10 cargoes of Nigerian cargoes remained from the March loading programme. Indonesia’s Pertamina closed a buy tender for early May crude, results were expected later in the week.
South Africa’s Sasol awarded its buy tender for crude loading April 9-15.
Total was said to be offering a cargo of Angolan Nemba at dated Brent plus $1.00 and a cargo Gindungo at dated Brent plus 50 cents a barrel.
BP was still offering Angolan Kissanje and Pazflor at dated Brent plus $1.30 a barrel, a trader said. About a dozen Angolan cargoes were left from the April programme.
Before the latest effort to adjust price of crude from Nigeria, the country’s grades had been battling buyers apathy.
“Nigeria released its official selling oil prices for May, showing a decrease for major grades-Bonny Light BFO-BON and Qua Iboe BFO-QUA, Forcados BFO-FOC and Escravos by around 20 to 25 cents compared with April,” a report on the schedule showed.
Buyers had been largely reluctant to pick up cargoes of May loading cargoes offered at and above a premium of $2 compared to dated Brent.
One trader said backwardation and low refining margins had reduced the appeal of Nigerian crude for European buyers.
This came as government heightened efforts to further prone down its crude production cost.
The average production cost for a barrel of oil in Nigeria had earlier declined to just $23 a barrel and the Minister of State for Petroleum Resources, Dr. Emmanuel Ibe Kachikwu said in a statement last weekend that oil companies were not stopping there and were aiming to reduce this further, to $15 a barrel to boost profitability.
Oil exports are the largest single source of oil revenues for the Nigerian state and anything that makes these more appealing to buyers would help revenues grow.
However, production costs are not the only factor at play when it comes to oil revenues.
“We are still underdeveloped, underachieving and we are close to achieving the four million production target as we deliver 1.9 to two million barrels a day currently, but even at that why are we not taking over from the International oil companies, or produce a single oil firm that can transcend other West African countries? Kachikwu asked.

The OPEC’S angle
Nigeria is taking part in the latest OPEC+ round of production cuts and it is supposed to be producing less than 1.9 million bpd. The country, exempt from the first round of cuts, was initially reluctant to join the agreement, but Saudi Arabia convinced it to take part. It has yet to reduce its production to the quota set for it by the cartel.
Host communities in Nigeria continue to be a hotbed for militant activities, as they see only a fraction of the money Nigeria receives for its oil exports.
This, in turn, makes investors reluctant to commit more funds and other resources to field exploration and development in Nigeria.
Consequently, Exxon, one of the companies with the longest presence in Nigeria, is now looking to sell assets there worth as much as $3 billion.
The move is also in line with the company’s — and the whole oil industry’s — new focus on quicker and higher return projects, which, for Exxon, are clearly not in Nigeria.
Kachikwu had denied the claim that Exxon is looking to bail.
On the other hand, French Total, earlier this year, launched production at a new offshore field, Egina, which has the capacity to produce up to 150,000 bpd of crude.

Last line
The Federal Government needs a deliberate policy and action on how to manage issues that could hamper its oil prosperity. While it is doing far above average in tackling the problems confronting the commodity at the home front, it should do more to address challenges at the global space.

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