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‘Why Nigerian Oil Prices Are Falling’

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Although it is a very rare occurrence to see Nigerian grades trade at levels stipulated by the Nigerian National Petroleum Company (NNPC) every month, the issuance of its official selling prices generally reflects the market’s current sentiment. Today’s current feeling about Nigerian crudes (and Western African ones generally) is that of weakness. Attesting to the difficulty of placing West African cargoes recently it should be noted that up until mid-April roughly half of May 2021 loaders were still available, normally the overwhelming majority of them would be cleared by that point surely. In this article, we assess 3 main trends that have brought Nigerian crudes to the low point at which they are now, fierce competition from usual rivals and incrementally from US cargoes, the tepid recovery of European markets and the sudden collapse of India.
But let’s first take a look at NNPC’s official selling prices for May 2021. If one is to disregard the April-June 2020 period that saw every possible differential plummet to multi-year lows, the new Nigerian OSPs for May plummeted to their lowest in more than a decade. NNPC dropped its main export streams, Bonny Light, Brass River, Erha, Qua Iboe – by 61-62 cents per barrel from their April 2021 prices, with them amounting to -0.9, -0.8, -0.65, -0.97 USD per barrel against Dated Brent. As low as this might seem, these levels are some 40-50 cents per barrel better than the actual May spot market. It was inevitable that May OSPs decrease given that aggregate exports are inching back (to 1.68mbpd next month), however, the extent of the slump was aggravated by the below factors.
The OPEC+ years have brought about an unprecedented expansion of light sweet crudes available to buyers, refiners across continents can choose from a plethora of options. Most of oil-producing nations are gradually increasing their output, be it a consequence of easing OPEC+ quotas or simply due to their own volition to benefit from the reasonably profitable prices above 60 USD per barrel, meaning that refiners in Asia or Europe can create complex strategies on what to refine in the upcoming period. Now that the market has been backwardated for several months already, the shipping market no longer experiences any dearth of vessels, i.e. freight costs would be manageable for the buyers. Thus Nigeria, located mid-way between Europe and Asia (and having largely lost the US crude market), is compelled to fend off competitors from all sides.
April 2021 will witness a solid inflow of light sweet US grades to Asia, amassing a monthly total of 44MMbbls. That is some 10MMbbls higher month-on-month than in maintenance-heavy March. Concurrently, WTI delivered to Singapore fell to its lowest in a year, flirting the 0 line of Dated Brent in mid-April; WTI DES Rotterdam plunged into negative territory in the first days of April and has remained there ever since. Similarly, in Europe where both Azeri and CPC saw a massive depreciation, the former fell as low as 0.10 USD per barrel vs Dated (generally should garner a premium of 1-2 USD per barrel), whilst the Kazakhstani flagship grade nosedived to -3.25/-3.50 USD per barrel against Dated Brent. Thus, Nigeria’s rivals are pumping crudes onto the markets and accepting anaemic differentials as a necessary albeit painful element of the trading game.
India has routinely been the top buyer of Nigerian grades, the not-too-light and not-too-heavy quality of Nigeria’s flagship crudes suits India’s plentiful refiners almost perfectly. Last year 17% of Nigerian crude exports went to India, equivalent to 300kbpd on an annual average basis. Nigerian oil producers will have an extremely tough time trying to maintain those levels of crude exports. First the ever-widening Brent/Dubai EFS has narrowed down arbitrage potential from Nigeria, which, at a time of increasing export quotas (went from 1.64mbpd in February 2021 to 1.68mbpd in April) was a rather unpleasant development.
India’s current COVID travails foreshadow further difficulty for placing Nigerian cargoes in their prime market outlet. National demand for transportation fuels is bound to drop by at least 20% in April in India as regional governments introduced lockdowns once again, including the capital New Delhi. Although initially destined for several weeks, the lockdowns can be extended for a couple of months as the dangers of the new Covid strain discovered in India, labelled B.1.617, are still difficult to assess. One thing we can ascertain already: throughout December 2020 –March 2021 oil producers from Nigeria loaded an average of 11-12 MMbbls. This April the total volume to be loaded in Nigerian terminals towars India will amount to 8.8 MMbbls and May 2021 is bound to decrease even further.
Spanish refiners have routinely been to the lighter side of the Mediterranean spectrum, therefore it should not come as a surprise that Spain maintained its role as an important buyer of Nigerian crudes (0.23mbpd), trailing only to India. On the back of Europe still struggling to revive its economy at least to pre-COVID levels, Spain has been suffering from depressed demand. Coastal refiners have felt the pinch of the ongoing market slump more than landlocked ones did, unfortunately for Spain all but one of its refineries are located next to the Mediterranean and Atlantic Ocean, thus being subject to the intense regional competition. Most coastal refineries have been running at 60-70% nominal capacity for almost a year. Truth be told, even the only inland refinery in Puertollano has shut down all fuels production in April 2021.
At the same time, during the autumn months of 2020 when the 2nd wave of COVID was battering Spain again, Nigerian exports stayed within the statistical average all the while differentials were stronger than they are now. In March 2021, only one Escravos Suezmax cargo left the loading terminals of Nigeria for Spain; all this after a really robust February when a total of 9.2MMbbls was loaded. This harkens back to the above-mentioned competition with US, Caspian and North African grades, a joust that Nigeria is evidently losing. Weak demand and third-wave lockdowns notwithstanding, neither the American WTI nor the Caspian CPC has seen any ground-breaking changes in total volumes loaded en route to Spain.
Katona writes for Oilprice.com

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‘NNPC Has Violated Its Own Guidelines, Reporting Production Shut-Ins As Losses’

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Nigerian National Petroleum Corporation (NNPC) has violated its own guidelines, reporting production shut-ins as losses.
The violation is contained in the Corporation’s latest monthly report for January obtained by SweetcrudeReports, adding also, that six million barrels of oil production had been deferred following the shutdowns of the export terminals between November and December 2021.
The shut-ins termed losses by NNPC had led to Nigeria’s inability to export over 6 million barrels of crude oil, according to NNPC.
In the past, the Nigerian National Petroleum Corporation had severally admonished reporters to stop reporting shut-ins as losses, however, the Corporation appears to have also fallen foul of same misrepresentation it had flagged.
For instance, while detailing some of its key challenges in the January 2021 report, the Corporation disclosed that 10 crude oil terminals were shut down within two months as a result of either leaks, fire, or for maintenance purposes.
The January 2021 report went ahead to tag the inability to export crude through those channels as “loss” instead of shut-ins.
In the past the Corporation had admonished journalists not to report crude oil shut-in as a loss because when such production comes back on stream, the same would be exported and revenue obtained.
The Corporation had put the supposed loss at the export terminals (Batan flow station at Forcados, Opuama flow stations at Trans Escravos pipeline, Abo terminal, Agbami terminal, Brass and Erha terminals, Ugo Ocha terminal at Odidi flow station, Jone Creek FS, Yoho terminal, Usan and Ima terminal, Qua Iboe terminal, Okono and Escravos terminal, and Escravos Dubri terminal) at over 6 million barrels within the said months.
Nigeria has 26 export terminals scattered across the country with 10 located in the Western zone, 11 in the Eastern zone, and 5 in the Lagos zone.
A breakdown of the “losses” as reported by the NNPC, showed that the Batan flow station at Forcados terminal was shut down on the 18th of November 2020, and for 31 days in December due to protest by the community over outstanding payments. Also, the Opuama flow stations were shut down due to reported leaks on 20’’ Trans Escravos Pipeline on December 1. Cumulative “loss “ over 31days in December was 359,200bbls.
At the Abo terminal, production shut down for maintenance took place on the 7th of December 2020 for 13 days. Another shutdown occurred on December 20 for 6 days. Cumulative “loss” for the period was put at 360,000bbls.
Production curtailed for flare management for GTC no.3 first stage discharge cooler repairs and planned maintenance at the Agbami terminal on 24th and 11th November respectively resulted in an aggregate “loss” of 294,414bbls.

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NNPC Tasks Investors On Refineries

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The Nigerian National Petroleum Corporation, NNPC, has tasked investors on the construction of greenfield condensate refineries, in order to meets the country’s aspiration towards becoming net exporter of petroleum products.
The Group Managing Director of NNPC, Mallam Mele Kyari, gave the charge at the ongoing virtual bi-annual Nigerian Oil anc Gas Opportunity Fair, NOGOF 2021, with the theme ‘Leveraging Opportunities and Synergies for Post Pandemic Recovery of The Nigerian Oil & Gas Industry’.
Kyari reiterated the NNPC’s willingness to partner with investors towards value creation and a fair share of Return on Investment in the exploration of frontier basins, development of upstream gas fields and financing of greenfield/brownfield additional production on de-risked assets.
He assured that the country’s oil and gas sector is replete with opportunities, particularly in gas and power infrastructure development, gas pipeline networks expansion, development of gas based industries as well as the Integrated Power Plants.
Other areas of opportunities he said, include the rehabilitation of existing refineries, as well as construction of LPG and CNG plants across the country, pipelines and storage tank construction as well as developing shipping capacity.
“In the Upstream, opportunities abound in the area of exploration of frontier basins, the development of upstream gas fields and the financing of greenfield/brownfield additional production on de-risked assets.
“In Gas and Power infrastructure development, there are opportunities in expanding our Gas Pipeline networks, development of Gas based industries as well as the Integrated Power Plants.
“In line with our aspiration towards becoming net exporter of petroleum products, opportunities abound in the rehabilitation of our existing refineries as well as the construction of greenfield condensate refineries.
“As we strive to deepen domestic gas utiliisation, it has created more opportunities in the downstream sector especially in LPG and CNG plants across the country. There are also opportunities in the pipeline and storage tank construction; as well as developing Shipping Capacity.
“In the Ventures & Business Development, we are ready to partner investors in the development of multi-specialist hospitals to strengthen healthcare service availability and support telecommunication infrastructure availability.
“Finally, let me once again re-assure you that at NNPC, we are ready to collaborate with investors towards turning opportunities into real value, for the benefit of all, and especially towards taking our Industry to even greater heights.”
The NNPC boss further reiterated the corporation’s support and full alignment with NCDMB in its quest to engage Industry professionals, towards achieving its primary mandate of building and supporting the development of local capacities and capabilities in the industry.
Also, the pioneer Executive Secretary of NCDMB, Engr. Ernest Nwapa, noted that the oil and gas industry had experienced remarkable and sustainable growth in the last 15 years through local content and no other sector in the Nigerian economy had recorded comparable development.

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Former Adviser Advocates Investment In ICT For Oil, Gas Sector Revolution

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Amid daunting challenges plaguing Nigeria’s oil and gas sector, an industry expert and former Technical Adviser to the Ministry of Petroleum Resources, Engr. Rabiu Suleiman has called for higher investments in Information Communications Technology, ICT to fully harness the huge economic potential the petroleum sector holds.
He said ICT plays a significant role in optimisation, efficiency, technology advancement in the oil and gas sector.
“I believe it is time for the oil and gas industry to embrace more ICT. There are new ICT innovations coming up to help tackle most of the challenges faced in the industry. I know Huawei Technologies has been coming up with some new solutions for the petroleum industry.
“ICT is also useful for data management. The oil & gas industry handles lots of information and a lot of it has been paperwork. There is therefore a need for digital transformation to foster efficiency in the way information is stored using ICT.
“The most sensitive equipment in the process plants in the oil and gas industry is the programmable logic controllers, online analysers and all other instrument that control process, temperature, flows and pressure. So, if a company such as Huawei focuses attention on optimisation, efficiency, control and improvement, maximisation of production it will be very good”, he said.
He further explained that ICT has proven useful across other industries, adding that Nigeria can achieve up to 5 percent more oil productivity and at reduced cost using ICT.
“Regarding oil exploration, it is now possible to achieve up to 5% more oil productivity at areduced cost of investment using ICT. There are now ICT solutions that make oil extraction easier at a lower price than what it used to be.
“The major challenge today is that of insecurity. Other challenges include; general economic recession, the recent COVID-19 pandemic that almost grounded the entire world economy. Many countries passed through recession, there was the lowering of oil reserves because production was halted in some countries and therefore, production became low and of course, there are other challenges related to high production cost. If you narrow down and do a comparative analysis between Nigeria and other countries, cost of production per barrel in Nigeria is significantly very high. It went as high as $32 per barrel and crude oil price at the international market went as low as $9/barrel. But quickly, it went up to $140/barrel later and then crashed to below zero by COVID-19.”
He explained that the 2021 edition of the Nigeria International Petroleum Summit, NIPS, which starts on the 6th of June, 2021 in Abuja, provides a great opportunity at this critical time for the Oil & Gas sector in Nigeria, to focus on how to leverage ICT to transform the sector and the economy at large.
“You can easily integrate various ICT components in terms of monitoring of volume flows, temperature, attack, corrosion, contamination, communication, you can tie all these to a dedicated command and control centre. With Huawei’s oil & gas solutions, it is possible to manage pipeline damages. Yes, this has been a major challenge over the years which has greatly affected the economy.
However, there are no ICT solutions to manage these occurrences. It is now possible to track the pipelines and keep them safe through technology. With this in place, more revenue can be generated”.
He also spoke on the need for quick energy transition to renewables like solar, hydro and wind, to safeguard the environment.
“Nigeria is abundantly blessed with renewable energy sources. Sunlight is in abundant, from here in Abuja to the far north. It can be captured and converted into solar system. The main engine for growth is to have uninterrupted power supply. We also have many solar power projects going on. There is 100 megawatts of solar power that I initiated in Kano State. We have many others going on in other parts of the country. We small power panels that you can throw unto the roofs in villages.”
He thus challenged Huawei Technologies to widen its green energy solution provision, especially in solar power for Nigerians.
“Look at the three Nigerian refineries, none of them is producing aviation kerosene, why? Because of the ingress of water into the system and the inability of the laboratory to detect moisture content and poor knowledge of operators who are reluctant to apply new technologies because they are afraid to carry out certain decisions”.

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