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With the US turning into a net exporter of crude oil, flows from
Nigeria to the US Gulf have been dropping since early 2018, with
some exemptions to notice when the domestic market ran short of
similar crude oil grades. Meanwhile, the US competes against
Nigerian barrels across Europe, adding more pressure to African
producers. But the sanctions against Venezuela seem to of had an
impact on the trends developed during the second half of 2018. In
2019 so far, prices for Nigerian barrels have been supported by
increasing demand in India and other countries in Southeast Asia,
with prices having reached new five-year highs. Without doubt, this
has been bad news for European buyers, who would have hoped for the
market to lower. Nigeria also competes with other grades such as
Caspian Pipeline Consortium (CPC) or even North Sea crudes, with
the discount on Nigerian barrels covering the higher cost of
shipping from West Africa.
But as the market starts seeing some interest from the US for
grades like Bonga and seasonal drivers expected to shape demand for
Nigerian crude, optimism increases. European refineries should be
looking to buy more around this period, which then typically supply
more fuel to the US, where the summer driving season approaches.
Moreover, the US might experience some further decline in terms of
oil well productivity in the Texas's Permian basin, which could be
good news for Nigeria. US drillers seem to be determined to cut
spending.
Nigeria should consider what might follow in the Indian market,
as the US have started targeting Indian refiners like Indian Oil
Corp, who recently signed its first annual deal to buy US oil
earlier this year, for 60,000 barrels a day up until March
2020.
In terms of production, Nigeria's Petroleum Minister Emmanuel
Ibe Kachikwu recently admitted that his country is finding it
rather challenging to reduce its output to the quota assigned by
OPEC, not least because of the start of production at the Egina oil
field, with a capacity of 150,000 bpd. Nigerian officials have been
commenting that the country's target has been almost met,
suggesting that production in March averaged 1.7 million bpd,
slightly higher than the 1.685 million bpd agreed with OPEC+. But
recent data made available in IHS Markit's Commodities at Sea suggests that
shipments actually increased in March, having surpassed 1.8 million
bpd.
On a positive note, the country managed to lower the average
production cost per barrel of oil to just USD 23, aiming to reduce
this further, to USD 15 per barrel. However, investors still seem
to be reluctant to commit more capital to field exploration and
development, as the risk of instability remains high. Exxon is
understood to be actively looking to liquify assets in the country
worth around USD three billion. However, other majors like French
Total only recently added more capacity at the new offshore field,
Egina. The country is still far away from achieving the four
million production target, delivering less than two million barrels
per day.
However, Shell Petroleum Development Company (a joint venture
between the Nigerian National Petroleum Corp, Royal Dutch Shell
Plc, Total Exploration and Production Nigeria Ltd and Nigerian Agip
Oil Company Ltd) have recently announced a large oil investment
project in Nigeria. The plan is to invest about USD 15 billion in
projects including deep offshore, shallow water, swamp and land
terrain.
Posted 15 April 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit