China’s huge appetite propels Nigeria, Angola for greater foothold on Asian oil market
Nigeria and Angola are poised to send crude oil to China at the rate of 1.48 MMbpd in April, the most since August 2011, according to loading programs and traders. By the end of the year, China could become the world’s top oil buyer, according to the International Energy Agency. The fast-growing Asian market imports of West African crude oil are poised to reach 2.4 MMbpd this month.
UNIPEC, the trading arm of China Petroleum & Chemical Corp., is set to be Asia’s largest buyer of West African crude in April, with 32 cargoes of predominantly Angolan grades. That is the biggest monthly haul for the company. This will help to drive flows of Angolan crude to Asia to about 1.31 MMbpd this month, the most since June 2015.
The surge in flows is aided by the Organization of Petroleum Exporting Countries (OPEC) curb in output in an effort to drain a worldwide glut that has depressed crude prices for nearly three years. As a result, Asia is increasingly turning to other suppliers for crude, including Africa and the US.
The output cuts, in place since the beginning of the year, have made Middle Eastern oil relatively more expensive to other grades, evident in the narrowing price gap between Dubai crude and Brent, the global benchmark. This has boosted Asian demand for West African grades linked to Brent.
Asia’s increasing purchases of West African crude provide a valuable source of income for Angola and Nigeria, which rely heavily on oil revenues to fund government spending. Both nations are OPEC members, though Nigeria is exempt from output cuts as it recovers from outages caused by militant attacks on oil infrastructure.
The OPEC deal calls for the producer group to lower output by some 1.2 million b/d from October levels and freeze production at around 32.5 million b/d, while exempting Libya and Nigeria from any cuts.
The six-month deal, which expires in June, will be up for review at OPEC’s next meeting on May 25, with some ministers saying the production cuts should be extended to continue drawing down global inventories. But with Nigeria restoring output, it could be asked to join the output cuts, if the deal is extended.
Already, Ibe Kachikwu, Minister of State for Petroleum Resources, had acknowledged that a fully recovered Nigeria would likely be asked to share in the cuts.
“I don’t expect that once you reach your volume you are going to have free rein, so we probably have six months to get our act together and then hopefully zoom back out production and then we will be asked to contribute,” Kachikwu told reporters.
Change of tact improved reliability for Nigerian crude
Sales of Nigerian grades climbed this month to the highest since February 2016 as confidence in the reliability of the country’s flows improved.
President Buhari’s change of tact to negotiating with the Niger Delta militants instead of his initial stance to crush them seem to restoring confidence. The respite, especially after Vice President’s Osibajo’s diplomatic shuttle to the Niger Delta while he was acting President helped to restore output to 1.68 million barrels a day from the 27-year low of 1.2 million barrels a day in August. Though that is still way below the 2014-15 average of about 2 million barrels a day. The government also resumed suspended payments to ex-militants under an amnesty program.
Nigeria’s crude oil and condensate production averaged 1.676 million b/d in March, a fall of over 200,000 b/d from the previous month, the country’s petroleum ministry said last week.
The ministry said the country’s oil output was 1,676,045 b/d in March, down from around 1.9 million b/d in February, but it did not provide the reason for the sharp month-on-month fall.
However, sources said output was down mainly due to maintenance at the Bonga field, which averages around 150,000-200,000 b/d.
Shell said in early-March that Bonga production would be shut in for about four to five weeks due to turnaround maintenance and engineering upgrades at the Bonga floating, production, storage and offloading (FPSO) vessel.
Also, the Trans Forcados pipeline is expected to re-open by the end of June, officials from pipeline operator Nigerian Petroleum Development Co. said earlier this year. Sources have said producers in the region are keen to start exports from the main Forcados terminal as soon as possible, but the government remains cautious due to the fragile security situation.
Nigerian oil output plummeted to near 30-year lows of around 1.2 million b/d in May 2016 from 2.2 million b/d earlier in the year as attacks on oil facilities in the Niger Delta rose at an alarming pace due to resurgent militancy.
FRANK UZUEGBUNAM