Continued dip in US imports of Nigerian crude threatens suezmax tankers

As imports of crude oil from Nigeria by the United States (US) continue to fall, mostly thanks to the shale revolution in the former world’s number-one oil importer, suezmax crude tanker operators have been hard hit by the decline. Suezmaxes have been crucial to transporting crude supplies to the US.

Suezmax tankers, which are among the best known crude oil tanker segments, are the most beleaguered crude tanker segment. They are primarily employed largely on the same routes as the very large crude carriers (VLCCs). But Suezmax tankers are able to navigate the Suez Canal fully loaded, whereas the VLCCs need to unload part of its cargo to be able to pass through the Suez Canal. 

The US accounts for most Suezmax activity, as the smaller vessel class can dock at more locations compared to VLCCs. One of the key benchmark routes in crude oil shipping is the Suezmax trade route between West Africa (namely Nigeria) and the US Gulf, where the bulk of US refining capacity are located. 

US imports of seaborne Nigerian crude and products, which are down to a more than 30-year low, according to data from the Energy Information Administration (EIA), US energy department’s statistics arm, is expected to continue to fall.

According to data from EIA, imports from Nigeria dropped by 18.3 percent during the economic crisis of 2009 but there was a rebound of 26.4 percent in 2010. However, with the rise of the unconventional oil industry in the US the trend has returned to a downwards trajectory: 2011 saw a drop of 20 percent, from 373.30 million barrels to 298.72 million barrels. In 2012, US crude imports from Nigeria fell to 161.43 million barrels, a further drop of 46 percent. This trend continued in 2013.

In January 2012, imports from Nigeria totaled just 449,000 barrels per day (bpd), a 54 percent decrease from 519,000bpd in January 2011. However, latest figures released by the EIA reveal that Nigeria’s crude export to US for January 2014 stands at 51,000bpd.

Rising domestic production in US

US total annual petroleum and other liquids production is expected to rise 31 percent between 2011 and 2014 to 13.3 million bpd, primarily from tight oil plays, according to the EIA.

From a peak of 12.59 million bpd in 2005, crude oil imports in the US have declined as the country introduced more efficient ways of using oil, and increased the use of gas as a result of environmental concerns. This trend in its oil imports has been helped hugely by the emergence of the shale gas and oil industry in the country.

“The structural changes in US oil consumption, combined with rising domestic production – the boom in US unconventional liquids production is set to combine with higher output from the Gulf of Mexico (GoM) to push total liquids supply (crude oil, natural gas liquids, other liquids and refinery gains) to 13.3mn bpd by 2016,” said Business Monitor International (BMI). 

US imports of crude oil will continue to decline over the medium-to-long term as a result, said BMI, forecasting a decline of 7.5 percent in 2014, following an estimated drop of 12.1 percent in 2013. “From 2014 to 2018 we project that average annual declines in US crude imports will be 5.2 percent. This is having a predictable effect on crude oil shipping to the US.”

US net crude oil imports in 2013 declined 10.2 percent to 7.6 million barrels per day (bpd), the lowest level since 1996, as rising domestic crude oil production cut into the volume of imports needed to meet refinery demand for crude oil.

Decline in Suezmax tanker rates

Euronav, the third-largest operator of Suezmax vessels in the world, stated that its break-even operating figure for 2013 was $23,600 a day, more than twice as much as the current average rate. The company was said to have made a loss of $85.9 million in 2012.

According to data from Poten & Partners, the average daily tanker rate for Suezmaxes sailing from West Africa to the US Gulf Coast was $58,305 in 2008, just as the downturn hit, when crude oil shipping was booming. In 2009, rates fell by a dramatic 59.7 percent, followed by 4.5 percent in 2010, and 56.0 percent in 2011. 

There was some rebound in 2012 when rates averaged $13,875 a day, a gain of 40.4 percent, though it appears that this was short-lived. Rates in 2013 as of October averaged $11,356 a day, marking a decline of 18.2 percent on those of 2012. 

BMI also believes that US imports of oil will continue to decline, given the rise in domestic oil production identified above. 

“This will continue to impact upon the Suezmax trade from West Africa, driving down rates still further. If rates continue around their current level then operators of Suezmaxes will continue to suffer, and we may see tanker operators looking to restructure their debt obligations or even file for Chapter 11 bankruptcy proceedings as they struggle with consecutive quarterly losses,” said BMI.

FEMI ASU