Insurgency threatens Nigeria’s recovery as demand for West Africa crude surges in US
As the crude oil price continues to recover in the international market, the value of Bakken crude has risen in recent months making US Atlantic Coast refiners to shift more to imports of West African crudes. Cargoes of both light and heavy WAF crude grades, mainly from Nigeria and Angola, have risen by 2.264 million barrels month on month in May alone and by 9.658 million barrels from levels a year ago.
Ten shipments of West African crude are expected to arrive along the USAC by the end of May, with about 10.668 million barrels on board. Of those 10 shipments, eight are destined for Big Stone Beach Anchorage, a blending and port facility in Milford, New Jersey.
US Atlantic Coast refiners in the past have taken in large quantities of Bakken crude, running mainly on light sweet grades. However, as Bakken has risen in value and transportation costs have been between $7/b and $10/b to rail the crude to the East Coast, West African imports have become more economic. This in turn has encouraged a steadily increasing stream of West Afican imports to the region.
Nigeria bound to miss the party
With the return of insurgency in the Niger Delta, which has led to over 600,000 barrels per day of Nigerian crude going offline, the country whose performance of its annual budget was threatened by the low crude price is bound to miss the party as the demand for West African crude surges in the US.
Since fourth-quarter 2015, Bakken Blend crude at terminals in the Williston Basin reached its highest outright value at $42.35/b. Its differential versus the front-month calendar month average of the NYMEX light sweet crude futures contract (WTI CMA) at minus $4.70/b is also at its highest level since early March. When transport costs of about $8/b are added to that, the value rises to about $50.35/b.
By contrast, Nigerian light sweet grades Bonny Light and Qua Iboe are much cheaper with outright assessments of $47.01 and $47.21, respectively. When combined with freight costs to the US of about $1.55/b, these grades still are still lower at $48.56/b and $48.76/b, respectively, than the total delivered cost of Bakken crude.
The region also is seeing an increased amount of heavier Angolan crudes arriving, including Girassol, Pazflor and Dalia. With assessed values of $45.81, $42.61 and $42.61, respectively, each of these Angolan crudes also is more economic than Bakken when freight rates of about $1.55/b are added in.
In addition, wildfires in Alberta have caused Bakken crude oil to rise in value as production cuts due to the blaze raised demand for the Williston Basin shale crude. An estimated 1 million b/d cut in Alberta crude oil production raised differentials for regional Canadian crude benchmarks, specially light crude regional proxy Sweet Syncrude Premium, which rose $2.40/b since the fire begun, peaking at WTI CMA plus $2.65/b. This has helped buoy up the differentials for Bakken ex-Williston and ex-Clearbrook, Minnesota, which are typically shipped north towards Enbridge’s 600,000 b/d Line 9, which transports crude oil from Sarnia, Ontario, to Montreal-area refineries.
With the production shut-ins in Nigeria, this may impact the total amount of the country’s crude making their way to the US in coming weeks. This will exacerbate the country’s financial crisis by reducing exports and thus foreign exchange earnings. Angola, thus, becomes the beneficiary of the West African crude surge in US.
When it rains, it pours
While the country was reeling from the effect of the shut-ins due to restiveness in the Niger Delta, US oil major Exxon Mobil said it has suspended exports from Nigeria’s top crude stream, adding to economic strains. Exxon Mobil said it had declared a force majeure on Nigeria’s Qua Iboe crude oil grade and that a portion of production had been curtailed after a drilling rig damaged a pipeline.
Meanwhile, another explosion rocked Chevron’s oil well at the Marakaba pipeline in Warri, the second blast at a facility of the US oil major within a week.
The outages adds to production problems at two of the other largest crude streams, Bonny Light and Forcados, which have already taken Nigeria’s output to a 22-year low.
Shell shut a major pipeline earlier and declared force majeure on Bonny Light crude exports last week, while an attack in February on a pipeline also caused it to shut the 250,000 bpd Forcados export terminal.
If outages at Qua Iboe and other streams are prolonged, Nigerian output could fall to around 1.2 million bpd. This would be the lowest output since 1970.
Nigeria had been Africa’s largest crude exporter with its economy heavily reliant on oil up until this year, when return of insurgency kept production well below capacity. As a result, Angola has overtaken Nigeria as the continent’s largest producer since March, according to OPEC figures.
FRANK UZUEGBUNAM