Explainer :Nigeria should pay attention to competition from new light crude grades

S&P Global Platts, the company that publishes prices used to settle physical crude trades is including new light crudes in its basket from which oil prices are benchmarked thereby resetting the balance of global oil prices as this enhances trade on these crude grades.

For Nigeria, the lack of market has not always been a problem; the key challenge has often been ramping production to satisfy market demands. This may change as new crude grades being brought into the Brent basket is offering intense competition for light, sweet, crude grades.

The dated Brent basket is likely to see further additions beyond Troll in the coming years as production in Europe continues to evolve and, as part of that, there are likely to be further careful quality reviews says Platts.

The largest projects in the region – particularly Norway’s huge Johan Sverdrup field, set to begin the first phase of production in late-2019 – are producing crude grades that are significantly different quality to the existing basket.

The BFOE market, also known as the 21-day BFOE market, an over-the-counter forward market whereby buyers and sellers trade cargos of Brent, Forties, Oseberg or Ekofisk grades is seeing decline as new crude grades emerge.

This is providing an opportunity for the benchmark to evolve in other ways, possibly bringing in grades from outside Europe on a delivered basis.

In February, one Asian refiner started testing samples of Kuwait’s new “Super Light” crude oil and found it suitable. State-owned Kuwait Petroleum Corp. prepares to launch its first new export grade in decades and key refiners in the region are excited about increased options.

Platts added Forties and Oseberg crude in 2002, followed by Ekofisk in 2007 and Troll in December last year. While the additions helped the benchmark’s liquidity, they presented Nigeria with the challenge of maintaining share in a market where alternatives for sweet crude grades is heating up.

Two light sweet Australian crude grades could regularly appear in the Asian spot market later this year following independent upstream company Jadestone Energy’s acquisition of the Montara oil field and rising output from its Stag field promising more competition in Asia.

According to Platts, Asian sweet crude traders say that Jadestone’s latest acquisition from the Thai upstream company could mean that Montara crude will be made available in the Asian spot market on a regular basis once it wraps up all the regulatory and financial procedures.

Iraq has also introduced its flagship Basrah Light crude for loading in September and bound for Asia even offering a discount against its rival Saudi Arab Medium grade for the first time in five months, signalling an ambition to gain more market share in Asia over the coming quarters.

The appearance of these new sweet crudes means that no one country can claim a monopoly for sweet crude grades. This is especially important as the International Maritime Organisation (IMO) low sulphur cap of 0.5% takes effect from January 1, 2020. Nigeria will be better served to initiate policies that will ramp up production of new sweet crude grades.

ISAAC ANYAOGU