Nigeria risks ceding sweet crude advantage over internal crises

In the emerging crude oil market where producers of low sulphur varieties could gain an edge, Nigeria with some of the world’s best low sulphur crude grades could cede markets it has competitive advantage due to internal crises.

 

Since the start of the year, the operations of half a dozen oil companies have been disrupted on sixteen different occasions due to labour employment related grievances, the most recent being the labour crises at the ExxonMobil operations in Eket, Akwa Ibom.

 

Mobil Oil Producing, a subsidiary of ExxonMobil said crude production and exports from its assets in the state have come under threat following an over six-week blockade by former employees protesting their dismissal, in a release.

 

This agitation constrains over 300,000 barrels per day from the Qua Iboe terminal. The former staff, who were ex-security personnel engaged by the US oil firm along with 508 workers were dismissed in July, had been blockading the company’s offices and facilities since July 13.

 

“The continued blockade means a loss of access for employees [and contractors]. Continued denial of access to production facilities could impact the company’s ability to safely continue production operations,” S&P Global Platts quoted ExxonMobil as saying in a statement.

 

Analysts say labour unrest is emerging the new risk to oil production after sabotage of oil assets by militants have seen a lull, following intense engagement by government agencies. But a surge on labour disputes could upset this balance.

 

“The sum of all these strikes is that we are making our oil and gas sector less competitive,” Godwin Aigbkhan, an advisor at the National Competitiveness Council of Nigeria told BusinessDay.

 

This comes at a time when competition for sweet crude grades could become the next frontier for oil market growth following the International Maritime Organisation (IMO) low sulphur cap of 0.5% regulation which takes effect from January 1, 2020. Nigeria’s light crude grades requires less effort to meet this regulation making it a favourite for refiners

 

Nigerian crudes, which are light and sweet, are moving more to Europe. Once heavily favored by US East Coast refiners, they have been shut out of the US market by shale oil, which is also light and sweet.

 

“Brent has continued to outpace other global benchmarks amid concerns about geopolitical stability and supply disruptions, this is an on-going concern for the global oil market,” says Andrew Bonnington, director, Strategic Market Engagement for Europe & Africa at Platts  at the company’s Lagos Oil and Energy forum held recently,

 

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.

 

Platts added Forties and Oseberg crude grades in 2002, followed by Ekofisk in 2007 and Troll in December last year. Two light sweet Australian crude grades could also regularly appear in the Asian spot market later this year

 

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.

 

While the additions of new crude grades have helped the Brent benchmark’s liquidity, they present Nigeria with the challenge of maintaining market share where alternatives for sweet crude grades are heating up.

 

The continued labour disputes also put a spotlight on the labour practices of International Oil Companies both in Nigeria and other parts of the world where as strike actions arising from wage disputes which are not limited to Nigeria indicate a need for better engagement with labour.

 

Hundreds of workers on Norwegian offshore oil and gas rigs went on strike after rejecting a proposed wage deal, leading to the shutdown of one Shell-operated field. A strike over new labour laws spread to all of France’s eight oil refineries in May affecting Total operations.