NNPC plans new approach to crude oil sales

Nigerian National Petroleum Corporation (NNPC) intends to handle up to 80 percent of the country’s crude oil lifting contracts via its trading arm in the next few years as part of efforts to widen its customer reach. Mele Kyari, general manager of state-owned NNPC’s crude oil marketing division, Duke Oil, said in Singapore it planned to sell more crude on a CIF or delivered basis to ensure security of supply.

The NNPC’s trading arm Duke Oil will be given more equity to directly trade and market the country’s crude in the next few years, Kyari said.

“There is a plan to see how Duke Oil can directly trade the volumes in the market up to 80 percent and ultimately 100 percent of our equity in the long term.”

Kyari hinted NNPC was moving in the same direction as the state-owned companies of Saudi Aramco and Angola’s Sonangol. Sonangol markets and sells its crude on spot and term markets after Angola elected to instead strengthen its trading arm, giving it the ability to choose clients and end-users.

The current 2017-18 Nigerian crude oil term contracts involve the export of around 1.306 million b/d of Nigerian crude out of the 2.2 million b/d the country has the capacity to produce. Duke Oil gets 90,000 b/d and the other 38 companies on the list have a 30,000 b/d allocation.

NNPC allocates the majority of its crude cargoes to trading companies and oil refiners that hold term contracts. These cargoes are then sold by the trading companies to end-users, refiners and other buyers.

India, the largest buyer of Nigerian oil, has always pushed for the NNPC to directly market its crude to ensure its largest buyers have secure supplies, and stop using trading companies and other intermediaries.

Kyari also said the NNPC was looking to “engage one-on-one as a CIF supplier to customers”. Nigerian crude is mostly sold and priced on an FOB basis.

The NNPC will continue to depend on Asia and Europe as its two main traditional destinations and hopes to increase its share in both regions, Kyari said.

In the past decade, Europe has emerged as the biggest demand center as falling North Sea production along with declining Libyan crude exports has meant European refineries have had to rely more on West Africa for light sweet crude.

So far this year, 17 percent of Nigerian crude exports have been to the US, Kyari said, which was a sharp rise from few years ago. Indeed, since the US started exporting crude in 2015, Nigeria’s exports to the US have increased.

Crude oil flows from Nigeria to the US were once a major trade route in the global oil market, but the shale revolution had a profound impact on the make-up of the US import market, which has, by extension, greatly altered the direction of crude flows both within Europe and to Asia.

Until about 2008, the US used to buy more than 1 million b/d of light sweet Nigerian crude oil, almost 50 percent of Nigerian exports at the time.