Nigeria, others face pressure as US closer to crude oil exports

With efforts towards lifting the almost 40-year-old ban on crude oil exports in the United States (US) gaining traction, Nigeria and other oil exporting West African countries stand to lose a share of the global crude oil export market when US crude exports come online.

Late last month, the US Commerce Department granted licences for the export of ultra-light crude oil or condensates to two Texas-based companies, Pioneer Natural Resources and Enterprise Products Partners, from August this year, in what is the first step towards easing the ban on exporting unrefined oil that was enacted after the 1973 Arab oil embargo to curb rising fuel prices.

The decline in US imports of Nigerian crude has

increased the amount of crude oil for which the country is seeking new markets, Dolapo Oni, energy analyst at Ecobank, told BusinessDay, adding that by the time the US starts to export its crude oil, it would reduce Nigeria’s market share since the imminent US exports are targeted towards markets Nigeria is selling to.

Nigeria, Africa’s top oil producer, supplies the world with Bonny Light, a high-grade crude oil most preferred in many parts of America, before the discovery of shale oil in the US. The light-sweet nature of shale oil has resulted in strong contraction of US demand for Nigeria’s light sweet crude, positioning it to compete with Nigeria’s crude.

With its growing domestic oil and gas production, the US can open its strategic reserves to other countries to cushion them from price shocks and international turmoil, said the Center for New American Security, which called for a review of the US strategic oil reserve programme with a look towards bringing major consuming countries in Asia and Europe under its umbrella.

US light oil exports could potentially wipe out the Brent differentials West Africa’s light sweet crude attracts. It could also reduce West Africa’s share in Asian oil imports as Asian refiners include US oil exports in their supply mix, according Ecobank’s Middle Africa Briefing Note on energy released last week.

“The US has sent strongest signal so far, of its intention to export crude oil from its shores,” said Oni, adding that the permission granted to the two companies to ship light oil from their shale oil blocks could potentially encourage other shale oil producers to approach the US department.

“If the price of oil crashes, it could send the Nigerian economy into a tailspin. We need to take urgent steps. We have to diversify the economy and cut our recurrent expenditure,” said Dayo Ayoade, senior lecturer, energy law, University of Lagos. “A mono-product economy will always suffer. Nigeria has not really diversified its economy.

 He said there is a big problem, as the US is looking to export its crude oil. “The market will be continuously eroded for OPEC, which currently supplies about 40 percent to the global oil market.”

 Oil producers in the US who are looking to get higher prices from foreign buyers have increased calls on the government to allow oil exports from the US to buyers as far as China and India, where refiners are willing to pay premiums of about $2 to $4 on the benchmark Brent for light sweet crude grades and condensates for refining.

The US could potentially export about 1 million bpd from 2015, underpinned by continued strong growth in light crude oil production, said Ecobank.

Following the significant decline in crude imports to the US from Nigeria in the past few years, on the back of US shale oil production boom, crude exports from Nigeria and other West African countries to Europe have been steadily increasing since 2010 from 870,000 barrels per day (bpd) to 1.42 million bpd last year, according to shipbroker Gibson, in its recent report.

 Gibson however noted that the West Africa to Europe crude trade has been somewhat aided by ongoing civil unrest in Libya, adding that going forward “exports to Europe are likely to be displaced should Libyan crude production returns to pre-crisis levels”.

“We don’t know how strong the demand from Europe will be. We can’t really bank on Europe. I think they will still remain a key buyer, but we cannot expect any significant growth in consumption from Europe because there is a general drive towards cleaner energy in the region,” Oni said.

There has been a persistent overhang of West African crude oil cargoes on the market since May, according to Bloomberg information. July crude oil cargoes loaded for sale in May were still on the market when August cargoes were announced in June. About 10 of Nigeria’s 62 cargoes announced in May were still available as at mid-June.

Noting that trade has been slow due to lower demand from Asia and Europe, Ecobank said the national oil companies of Nigeria and Angola had cut the official selling prices of their August cargoes to boost sales, but differentials have continued to fall in the open market due to reduced trading activity. These developments have been attributed largely to ample supply of light sweet crude oil heading towards Asia from countries such as Libya and Iraq.

“Developing the downstream and midstream sector of the oil and gas industry may at the end be a good unintended benefit of the US shale revolution to Nigeria,” said Wumi Iledare, president of the International Association for Energy Economics and director, Emerald Energy Institute, University of Port Harcourt.

BusinessDay