The United States, hitherto Nigeria’s largest crude oil importer, has finally stopped the importation of Nigerian light sweet crude. The volume of Nigeria’s crude exports to US refineries had earlier witnessed drastic reduction and “on-and-off supplies” in the last one year as explorations of shale oil in the US yield more fruits.
But the Federal Government officially confirmed at the weekend that Washington has stopped buying oil from Nigeria. The Nigerian National Petroleum Corporation (NNPC), operator of government’s stake in oil business, described this crisis, which also affects other African exporters of sweet crude, as a major “market disruption.”
Group Managing Director (GMD) of the NNPC, Dr. Joseph Dahwa, confirmed the market disruption, saying that his corporation is already planning to realign crude lifting contracts with contractors to cushion the effect of the crude imports halts. The US hitherto imported over one million barrels of crude daily from Nigeria in the last 24 months.
The realignment of crude lifting contracts is, according to Dahwa, a new strategy to capture markets for Nigeria’s crude oil. This, he said in a speech obtained from the NNPC’s website, would include direct sales to refineries and longer term crude sales contracts beyond the current one year.
“Exports of Nigerian light sweet crude to the US and indeed all African light sweet crude to the US have now ceased. This market disruption has led to diversion of Nigerian and other African producers’ crude to Europe and Asia. “A strategic repositioning of the destination of Nigeria’s crude trade requires more than a change of destination, but must include direct sales of crude to refineries in new markets and longer term crude sale contracts beyond the current one year term,” he stated.
According to him, other oil producers with similar challenges have initiated and engaged these strategies to capture more markets for their crude oil. Dawha added that Nigeria’s crude oil, with its competitive advantage in most of such destination markets, would have to move in as well.
“This is the market capture strategy that gulf countries such as Saudi Arabia and Kuwait have long adopted and this includes ownership of refineries in destination countries to ensure access to these markets. “Lately, Angola has adopted this strategy with long-term crude contracts to Indonesia and India.
Nigerian crude is known to have competitive advantage in many of these destination markets,” he said. Usually, traders lift crude oil according to the terms of contractual agreements applicable to all traders, among others on Free on Board (FOB) basis and proceeds paid directly into designated Central Bank of Nigeria (CBN) crude oil sales accounts.
These lifters/traders are engaged on annual term contract basis. Other strategies to be adopted by the NNPC to survive the disruptions, according to Dahwa, include upstream cost optimization to ensure lower production cost per barrel and prioritization of major projects in view of the low oil and gas prices.
Source: New Telegraph
