Nigeria lifts ban on 113 vessels, signs new crude oil swap deals

Following the global outcry against its decision to ban about 113 vessels from lifting crude oil at all ports and terminals in the country in July, the Nigerian National Petroleum Corporation (NNPC) has reversed the ban.

This follows the NNPC signing new oil swap deals with four companies. Two of the deals are with NNPC joint venture companies – Calson (joint venture with Vitol) and Napoil (joint venture with Trafigura). The other two are with non-incorporated joint ventures between the oil major British Petroleum (BP) and its Nigerian subsidiary Nigermed, and a joint venture between Sahara Group and Duke Oil (an NNPC subsidiary). The new deals are expected to run till December and supplement fuel imports until the refineries are up to speed.

Industry analysts have welcomed the NNPC’s decision, saying it will ease tensions between Nigeria and the global oil industry. ‘In our opinion, the decision to lift the ban on the 103 vessels is a positive move as the initial decision had created some tension between the country and the global shipping industry,’ Ecobank analysts said. ‘The move could have created some difficulties in getting the countries crude to its customers as the vessels are likely to have moved on to other regions and new markets. Furthermore, it gives the Nigerian government an opportunity to re-register vessels and update records on crude oil lifting from the country,’ the analysts added.

The decision may also have been influenced by the country’s bid to increase oil exports in October. Nigeria is scheduled to load over 68 cargoes in October, representing about 63.1 million barrels or a daily production of 2.04 million bpd. Having reduced the number of companies involved in lifting crude oil from the country to 16 from a previous 43, the ban on ships may have been lifted as part of efforts towards effective monitoring of the crude oil marketing system.

With the global oil market bracing up for a potential return of additional Iranian supplies and
weaker oil demand from China, the oil market is set to become increasingly competitive. This also follows the seasonal drop in oil demand as European refineries go into routine maintenance in October. Nigeria and other oil producers in West Africa, face a challenging last quarter of the year, although winter demand could support prices.

The decision to resign new crude oil swaps follows the slow pace in getting the refineries running. The Warri Refinery had to be shut down after only a few weeks in August due to vandalism of its feedstock pipelines and inadequate stock of crude oil supply to keep the refinery running. The Kaduna refinery is yet to start up. The NNPC, thus, issued import licenses for an additional 300,000 tonnes of gasoline for September to make up for a potential shortfall in Q3 supply. However, with the refineries expected to take another 90 days to achieve maximum capacity, Q4 imports had to be supported by the new crude oil swaps, which will last till December. The new agreements are likely to have been signed under stricter terms, which are expected to give NNPC more opportunity to monitor and avoid excesses noted under the swaps previously.

To some extent, the decision could also be indicative of the likely retention of the crude swap programme by the NNPC over the medium term, pending improvement in the global oil market dynamics. The companies involved in the new swap deals indicate the NNPC may have jettisoned an initial plan to involve retailers in the crude oil swaps. The NNPC had initially invited the major oil marketers to participate in the crude oil swaps but awarded the swap to only oil traders eventually. The decision is likely based on an effort to avoid having more middlemen than necessary in the marketing of the crude, which is the forte of the crude oil traders, rather than the petroleum marketers.

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