by Tolu Orekoya
The problem with depending on other countries to consume our high-grade crude oil, is that when times are tough, countries might decide to cut the fat and ‘eat’ more at home. That is exactly what the United States of America is doing.
Demand from the US for Nigerian crude hit a five-year low as the country shuts down oil refineries and builds its own in-house capacity to produce its own crude. As part of a long-term strategy to reduce the country’s dependence on foreign oil, the US has focused inwards at improving and building capacity, as well as exploring for new sources of energy.
Nigeria in return has now turned to the less profitable Asian market to make up for the shortfall, and to absorb the oil. It is expensive for Asia to import oil from Nigeria because of the distance between the two markets. “The voyage from the Bonny Terminal in Nigeria to Tianjin, China, is 12,172 miles, compared with 5,847 miles to New York Harbor,” the article in the Houston Chronicle states.
The article also says:
“It’s a very plausible scenario that one day the U.S. won’t need to import crude oil from Nigeria,” said Olivier Jakob, managing director at Petromatrix, a Zug, Switzerland-based consultant. “The U.S. is awash with light crude. Nigerian crude may need to be priced at a discount to go to new markets in Asia.”
The country’s Nigerian oil imports fell to 352,000 barrels a day in February, about a third of the amount purchased a year earlier, according to the Energy Department.
Refiners are closing plants on the U.S. East Coast, the main destination for Nigerian exports, amid falling returns.
“The U.S. is losing its position as a lead buyer of Nigerian crude,” said David Wech, an analyst at JBC Energy in Vienna.
The slide in Nigeria’s status as a U.S. supplier marks the decline of a relationship that dates from 1961, when Texaco Overseas began operations in the African producer. The country kept up exports to the U.S. even as attacks by militant groups in the Niger Delta cut output by more than 28 percent from 2006 to 2009.
Reduced U.S. demand still hasn’t curtailed Nigeria’s exports. Crude and condensate sales are on course to rise to 2.27 million barrels a day next month, close to their highest level in 10 months, according to loading programs obtained by Bloomberg News.
Demand for the West African state’s oil may also be supported by South Africa as it seeks replacement sources amid international sanctions against Iran.
How this news will affect the budget, based on projected oil revenues, and growth is still not known. However, it does mean that Nigeria is selling the same amount of crude oil for less, but it seems for now, the government is compensating for the fall in demand in one market with an increase in supply to another. Long term projections of demand from countries like China and India are rosy and may be able to offset lessening US demand. However, turning to Asia has its price:
Qua Iboe, a light oil that’s Nigeria’s most abundant grade, slumped to an 18-month low in April as buyers in Asia that typically use cheaper, heavier crudes, demanded price cuts to cover the cost of shipping it halfway around the world.