Global refiners shun Nigeria’s crude on brazen Avengers attacks

Refiners from India, Indonesia and United States are shunning Nigeria’s crude oil due to anxiety created by constant attacks from Niger Delta Avengers, putting the country’s oil output under a cloud of uncertainty.

Major buyers of Nigerian crude, like Indonesia’s Pertamina, now prefer Congolese Coco grade, Angolan Girassol and Saharan Blend from Algeria over Nigeria’s superior four grades- Qua Iboe, Brass River, Forcados and Bonny light, all under force majure.

They are canceling orders based on the uncertainties associated with declaration of force majure – a legal clause that allows companies to cancel or delay deliveries due to unforeseen circumstances.

“International buyers turning away from Nigerian crude on account of the risk of there being more declarations of force majeure is another example of the disruption caused by the outbreak of attacks on oil and gas assets in the Niger Delta. The danger of Nigerian crude for a buyer is that they commit to purchase, which involves shipping and delivery schedules, but a pipeline attack leads to a force majeure declaration, and the buyer is left without the oil they planned for. It’s the type of concern that markets react to by pushing down prices of Nigerian crude grades,” Dan Magnowski, Senior Analyst at consulting firm Control Risk said in response to Businessday questions.

Sources tell BusinessDay that India’s Hindustan Petroleum Corporation has canceled a vessel it chartered to carry two million barrels of Nigeria’s crude due to the Qua Iboe force majeure.

Also, state-owned Indian Oil Corp. Limited, another major buyer of Nigerian oil has, over the past year,  stated in its recent tenders that it would not take grades under force majeure, according to documents Reuters saw.

Even refineries on the U.S. East Coast, which routinely buy an average of 240,000 barrels per day (bpd) of Nigerian crude, as recently as May, are starting to turn away.

This has resulted in several unsold cargoes for June loading and with over half a million barrels of production lost, a daily loss of revenue by over N1.3billion has set in.

Analysts say refiners will hesitate to buy crude under force majures because they cannot guarantee it will be produced to specification.

“Typically, a force majeure is not just about the inability to produce but also the inability to meet the crude specification due to an incident. For refineries however, crude specifications are really important because they need to be able to achieve specific yields of petroleum products,” said Dolapo Oni, Ecobank, head of energy research in response to BusinessDay questions.

He expatiated further, “therefore if the crude blend is too sweet or too light or too sour or too heavy, it has an impact on the yield. Thus, once there’s a force majeure declared, they often hesitate to buy because they don’t trust the specs. Unfortunately, you cannot really guarantee a specification.”

Legal experts say force majure is declared under three conditions, externality: when the defendants have nothing to do with the event; unpredictability, if the event could not be foreseen, the defendant is obligated to have prepared for; and irresistibility which is when the consequences of the event must have been unpreventable

The brazen onslaught by what was once thought to be a rag-tag band of disgruntled elements, calling themselves Niger Delta Avengers, has morphed into a growing threat to Nigeria’s economy.

Tuesday, the group blew up Chevron’s Dibi Flow Station around Usor village in Warri, North local government area of Delta State.

“If the government is discussing with any group, they’re doing that on their own,” the group said Wednesday in a post on Twitter from an account claiming to represent them and whose authenticity couldn’t be confirmed by BusinessDay.

Vice President Yemi Osinbajo had met with governors from the Niger-Delta region, service chiefs and some ministers on Tuesday wherein a decision was taken to withdraw the military from communities in the Niger Delta region while they maintained operations on the waterways as government’s dialogue with militants continues.

Recent attacks have crippled Nigeria’s oil output to less than 1.2 million barrels per day, to production levels last seen over 20 years ago. Outages in Nigeria is being offset by increased production by OPEC and non-OPEC members and helping firm oil prices at over $50 per barrel.

Brent crude, the global oil standard, rose 1.5 percent to $52.22 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 1.5 percent at $51.12 a barrel. Oil prices rallied on decline in US crude stockpiles, rebounding demands from China to a six-year demand high and outages from Nigeria.

“Continued supply disruptions in Nigeria as well as a draw in U.S. crude oil inventories and increased Chinese oil imports” were supporting prices on Wednesday, said Michael Poulsen, oil analyst at Global Risk Management.

ISAAC ANYAOGU