• Tuesday, December 05, 2023
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‘Demand for Nigerian crude to fall as OPEC spare capacity surges on shale’


The demand for Nigerian crude is set to fall as OPEC’s spare crude oil production capacity is expected to surge 25 percent in the next two years due to U.S. shale output which will crimp demand for the group’s supplies, the International Energy Agency (IEA) said.

The Organisation of Petroleum Exporting Countries (OPEC) is forecast to increase its implied spare output capacity to a peak at 7.18 million barrels a day in 2015 versus 5.76 million this year, the IEA said in its medium-term oil market report.

The figure is calculated by subtracting the anticipated demand for OPEC crude from the group’s total production capacity.

The organisation’s 12 members are “facing headwinds from the shale oil and gas boom in North America,” which may supplant some OPEC supplies, the IEA said.

Oil exports account for 70 percent of Federal Government’s revenue and 95 percent of foreign exchange earnings for Nigeria, leaving the country vulnerable to external shocks.

Nigerian crude oil exports to the US could fall by over a quarter this year, from 800,000bpd in 2012 to as low as 580,000bpd in 2013, according to Rolake Akinkugbe, head of energy research at Ecobank.

Having accounted for 12 percent of US crude imports in 2011, Nigeria’s share fell to 6 percent in 2012.

The shale revolution comes at a time when OPEC nations may struggle to increase production because of maturing fields and security issues, the IEA said.

“Escalating security risks, political instability and unattractive fiscal regimes in a number of OPEC member countries are expected to take a toll on OPEC production capacity growth,” the IEA said.

Nigeria will ship no cargoes of Bonny Light crude in June, leaving a gap in its loading plans that will reduce the country’s exports to the lowest in three years, Bloomberg reported last week.

Nigeria will export 61 cargoes in June totaling 54.7 million barrels, or 1.82 million a day, according to loading plans obtained by Bloomberg News.

That compares with 76 shipments, or 2.1 million barrels a day, scheduled to be exported next month and is the lowest since March 2010, when daily exports were 1.81 million barrels, data compiled by Bloomberg show.

The uncertainty caused by the Petroleum Industry Bill (PIB), currently before the nations parliament has been blamed for the fall off in investment needed to boost production in Nigeria.

Analysts estimate investment of at least $28 billion has been lost or deferred since 2010 as a result, with the beneficiaries being other producers in the sub-region such as Angola and Ghana.

The 200-plus page PIB plans to partly privatise and list the state oil firm, Nigerian National Petroleum Corporation (NNPC), tax oil company profits at up to 50 percent for deep offshore, and give the oil minister supervisory powers over all institutions in the industry.

The bill, however, fails to address most of the necessary reforms needed in the sector and may already be outdated as it fails to come to terms with the current happenings in the industry such as the US shale gas revolutions, an industry stakeholder tells BusinessDay.

“Mozambique has discovered more gas reserves in the past 4 years than we have in Nigeria for the past 50 years. The US is poised to export crude oil and gas, meanwhile the real reforms in the PIB in terms of the fiscal regime, governance and gas issues have either been killed or excised from the bill in its current form,” the stakeholder said.

Adding to the problems of the oil sector in the country is theft and pipeline vandalism which cost the Nigerian oil industry $7 billion in 2012, according to the IEA.