• Saturday, April 13, 2024
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BusinessDay

Nigeria risks losing oil buyers as US expands footprint

Oil suppliers in the United States have muscled their way into the markets once dominated by Nigeria and other members of the Organization of the Petroleum Exporting Countries (OPEC), posing a challenge for Africa’s top exporter.

Since the imposition of Western sanctions on Russia in 2022, US oil exports have surged, setting five new monthly records, according to data from the US Energy Information Administration (EIA).

The sanctions, coupled with trade restrictions on Venezuela, have significantly altered global oil trade dynamics, enabling US suppliers to capture markets traditionally dominated by OPEC and its allies, analysts at EIA said.

This shift is particularly evident in India, a major buyer of Nigeria’s crude oil, which has increasingly turned to US crude, displacing sanctioned Russian oil, partly due to Indian refiners refusing cargoes from tankers owned by the sanctioned Russian firm Sovcomflot PJSC.

“US production is going up and OPEC and Russian production is going down — so the US, by definition, is going to have more market share,” said Gary Ross, an oil consultant turned hedge fund manager at Black Gold Investors LLC.

Data from the global ship tracker also showed the US oil shipments are expected to hit a record 2.2 million barrels per day (bpd) in March.

Experts said this surge is not solely a result of sanctions against Russian oil but also due to the inclusion of West Texas Intermediate (WTI) in the dated Brent benchmark, which has integrated US crude into the European oil diet.

For instance, imports into the Netherlands have surged since WTI was included in the dated Brent benchmark last year, ensuring US crude would become a part of the European diet.

Data from EIA also showed US imports to France jumped nearly 40 percent from 2021 to 2023, while those to Spain rose 134 percent.

“As US production continues to gradually grind higher, every incremental barrel that’s being produced is likely going to be exported,” said Matt Smith, lead Americas oil analyst at Kpler, a global trade intelligence platform.

Analysts said the increase in US oil imports by European countries, such as France, Netherlands and Spain, highlights the growing importance of US crude in ensuring energy security and diversifying supply sources away from Russian oil.

The Netherlands received more US crude oil exports than any other country in 2023, averaging 652,000bpd, according to EIA.

Data from the National Bureau of Statistics showed the Netherlands bought Nigerian crude oil worth N2.5 trillion in the first nine months of 2023, while India’s imports were valued at N1.6 trillion.

Indonesia and France occupied second and third positions as they purchased Nigerian crude worth N1.72 trillion and N1.65 trillion respectively as of September 2023.

The Federal Government hopes to generate N7.69 trillion as oil revenue to partly finance the 2024 budget of N27.5 trillion.

The resurging shale oil production will be scary for Nigeria and most OPEC members who went into recession after shale caused a supply glut that sent oil prices crashing to a historic low in mid-2014, while also making the US the largest producer of the commodity.

In terms of both volumes and value, US oil exports were the biggest of all categories in America’s trade with the world through August this year and are likely to be such for the full year 2023—for the first time, according to an analysis by Ken Roberts at WorldCity, a company that tracks US exports.

Africa’s biggest oil-producing country needs the oil price to rise or in the worst case, remain above its revised budget benchmark of $77.96 a barrel to feasibly raise N7.69 trillion.

The proposed oil revenue for 2024 is over three times the amount budgeted for 2023, which was about N2.23 trillion.

This means that the Federal Government plans to triple revenue from a sector plagued by challenges, such as oil theft, and infrastructural deficit, which led to declining revenue over the years.

“An unprepared life beyond crude oil could be catastrophic for Nigeria where millions of its people already live on less than $1 a day,” Aisha Mohammed, an energy analyst at the Lagos-based Center for Development Studies said.