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Saudi Arabia oil sales to U.S. affected by Sale boom…as it moves to check Nigeria in Asia

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10 years ago

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LAGOS-The U.S. imported 878,000 barrels of Saudi crude a day in the first four weeks of August, the least since 2009 with the Middle Eastern oil giant producer now looking more and more towards Asia form where it can easily squeeze out Nigeria’s growing foothold.
Saudi Arabia’s Arab Light crude for sale in the U.S. averaged 48 cents a barrel less than Light Louisiana Sweet, a Gulf Coast benchmark, in August, the narrowest discount in data compiled by Bloomberg back to 1991.
After years of keeping the price of crude sold to the U.S. low enough to maintain market share, Saudi Arabia is losing ground as the shale boom leaves U.S. refiners with ample supplies of inexpensive domestic oil.
Shale drilling has boosted U.S. oil output to the highest level since 1986. As refineries turn to lower-priced domestic oil to make fuel at a record pace, the Saudis and other foreign suppliers are left with dwindling slices of the market. In June, imports from Saudi Arabia accounted for the smallest share of crude processed at U.S. refineries since February 2010.
“The Saudis are not going to sell crude at a disadvantage to themselves — they’re not about buying market share anymore,” Mike Wittner, Societe Generale (GLE)’s head of oil market research in New York, said by telephone Aug. 28. “Those days are long gone. They’ll price crude to be competitive with the competing sour grades in every market, and if that means their flows to the U.S. are down, so be it.”
Saudi Oil Minister Ali al-Naimi told reporters in Vienna in December that he expected Saudi shipments to the U.S. to stabilize at an average of 1.4 million to 1.5 million barrels a day this year. Saudi Arabian officials didn’t return at least nine calls between Aug. 28 and yesterday seeking comment on the exports.
Saudi Arabian Oil Co. shares ownership with Royal Dutch Shell Plc (RDSA) of three refineries on the U.S. Gulf Coast, including a 600,000-barrel-a-day plant in Port Arthur, Texas, the largest in the U.S. The refineries, which have combined capacity of 1.07 million barrels a day, imported 331,000 barrels a day from Saudi Arabia in June.
Until recent months, the kingdom maintained a steady flow to the U.S. around 1.3 million barrels a day even as total U.S. imports fell by 34 percent from a peak in June 2005. Other countries didn’t fare as well. Shipments are 59 percent below their peak from Mexico, 56 percent from Venezuela and 93 percent from Nigeria.
Imports are being pushed out by domestic production that’s risen 65 percent in the past five years, spurred by horizontal drilling and hydraulic fracturing in underground layers of shale rock. Growing pipeline deliveries of heavy crude from Canada also displaced waterborne cargoes from abroad.
The price of West Texas Intermediate crude averaged $96.08 a barrel in August, compared with $106.54 the same month the year before. It settled at $94.45 in New York today.
“The Saudis might fully intend to stay in the U.S. market, they might fully intend to have a million-plus barrels, it’s just the market supply-and-demand levels probably won’t allow that,” said John Auers, executive vice president at energy consulting firm Turner Mason & Co.
Saudi Aramco, as the state oil company is known, bases prices for the different destinations on regional indexes, adjusting premiums and discounts to be competitive against oil from other countries.
In the U.S., Aramco’s adjustments kept the average price of Arab Light more than $2 a barrel below Light Louisiana Sweet every month until July. The discount was $1.27 at 4:02 p.m. today.
Aramco was offering oil to the U.S. at a significant discount to prices in other regions. Arab Light to the U.S. was $5.64 a barrel less than to Asia in 2013, falling to a $22.64 discount in November. Saudi Arabia lost $2.6 billion by selling oil to the U.S. instead of Asia in 2013, Auers said.
Shifting Sales
“In some ways, it’s inevitable that Saudi Arabia realizes there are more attractive markets, and they’ll rotate away, supply their U.S. refineries with domestic grades and sell their crude at a premium to Asia,” Francisco Blanch, head of commodities research at Bank of America Corp. in New York, said by phone Aug. 29. “As the U.S. becomes a more balanced crude force in global markets, it’ll move toward lesser imports and become decreasingly attractive to foreign crude sellers.”
Saudi exports to the U.S. averaged 1.32 million barrels a day in 2013, the second-most of any country behind Canada. They reached 1.58 million in April, before dropping by almost half to average 878,000 over the first four weeks of August, according to U.S. Customs data compiled by Bloomberg.
The price changes and declining imports might just be a blip, Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy in New York, said by telephone Aug. 26. Saudi Arabia uses more crude domestically during summer months to generate power and meet increasing demand for air conditioning. Temperatures have been higher than normal.
“I’m not sure how much I’d read into a couple of weeks or even a couple of months of data,” Bordoff said. “Saudi imports have come down, but they’re still higher than what we saw in 2009.”
Saudi Aramco yesterday lowered for a second straight month its adjustments versus the regional benchmark for crude sold to the U.S. The discount for Arab Light sales in the U.S. in October was widened by 40 cents a barrel from September. Aramco reduced the Arab Light premium for Asia by $1.70 a barrel.
“The Saudis continue to want to maintain a diversified market for their crude, and they continue to want a significant presence in the U.S. market.” Bordoff said.
Shipments to the U.S. have fallen even as Saudi exports to the rest of the world have held steady. U.S. imports from Saudi Arabia fell by 562,000 barrels a day from April to June, more than the 506,000-barrel-a-day decline of total Saudi exports, according to the U.S. Energy Information Administration and Joint Oil Data Initiative, a database supervised by Riyadh-based International Energy Forum.
Saudi sales to Asia will become more important moving forward as demand for liquid fuels in the region is expected to grow 44 percent through 2035, while North American demand shrinks, according to BP Plc. In September China surpassed the U.S. as the world’s largest importer of crude oil and refined products.
The redirecting of supplies to other markets and the U.S.’s shrinking dependence on foreign oil will inevitably change American interest in international conflicts, Blanch said.
“It is perhaps the biggest question: Is the reduced commercial relationship between the U.S. and Saudi going to lead to lesser involvement of the U.S. in the Middle East?‘‘ said
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NNPC Discovers Over 4,800 Illegal Pipeline Connections

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5 months ago

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December 9, 2023

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The Nigerian National Petroleum Company (NNPC) Limited  has revealed the detection of more than 4,800 unauthorized connections on oil pipelines within the country, painting a troubling image of the nation’s primary source of revenue.

Mele Kyari, the Group Chief Executive Officer of NNPC Ltd, communicated this information to the Senate Committee on Appropriations last Friday.

He said, “We have over 4,800 illegal connections on our pipelines. That means in some lines, within 100 kilometres of pipelines, you have as much as 300 insertions.

“Therefore, even when you produce the oil, you cannot deliver them at the required pressure and therefore the volume will also be less.”

As per the NNPC Ltd chief, individuals from various regions enter the Niger Delta, inserting unauthorized connections on pipelines in Nigeria’s oil-producing area.

This recent revelation follows a prior discovery of 295 illegal connections to the pipelines by the firm a year ago, underscoring the escalating issue of crude oil theft in Nigeria.

Two years earlier, Kyari had highlighted the country’s daily loss of 200,000 barrels of oil, amounting to $13 million due to theft and vandalism.

He further stated “We have two sets of losses, one coming from our products and the other coming from crude oil. In terms of crude losses, it is still going on. On the average, we are losing 200,000 barrels of crude every day.”

After the discovery, Nigeria’s security forces pledged to enhance security around the country’s pipelines.

To bolster this, the Federal Government granted a multi-billion naira pipelines surveillance contract to Tantita Security Services, headed by former militant leader Government Ekpemepulo, also known as Tompolo.

Despite facing criticism for this decision, Senator Heineken Lokpobiri, the Minister of State for Petroleum, remains convinced that it was the appropriate course of action.

In August, following a tour of oil facilities in the Niger Delta, Senator Heineken Lokpobiri expressed gratitude to Tantita, commissioned by NNPC Ltd, for their ongoing work.

He also hinted at plans for further extensive endeavors in the future.

In 2021, after extensive debate and delays, the Petroleum Industry Bill was finally passed to attract increased foreign investment into the oil sector through amendments to regulations, royalties, and taxes.

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Dangote Refinery Set To Begin Fuel Production With First Crude Arrival

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5 months ago

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December 7, 2023

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Nigeria’s colossal $19 billion Dangote Refinery, after encountering several setbacks, is on the verge of kickstarting fuel production.

This achievement is heralded by the arrival of the first crude shipment, transported by the OTIS tanker carrying 950,000 barrels of Nigeria’s Agbami crude.

S&P Global, citing industry sources and tanker tracking data on spglobal.com, reported the tanker’s departure on December 6, en route to Lekki, the nearest land port to Dangote’s offshore crude receiving terminal.

Scheduled to reach its destination around 8 PM on December 7, the arrival of this shipment signifies the commencement of crude supplies for the refinery’s operations.

Chartered by the state-owned Nigerian National Petroleum Company (NNPC), the Suezmax tanker is an emblem of the initial crude supply to Dangote’s cutting-edge refinery, as disclosed by a West African oil trader familiar with the matter in the S&P report.

Even though the refinery was officially completed in May, the absence of domestic crude feedstock had hindered oil product manufacturing.

To address this, the NNPC, holding a 20% stake in the refinery, struck an agreement to provide 6 million barrels of crude oil as feedstock to the Dangote refinery in December.

This move aims to jumpstart operations and overcome the previous impediments.

Agbami, operated by Chevron, holds a prominent position among Nigeria’s major deepwater developments, producing around 100,000 barrels per day in the central Niger Delta.

Known for its light sweet crude qualities, with a specific gravity of 47.9 API and a low sulfur content of 0.04%, Agbami produces substantial amounts of naphtha and kerosene.

NNPC has chartered additional shipments from different Nigerian offshore fields to the refinery, marking the start of a sequence of planned crude supplies for the month, as mentioned by the oil trader.

Located on the outskirts of Lagos, Nigeria’s commercial hub, the Dangote Refinery encountered repeated delays since its 2013 announcement, despite significant installation progress in 2019.

The refinery, designed to handle multiple crudes simultaneously, targets three Nigerian crude grades—Escravos, Bonny Light, and Forcados. When operating at full capacity, it aims to produce 327,000 barrels per day (b/d) of gasoline, 244,000 b/d of gasoil/diesel, 56,000 b/d of jet fuel/kerosene, and 290,000 metric tons per year of propane/LPG.

Dangote’s operations starting signify Nigeria’s hopes to lessen its reliance on gasoline imports, addressing the deficiencies of its existing refineries undergoing repairs. This shift is poised to reshape Nigeria’s oil industry, potentially leading to gasoline self-sufficiency by the 2040s.

Dangote officials anticipate an initial output of 370,000 barrels per day (b/d), emphasizing jet fuel and diesel production.

Industry analysts, however, project the refinery to reach its full operational capacity by mid-2025, although potential delays remain a looming concern.

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NNPCL Sets Dec 2024 Terminal Date For Fuel Importation

Published

6 months ago

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November 24, 2023

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The Nigerian National Petroleum Company Limited (NNPCL) has announced intentions to cease importing refined petroleum products by December 2024, anticipating full operational functionality for all national refineries by that time.

Group CEO, NNPC Ltd, Mele Kyari, shared this at a meeting with Speaker Tajudeen Abbas of the House of Representatives, who advocated for the privatisation of Nigeria’s refineries on Thursday.

Projections indicated the national oil firm’s revenue could climb to N4.5 trillion by the conclusion of 2023. Moreover, the rehabilitation of the Port Harcourt Refining Company, managed by NNPCL, was slated for completion by December of the current year.

Meanwhile, Oil marketers verified on Thursday that the Port Harcourt refinery is set for operations, potentially starting in January 2024. They emphasized that once operational, this refinery could notably reduce the prices of refined petroleum products.

During the meeting in Abuja, Kyari asserted Nigeria’s intention to cease importing refined petroleum products by 2024, envisioning the country’s emergence as a net exporter of these commodities within the same year.

He outlined the plans for launching operations at the Port Harcourt, Warri, and Kaduna refineries.

Kyari reiterated that all refineries would operate at full capacity, ultimately paving the way for Nigeria to transition into a net exporter of petroleum products by the conclusion of 2024.

He attributed the inactivity of Nigeria’s refineries over the years to the petroleum subsidy, emphasizing that the removal of this subsidy was drawing significant private-sector investments into the sector.

Kyari said “I can confirm to you that by the end of December this year, we will start the Port Harcourt refinery; early in the first quarter of 2024, we will start the Warri refinery and by the end of 2024, Kaduna refinery will come into operation.

“This is the commitment we are giving today and you can hold us accountable for this. In 2024, many of the initiatives including the rehabilitation of our refineries and also the efforts of small-scale refineries, and the upcoming Dangote refinery, will make Nigeria a net exporter of petroleum products in 2024.

“We will no longer be talking about fuel importation by the end of 2024. I am very optimistic that this will crystallise.

Kyari promised that by the conclusion of 2023, the government’s anticipated revenue from the company would reach N4.5 trillion, emphasizing NNPCL’s adherence to the Petroleum Industry Act and its commitment to delivering value to shareholders.

Recall that in October 2023, it was reported that Nigeria’s monthly spending on the importation of Premium Motor Spirit, known as petrol, had reached approximately N843 billion due to NNPCL’s cessation of oil swaps.

In July of this year, the Nigerian Midstream and Downstream Petroleum Regulatory Authority reported that during the post-deregulation period, spanning June 1 to June 28, 2023, the country’s total petrol consumption amounted to 1.36 billion litres, with an average daily consumption of 48.43 million litres.

The average ex-depot price of petrol, sourced solely from NNPCL as the importer, stands at about N580 per litre.

However, both NNPCL and oil marketers declared on Thursday that this substantial oil import expenditure would soon diminish.

They anticipated a drop once the Port Harcourt refinery commences production of refined petroleum products from January 2024, barring any unforeseen circumstances.

 

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