Monday, January 28, 2013

U.S. doesn't need Nigeria's oil

Nigerians whose pastime is bickering over oil resources may soon find out that what they consider as the goose that lays the golden eggs will no longer give them the resources to steal from. Oil may soon be selling for far below the 1982 price level. No thanks to President Barack Obama who, during his first term inauguration urged Americans to find a solution to the country's continued dependence on external oil. Five years down the line, America is almost self- sufficient in oil production and is now turning down offers from traditional suppliers.

America is one country where when the government decides on a line of action, it follows through. But in Nigeria, for over two years now, the issue of the Petroleum Industry Bill passage has been with us without progress. While others are busy finding alternative to crude oil as means of energy, Nigeria's policymakers are busy stealing the little resources available to diversify the economy. Shamefully, just last week, former President of Botswana said at Daily Trust Forum that it amounts to criminal negligence for Nigerian leaders to continue to steal the people's resources entrusted to them through corrupt practices.

Last week, the news wire services were awash with reports that the United States, the highest importer of Nigeria's crude now gets so much crude from its own shale deposits that Canadian exporters to US are selling as far afield as Europe, showing how deeply the U.S. energy revolution is transforming global oil flows. As recently as 2011, close to 100 per cent of Canada's crude exports went to its neighbour, the United States, according to the U.S. Government's Energy Information Administration (EIA).

But trade and shipping sources said more than two million barrels of light crude from Canadian offshore oilfields have gone to Europe in the last month, a taste of what is to come. The change is due to technological advances the U.S. expects will bring 900,000 barrels per day (bpd) record jump in its oil output to 7.3 million bpd in 2013, from places like the Bakken shale deposit in North Dakota that now feeds U.S. East Coast refineries served by Canada.

While this revolution is taking place in the international oil market, Nigeria's federal executive arm of government is at war with federal legislators on the right budget benchmark for crude oil, but the oil market equation is fasting changing against Nigeria. While the executive favours the use of $75 per barrel, the legislators pegged the budget at $79. Both parties will soon discover that they have been too optimistic about the international oil market. From the look of things, both sides should review the budget and reduce the benchmark to $60 per barrel.

US refineries' traditional supplier, Nigeria, is to seek alternative customers and is feeling the pinch of the new Canadian competition in its established European markets. Besides Canada, other traditional suppliers to US market will seek customers in Europe and Asia. If most suppliers of crude are now to face a shrinking market in Europe, one thing is sure, the price of crude will nosedive southward, meaning a crash in prices of crude. This apparently will derail the 2013 budget, no doubt.

Hitherto, US oil reserves have been too expensive to recover using old technology. New technology of a drilling technique called hydraulic fracturing, or fracking, in which water, sand and chemicals are forced deep underground to drive out trapped oil and gas, have allowed access to millions of barrels of U.S. oil that were previously unattainable. This shale oil is sweet - meaning it has low sulphur levels and is suitable for U.S. refineries - like the Canadian and Nigerian oil it is supplanting.

To the average American oil trader, Shale oil is making its way to the east coast of the United States by rail instead of shipping from long distance, so this is backing out offshore sweet east coast Canadian and Nigerian production. For oil traders, the profit margin had widened sufficiently for arbitrage as it allowed for a nominal profit of nearly $1 million on 600,000-barrel shipment.

The question is, where is Nigerian NNPC seeking new markets? Apparently as it is with Nigeria, they have gone to sleep until one day, they find that there is no market for Nigeria crude. What then will happen? Federal allocation to states will dwindle, salaries will remain unpaid, Federal Government will borrow and borrow to finance the budget, the deficit will grow wider and the private sector will be crowded out of access to credit.

The scary thing is that rising U.S. shale oil output has already started re-routing flows of Nigerian and Algerian light sweet crude oil which used to flow regularly to the United States. U.S. imports of light, sweet crude will fall to virtually zero by 2014, an executive of French energy company, Total's trading arm predicted in October.

This progressive upheaval in crude oil patterns has prompted European refiners to look at changing their slates - lists of suitable crude oil grades for use as feedstock -- to adapt. Traders said that the extra volumes of Canadian crude arriving

in Europe have depressed prices for Nigerian grades, which have fallen around $1 since early December.

Nigeria's Federal Government functionaries, governors and legislators who have been feeding fat on the proceeds of crude sales should be ready to drink the crude when it returns unsold.

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