Nigeria’s Oil Exports Under Threat From Theft Crackdown

By Libby George

LONDON (Reuters) – Nigeria’s newest effort to fight theft might imperil its oil revenue lifeline, compounding the injury the crude value fall has performed to its funds, entry to {dollars} and imports.

Oil merchants and transport brokers mentioned a newly carried out “letter of comfort” requirement underneath which vessel homeowners should signal a assure that their ships won’t be used for theft has made it tougher and costly to load Nigerian crude, placing some patrons off.

A duplicate of the letter draft seen by Reuters requested vessel homeowners to “guarantee to indemnify” the federal government and nationwide oil firm NNPC in opposition to any illicit use of their vessel, which led some homeowners to reject pending bookings. Traders say others are refusing future requests for now.

“Nobody is coming forward for offering the vessel and whoever is willing to go to Nigeria is asking exorbitant rates,” mentioned Ok. Namdeo, head of refineries at India’s HPCL, including they might “be cautious in future” about shopping for Nigerian crude.

Tanker proprietor Heidmar rejected an HPCL Nigerian fixture attributable to insurance coverage issues over the letter. Finding a substitute proved tough. Provisional fixtures confirmed the MT Solana crusing to West Africa for HPCL, however the vessel turned away from Africa, in keeping with monitoring information, and is now en path to the Bahamas with out oil. [ID: nL3N11Y3TP][ID: nL5N11S3OG]

Fixtures confirmed the refiner placing two Suezmax vessels on topics for the journey, which usually provides to prices.

Some European patrons are additionally now treading rigorously with Nigeria.

An oil dealer for one Mediterranean refiner mentioned they “will not touch a single drop of Nigeria crude until this matter on the letter of comfort is solved.”

BLANK CHEQUE

There is little disagreement that Nigeria must battle oil theft, which President Muhammadu Buhari has mentioned siphons as a lot as 250,000 barrels per day (bpd) of crude of its almost 2 million bpd of manufacturing.

Industry sources mentioned an preliminary effort, the banning of roughly 100 oil tankers that got here from Buhari’s workplace in July, was too blunt an instrument. But in lifting that ban earlier this month, it added the letter of consolation with speedy impact, which sources mentioned utilized to all vessels, making a probably larger downside. [ID: nL5N10F2XJ]

Oil tanker trade affiliation INTERTANKO mentioned the letter as drafted would give Nigerian authorities a “blank cheque” for any perceived violations.

“NNPC’s guarantee terms would allow the Nigerian authorities to impose an arbitrary penalty for breach of local law – of which owners might be unaware – and then demand an indemnity for their losses without the need to prove any loss,” mentioned INTERTANKO’s General Counsel Michele White, including “owners’ insurance would not respond to that.”

Shipping sources mentioned that along with Heidmar, Asian corporations China Shipping and AMCL won’t name at Nigerian ports in the interim, nor will Greece’s Chandris.

None had been capable of remark instantly.

Other vessel homeowners are working round it with watered down language, merchants mentioned. But it has contributed to a marked rise in freight; the price of reserving a Suezmax tanker from West Africa to the United States spiked by 80 cents late final week to $2.75 per barrel, in keeping with JBC Energy.

Rates for Very Large Crude Carriers (VLCCs) to Asia rose by 20 cents to round $3.40 per barrel.

The improve might deter patrons.

“It’s making the arbitrage less workable,” mentioned Eugene Lindell, JBC’s senior crude market analyst. “This ultimately means the crude prices would have to be depressed so you can shift the barrels.”

For Nigeria it is a critical concern. The October loading programme was its highest of the 12 months, and its value differentials to benchmark dated Brent had begun to rebound on the again of European and U.S. shopping for.

In a rustic staring down a possible oil value collapse-induced recession, any hit to revenue is an issue.