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Nigeria’s Oil Fields Face Shutdown Amid Price Slump

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Barrel

With crude oil trading around $30 per barrel in the international market from a peak of $114 in June 2014, production from Nigeria now faces a decline as some fields face an imminent shutdown if the low oil price persists.

Industry players say operating some of the fields in the country is becoming uneconomic, with the selling price of oil being driven down close to the production cost level.

The price of the Nigerian crude oil, Bonny Light, has fallen to $29.47 per barrel, according to the latest data obtained from the Central Bank of Nigeria.

“When oil price drops, we are all in serious trouble, because if the oil price and your unit operating cost are almost the same, it means that when you sell the oil, there is little profit or you are at a loss. Many companies are not far from there,” the Project Director for the Uquo gas field development, a joint venture project by Frontier Oil Limited and Seven Energy, Alhaji Abdullahi Bukar, told our correspondent.

“The unit technical cost of many of our producers is not far from $30 per barrel. So many companies are in trouble,” he added.

According to Bukar, the average production cost for many of the fields in the country is $24 to $25 per barrel.

“For some fields, the production cost is well above $25, maybe $28. For some fields, it is well below $20 and $25. Many of the older fields, which are mostly with the International Oil Companies, have got high production costs,” he said.

Global financial services firm, Morgan Stanley, on Monday joined banks such as Goldman Sachs, City Group and Bank of America Merrill Lynch, in warning that prices could slide to $20 per barrel.

Bukar said, “The production in Nigeria is going to suffer. In the last five years, we have not invested as much as we should to develop additional reserves. Once, we keep going like that, whether there is price change or not, the amount of oil Nigeria is going to be producing will go down.

“When the price drops as low as $20-$30 range, people who have got those old fields or fields where oil production cost is above the selling price will shut them down. There is no point in producing oil to sell at a loss.”

Nigeria, Africa’s top oil producer, relies on crude oil for most of its export earnings and government revenue. Oil production in the country has continued to hover between 1.9 million barrels per day and 2.3 million bpd in recent years.

President Muhammadu Buhari had projected crude oil production of 2.2 million bpd for this year’s budget, down from 2.2782 million bpd in the 2015 budget, with oil-related revenues expected to contribute N820bn.

Industry experts also say the continued decline in global oil prices would stall a number of deep-water projects in the country.

The Chief Executive Officer, Petrosystem Nigeria Limited, Mr. Adeola Elliott, said, “Obviously, the plunging price will affect investment in new fields. I had a discussion with a top official in one of the IOCs operating in the country. What they have done now is to just keep maintaining the facility they have now and producing what they producing now. There is no more new investment.”

Prior to the drop in prices, several IOCs had in recent times shifted more of their focus to the offshore areas of the Nigerian oil industry as a result of onshore risks, with a number of planned deep-water projects expected to come on stream in the coming years.

Deep-water oil projects that have yet to achieve Final Investment Decision include Bonga Southwest and Aparo (Shell); Zabazaba-Etan (Eni); Bosi, Satellite Field Development Phase 2 and Uge (ExxonMobil); and Nsiko (Chevron).

An energy expert and Technical Director, Drilling Services, Template Design Limited, Mr. Bala Zakka, said with oil at $30 per barrel, the profits and projects, including Corporate Social Responsibility activities of many oil firms would be negatively affected.

“Major deep-water projects will be affected because they are very expensive. If oil continues to fall, a lot of exploration and drilling campaigns will reduce. A lot of marginal field operators will not be able to drill new wells. There is every possibility that companies will retrench to be able to stay afloat,” he said.

The Head, Energy Research, Ecobank Capital, Mr. Dolapo Oni, said, “Our production is really having issues, and I think it might be worse in 2016. Our production is likely to reduce this year.

“There are not as many fields likely to come on stream this year. Most companies just want to focus on their existing production. So, it is possible we won’t see as much new production come on stream to reverse the trend of decline in major fields we have. That might make production go down.”

Oil prices could reach as low as $10, Standard Chartered warned, stating, “Given that no fundamental relationship is currently driving the oil market towards any equilibrium, prices are being moved almost entirely by financial flows caused by fluctuations in other asset prices, including the dollar and equity markets.”

Wood Mackenzie, the energy consultancy firm, said in a report last week that since the oil price collapse in 2014, 68 major upstream projects containing 27 billion barrels of oil equivalent had been deferred.

This, it said, amounted to $380bn of capital expenditure deferred by total project spend in real terms.

It stated, “As oil prices continue to fall and capital allocation tightens, we expect the list will grow further. The level of production impacted by these deferrals is material in a global context.

“The FIDs on many of these projects have been pushed back to 2017 or beyond. Deep-water is hit the hardest. Over the next five years, $170bn of potential investment currently hangs in the balance across these 68 projects.”

Wood Mackenzie says, in all, some 27 billion barrels of oil equivalent in reserves, or 2.9 million barrels per day of liquids production, will not come on stream until early in the next decade, later than envisaged.

High cost deep-water fields, particularly those in Angola, Nigeria and the Gulf of Mexico, requiring heavy upfront investment, account for more than half of that deferred production.

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

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Crude Oil

Oil Trades Lower on US Hurricane Ease, China Economic Worries

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Crude oil

Oil prices dropped in the international market on Friday as traders overlooked supply disruptions from a hurricane in the US Gulf of Mexico just as moves by China to help its economy failed to impress some oil traders.

The global benchmark Brent crude futures fell by 2.3 percent or $1.76 to $73.87 per barrel while the US West Texas Intermediate (WTI) futures settled at 70.35 per barrel, down by 2.7 percent or $1.98.

In the world’s largest oil-producing country, the US, producers shut in more than 23 percent of oil output in the US Gulf of Mexico by Friday to brace against Hurricane Rafael.

According to the US National Hurricane Center’s latest advisory, the storm weakened to a Category 2 hurricane on Friday, and this eased worries and oil prices.

Meanwhile, concerns about China proved to be more than examined even as the government announced a package easing debt-repayment strains for local governments.

However, these measures do little to directly target demand as concerns about weakening demand in China, the world’s largest oil importer, have also contributed to the oil price decline after data showed crude imports in China fell 9 percent in October.

The weakening of oil imports in China is due to weaker demand for oil as a result of the sluggish economic development and rapid advance of electronic vehicles (EVs) in one of the most advanced economies.

Despite Friday’s losses, oil prices gained more than 1 per cent week-over-week taking support from the emergence of Mr Donald Trump as the next president of the US and the US Federal Reserve’s decision to cut interest rates by a quarter percentage point.

Oil producers are looking forward to fewer regulations on crude production under a Trump presidency, meaning higher oil supply and consequently lower prices.

On the flip side, a Trump administration also means more sanctions on Iranian and Venezuelan barrels, which could cut oil supply to global markets and potentially boost prices.

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Crude Oil

Brent, WTI Crude Prices Rise in Response to Expected Trump’s Policies

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Crude Oil

Oil prices rose nearly 1 percent on Thursday as the market considered how US President-elect Donald Trump’s policies would affect supplies.

Brent crude oil futures settled up 71 cents, or 0.95 percent at $75.63 a barrel while the US West Texas Intermediate (WTI) crude rose 67 cents, or 0.93 percent to $72.36.

Prices gained support from expectations that Trump’s incoming administration may tighten sanctions on Iran and Venezuela.

On Wednesday, the election of former Republican President Trump initially triggered a sell-off that pushed oil down by more than $2 as the US dollar rallied.

A strong Dollar makes oil expensive and this typically leads to a drop in prices.

In his first term, Mr Trump put in place harsher sanctions on Iranian and Venezuelan oil, limiting supply and supporting oil prices.

However, his successor, Mr Joe Biden briefly rolled back the sanctions but he would later reinstate them.

Such a move would raise the cost of China’s imports, piling pressure on a refining sector grappling with weak fuel demand and tight margins.

However, China and Iran have built a trading system that uses mostly Chinese Yuan and a network of middlemen, avoiding the Dollar and exposure to US regulators, making sanctions enforcement tough.

However, analysts say that the US government has been reluctant to take steps that would remove supply from the global market as a result of the Russia-Ukraine war.

Also supporting prices, the US Federal Reserve cut interest rates by a quarter of a percentage point at the close of its policy meeting on Thursday.

The US Federal Reserve said it will continue assessing data to determine the pace and destination of interest rates as officials reset tight monetary policy to account for inflation that has slowed markedly in the past year and is nearing the US central bank’s 2 percent target.

Interest rate cuts typically boost economic activity and energy demand.

Support also came as some companies cut supply in the US due to Hurricane Rafael. According to the US Bureau of Safety and Environmental Enforcement (BSEE), over 22 percent equivalent to 391,214 barrels per day, of crude oil production was shut in response to the hurricane.

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Petrol

Three Oil Companies Ask Court To Stop NMDPRA From Seizing Their Petrol Import Licences, Accuse Dangote Refinery of Monopoly

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Aliko Dangote - Investors King

In response to Dangote Refinery N1 billion suit, three oil companies including Matrix Petroleum Services Limited, A.A. Rano Limited, and AYM Shafa Limited, have prayed the Federal High Court in Abuja to stop the Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) from reviewing or withdrawing their import licenses.

The oil companies also urged the court not to block them from importing petrol in the interest of energy security and promotion of healthy competition in the Nigerian oil and gas sector.

Dangote Refinery had approached the court and filed and a N100 billion suit in damages against NMDPRA for allegedly continuing to issue import licenses to NNPCL, Matrix, and other companies for importing petroleum products such as Automotive Gas Oil (AGO) and Jet Fuel (Aviation Turbine Fuel), despite that the refinery is producing the products in quantity that meets Nigerians’ needs.

The refinery also dragged NNPCL, AYM Shafa Limited, A.A. Rano Limited, T. Time Petroleum Limited, 2015 Petroleum Limited, and Matrix Petroleum Services Limited in the suit.

Counsel to Dangote Refinery, Ogwu James Onoja SAN, in the originating summons, dated September 6, 2024, claimed that NMDPRA contravened Sections 317(8) and (9) of the Petroleum Industry Act (PIA) by issuing import licenses for petroleum products.

Onoja stated that such licenses should only be granted in cases of petroleum product shortages and not when Dangote Refinery is meeting the needs of the populace.

According to Onoja, NMDPRA has been discouraging local refiners such as Dangote Refinery by its actions.

Responding to the suit through their written address and counter-affidavit, dated November 5, 2024, and filed by Ahmed Raji SAN, the three oil companies said their businesses do not in any way hamper, disrupt, or harm Dangote Refinery’s operations.

The three defendants claimed the plaintiff allegedly sought to monopolise the petroleum industry in Nigeria, where it alone would control supply, distribution, and pricing.

In the defendants’ affidavit, deposed by Ali Ibrahim Abiodun, Acting Managing Director of AYM Shafa (with the consent and authority of Matrix, A.A. Rano, and AYM), it was stated that the defendants are qualified and capable of being licensed as importers of refined petroleum products under Section 317(9) of the PIA and that their licenses to import such products were lawfully issued by the appropriate authority, NMDPRA.

The deponent claimed that it typically takes an average of two months for Dangote Refinery to fulfill orders and that it rarely meets demand, with trucks waiting for months to be loaded at the refinery.

In contrast, he claimed it takes about three weeks to import petroleum products from offshore refineries.

The affidavit revealed that A.A. Rano’s oil depot in Lagos has a storage capacity of 55,000,000 liters and can load about 200 trucks per 24 hours.

The deponent stated that the company also owns 220 filling stations and another 85 affiliates and leased filling stations.

According to the deponent, AA Rano was one of the first to take delivery of AGO from Dangote Refinery, loading 20,000 MT of AGO on or about April 16, 2024, and has since purchased and loaded additional cargoes totaling approximately 190,000,000 liters.

Despite this patronage, the affidavit claimed that Dangote Refinery has continued to place obstacles that make it difficult for A.A. Rano to purchase products solely from the refinery.

The oil companies called on the court to dismiss the suit.

Meanwhile, the court adjourned the matter till January 20, 2025, for a status report.

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