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Shut Forties pipeline to boost demand for Nigerian crude

by OLADIPO OLADEHINDE AND ENDURANCE OKAFOR

December 13, 2017 | 2:00 am
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Nigerian crude oil is set to witness an increase in demand as most European countries shift to Nigeria in search of light crude after major pipeline, Forties, shut down Tuesday.
Forties pipeline, one of the most important oil pipelines globally, carries 40 per cent of North Sea oil and gas, but will be shut for two weeks after a tiny crack was discovered during a routine inspection.
Global benchmark Brent crude jumped above $65 a barrel for the first time in two and a half years, according to Bloomberg data, after news about the Forties hitch hit the market.
This new twist will knock out significant supply from a market already tightened by Organisation of Petroleum Exporting Countries (OPEC) led production cut.
“I think it’s a reflection of how tight the market is currently. The Fortis pipeline carries the Brent Crude which is light sweet crude to mostly European refineries. This will mean they have to source for light crude grades to replace it for the time being,” said Dolapo Oni, Head of Energy Research, Ecobank.
On the direct implication of Forties pipeline repairs on Nigerian oil, Oni said “This means there will be significant increase in demand for Nigeria’s crude grades such as Bonny, Qua Iboe, Forcados. I suspect we could see our premium rise even higher than the current $1.5+ Brent that we are selling at into the $2+ range.”
Forties Pipeline Futures rose as much as 1.6 per cent in London, set for the highest close since June 10, 2015, after advancing 2 per cent Monday. In the U.S., crude stockpiles are forecast to drop a fourth week, a Bloomberg survey showed.
The supplies that flow through the Forties Pipeline System are the single largest constituent part of so-called Dated Brent crude that helps to settle more than half the world’s physical oil prices. The shutdown forced Apache Corporation to suspend operations at its nearby Forties field.
Last week, the Nigeria senate approved an exchange rate of N305/$1, oil production of 2.3 million barrels per day and also increased the benchmark budget oil price to $47 from $45. With oil price hitting it highest level since mid-2015 Nigeria will be looking to meet it proposed oil revenue of N2.442 trillion.
Improved security and oil infrastructure have boosted Nigeria’s production in the last 18 months. According to recent data from OPEC, Nigeria oil production in Q4 2016 was at 1.5mbp, which was down by 282000 barrel or 15.3 per cent compared to 1.8mbp produced in the same period of 2015.
The nation’s oil production as at Q2 2017 stood at 1.59mbp, this was up by 5.42 per cent compared to the previous quarter at 1.51mbp.
An increase of 175,000 barrel or 10.98 per cent was recorded in Q3 2017 as the production level stood at 1.7mbp compared to the 1.59mbp recorded in Q2 of same year. Events such as insurgent activities in the Niger Delta, theft, and the unpredictability of strike actions of oil workers are risks to future production forecasts.
“I don’t really see the OPEC impact too much because the majority of OPEC sells heavy crude, except the African countries such as Nigeria, Libya, and Algeria,” Oni concluded.

 

OLADIPO OLADEHINDE AND ENDURANCE OKAFOR

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by OLADIPO OLADEHINDE AND ENDURANCE OKAFOR

December 13, 2017 | 2:00 am
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