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African Energy Outlook



Factbox: Outlook for key Nigerian crude oil grades

September 1, 2016 - By Staff in London





Nigeria's main four crude grades -- Qua Iboe, Bonny Light, Brass River and Forcados -- are currently on force majeure due to militant attacks and substantial work still has to be carried out to repair the significant damage to Nigeria's oil and gas infrastructure before normal production and exports can be resumed.


Traders say exports of Forcados could resume by late-September, while there have been no Qua Iboe exports since July 12, and exports were unlikely to restart until the end of the year. Production of Bonny Light and Brass River remains moderate despite the force majeure, they added.


Nigeria's oil output is currently ranging between 1.5 million and 1.6 million b/d, down by around 700,000 b/d from earlier in the year and hopes of a rebound remain fragile and vary from grade to grade. Here is the state of play on the main affected crude grades.


Analysis continues below...


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Qua Iboe


Traders say they expect Qua Iboe crude loadings to be suspended for at least another three of four months, till at least November or December. Qua Iboe, which is Nigeria's largest crude grade, has been on force majeure since July 14.


The last Qua Iboe to be exported was on July 12, according to data from cFlow, S&P Platts trade flow software.


A spokesman at ExxonMobil said he could not speculate on any timeframe for the force majeure. "On Qua Iboe, nothing is coming out -- honestly, I don't think we'll see anything until the December program," a trader said.


Qua Iboe production is normally 300,000-340,000 b/d but since the force majeure production has been minimal.


After force majeure was declared, Qua Iboe differentials fell from Dated Brent plus $1.70/b in mid-July to plus $1.20/b to early August. But differentials have recovered slightly since then to around Dated Brent plus $1.45-$1.55/b as the light sweet crude complex has stabilized on steady gasoline and middle distillate cracks.


Due to the force majeure, the loading programs for Qua Iboe for September and October still haven't been released. The original August Qua Iboe program consisted of 10 stems totaling around 306,450 b/d.


The force majeure on this grade has also had a sizable impact on regular buyers of Nigerian crude who have to look elsewhere. Traders said this was a big blow to the Nigerian crude market, denting the confidence of its regular buyers in Europe and Asia.


The operator of the terminal ExxonMobil had said that the reason for the force majeure was a "system anomaly" but earlier that week, the Niger Delta Avengers, had claimed an attack on the Qua Iboe export pipeline.


On June 3, Qua Iboe returned from a four-week force majeure which was called when a drilling rig was accidentally grounded, forcing the grade to halt exports.


Forcados


Forcados, a popular crude export grade, which averages around 250,000-300,000 b/d, has been down since February this year after sabotage on a subsea export pipeline and an attack on the crude supply pipeline.


Traders had initially expected the pipeline to be ready by July or August, but in June, Shell confirmed the pipeline had been hit again, and exports are unlikely to be restart before mid-September, traders said.


The Forcados export subsea export pipeline was attacked in February and has still not been repaired fully, according to traders. Shell then said the new attack and overall deteriorating security situation meant it had no estimate of when it would lift the existing force majeure on Forcados exports.


The Forcados pipeline, operated by Nigerian Petroleum Development Company, a subsidiary of state-owned Nigerian National Petroleum Corp, has, like other major Nigerian crude export pipelines that cross the Niger Delta region, been a target for thieves that siphon crude from the line.


In early-August, Forcados differentials to Dated Brent fell to as low minus 40 cents/b, lowest in 11 and a half years, Platts data showed. The September and October loading schedules for this grade have still not been released, traders said.


Bonny Light


This grade has been on force majeure since August 15 due to the shutdown of the Nembe Creek Trunk Line, which was caused by "a leak," according to terminal operator Shell.


Traders have said that output of Bonny Light has been around 100,000-150,000 b/d since then despite the force majeure as exports continued, albeit with some loading delays.


From January to mid-August, Bonny Light output averaged 6.1 million barrels a month when not under force majeure in 2016, equivalent to about 190,000-220,000 b/d. This is below its usual output of around 250,000-350,000 b/d.


Differentials for this grade have ranged between Dated Brent plus $1.15/b and $1.50/b this month, Platts data showed, as demand for this grade has been stable as there have been no Qua Iboe exports since early-July.


The Bonny Light loading program for October showed exports at 188,709 b/d, according to traders. Bonny Light was recently under force majeure from mid-May to early-July following a militant attack on pipelines.


Brass River


Brass River, a crude blend which comes from various oil fields in the Niger Delta, has been on force majeure since late May due to a pipeline attack.


But traders said that exports are still continuing with production averaging around 100,000-120,000 b/d in the past few weeks similar to levels before force majeure was declared. Traders added that loading delays have reduced substantially in the past month.


"Brass does not have any delays at the moment? the force majeure is still in place but it is kind of a safety cushion for the seller as they do not need to pay demurrage if they do experience loading delays again," a trader said.


"But at the moment it all seems to be running smoothly and there have not been delays for a few weeks now," a trader said.


Brass River differentials have, however, risen sharply in the past few months, as demand for this gasoline, kerosene and naphtha- rich crude has soared due to the lack of Qua Iboe, Forcados and Bonny Light.


Brass River was assessed at Dated Brent plus $1.50/b on August 26, the highest since June 11, 2014, Platts data showed.


Similar levels were heard on this grade in the week ending September 2 too, according to traders.


Dialog with militants


Some analysts have questioned whether it makes sense for oil companies to give clear timeframes on when pipelines will be fixed and production restart because it might encourage renewed attacks.


Nigeria's path to recovering oil output is fraught with challenges as instability in the Delta persists but there have been some positive signs in the past week.


The Niger Delta Avengers militant group said August 29 that it had halted bombing of oil facilities, to allow for negotiations with the government. This was a week after it has agreed on a ceasefire allowing for dialog with the government.


But military action in the oil-producing Niger Delta region has also stepped up in the past two weeks, sparking concern among oil industry officials and Niger Delta community leaders that this could derail peace talks between the government and militants.


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