Page 6 - AfrOil Week 30

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Changing West African flows
Demand drivers are changing, having an impact on West African export ows
WEst AfRICA
WHAt:
iMO rules and us exports are upending west Africa’s traditional ows.
WHy:
Export ows are responding to changes in desirability, as indicated by price.
WHAt nExt:
Asian demand is likely to be the key area of growth.
CHANGING needs are driving shi s in West African oil ows. Two major drivers stand out. e International Maritime Organisation (IMO) 2020 rules, which severely limit the amount of sulphur permitted in marine fuel, are due to come into force in January, but companies need to get ahead of the game and, as such, crude demand is changing. e second factor is that of Us shale ows, which have dislodged West African light sweets from North America and are starting to be felt further a eld, including in Europe.
Emission controls
On January 1, the IMO requires shippers to abide by a 0.5% sulphur cap on marine fuels – a regulation with global scope. ere are a num- ber of ways to abide by such a shi but the most popular, at least in the near term, is to shi from high-sulphur fuels to low-sulphur ones.
According to some industry projections, the shi would remove the demand for as much as 3-4mn barrels per day (bpd) of high-sulphur bunker fuel oil. e International Energy Agency (IEA) has predicted that around 30% of the need for newly compliant fuel will come from marine gasoil, while another 30% will come from new low-sulphur fuel blends.
Alternatives include the installation of scrub- bers, or even conversion to running on LNG, but this is likely to be a smaller part of the pie. A mid- July report from Vortexa, one of the new breed of satellite data analytics, noted changes in the demand for Chad’s heavy sweet Doba crude.
Li ings of this oil are dominated by re ners focused on producing very low-sulphur fuel oil for bunkering. “We expect continued demand from the Fujairah and Rotterdam bunkering and blending hubs, as well as from the Us Atlantic coast,” it said. e crude’s characteristics are ideal for production of 0.1% sulphur bunkers, or for use as a blending base for 0.5% bunkers.
Furthermore, production of the crude has been stable and even increasing, reaching 110,000 bpd in the rst half of the year. Vortexa noted unusual shipments in July to the Bahamas – redirected following a re at a re nery in Phil- adelphia – and to Wilhelmshaven, in Germany.
Demand continues to be dominated by sup- plies to China, though, which has taken around 38% of this year’s production, followed by the United Arab Emirates’ Fujairah hub.
Interest in the crude has seen prices rise, from a discount of $12 per barrel to Brent a year ago to around $2 per barrel. It even traded at a
premium to Brent in March, although August cargoes appear to be at a slight discount.
shale’s spread
e Us’ shale boom has catapulted the coun- try to the unlikely role of energy superpower. According to the Energy Information Admin- istration (EIA), exports reached 2mn bpd in 2018, nearly double the 1.2mn bpd recorded in 2017. Asia and Europe are the top importers of Us crudes. As of April 2019, the country was exporting 2.84mn bpd, with 305,000 bpd going to the Netherlands and 152,000 bpd to the UK.
e rise of Us exports has rattled some West African producers, most notably Nigeria. As such, it is of little surprise the Nigerian National Petroleum Corp. (NNPC) should have recently announced deals to work more closely with Indonesia’s Pertamina and India.
NNPC’s new head, Mele Kyari, held a meet- ing with the Indian commissioner in Abuja, Abhay akur, recently, following a memoran- dum of understanding (MoU) between the two countries. Kyari said NNPC was keen to increase its energy co-operation with India. “Every trade opportunity that is available will be fully explored,” Kyari said.
NNPC had recently renewed oil term con- tracts with three Indian companies, including Hindustan Petroleum Corporation Ltd (HPCL). India is ready to provide credit lines and exper- tise, the commissioner said.
NNPC’s Kyari held a meeting with Indone- sia’s ambassador, Usra Hendra Harahap, last week. e Nigerian company is keen for Per- tamina to provide assistance in opening up new opportunities for its hydrocarbons “in the face of [an] unpredictable global market”.
Indonesia did have an oil li ing contract, but this ended in December 2018. e Indonesian ambassador expressed interest in restarting sup- plies, praising the qualities of Nigerian crude.
China too is working on securing supplies, although it has historically tended to take crudes from other producers in the Atlantic Basin, such as Angola and Chad, in addition to Brazil. Flows can move the other way, of course, with Reuters reporting last week that as a result of China’s re ning glut it would be exporting product car- goes to Nigeria in July and August.
Demand shi s are critical to export ows, but much rests on the economy’s prospects. Eco- nomic woes in Asia would have a direct impact on Nigeria’s plans, but also on shipping and therefore Chad’s.™
ImpoRts:
The us’ domestic re ning capacity, in the heartlands of the Gulf Coast, are complicated facilities capable of processing heavy crudes, designed for ows from Mexico and venezuela. both these sources have declined, though, and shale is light and sweet.
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w w w . N E W S B A S E . c o m Week 30 30•July•2019