A tale of two Deltas

Author Ben Winkley

In the delta, it is the best of times and it is the worst of times. Which time it is depends on which delta you can see.

The best times are in the Mississippi delta, where business is booming. The rise in US exports has been swift since the US lifted 40-year-old restrictions on most crude exports in December 2015, and there is more to come.

The worst times are in the Niger delta, where there may be a feeling of deja vu.

At the start of this decade, Nigerian crude exports to the US were running at more than 1mn b/d. Four years later the same flows had fallen to less than one-tenth of that as the rise of US tight oil rendered Nigeria’s similar grades unwanted. That trade has never fully recovered —in the week ending 11 May just 20,000 b/d of Nigerian crude landed in the US, a more than two-year low.

Now Nigeria’s once-loyal customer has become a direct competitor. In that week to 11 May, daily average exports of US crude were higher than Nigeria’s average exports. It has taken record US crude shipments to get to this point but with a big push under way toward improving necessary infrastructure on the US Gulf coast the likelihood is that sort of volume becoming more normal.

US export volumes have gained support in recent weeks from a wider price spread between Brent and WTI. This means the export price at the mouth of the Mississippi is at a sharp discount to that of North Sea Dated. Most Nigerian grades price against the European marker, but are having to compete with crudes priced off the cheaper US benchmark. With freight rates so low that shipowners are struggling to break even, there is little reason for Nigeria’s customers in Europe and east of Suez not to chase a bargain.

Lighter, sweeter Nigerian grades are struggling to find a home in Europe because of a large influx of similar-quality US crude Refiners in India, Nigeria’s main Asia-Pacific customer, have scaled up their purchases of US crude.

So while headlines tell of oil prices at four-year highs, Nigerian crude is having to go cheap. State-owned NNPC has cut its prices for a second straight month, as a sizeable overhang once again builds up.

The Nigerian barrel is suddenly, perhaps even more than its US equivalent, the ultimate price taker. With little or no local demand, Nigeria’s crude is subject to the vagaries of shifting international trade and the whims of other, more powerful producers.

In St. Petersburg this week, Saudi Arabia, the UAE and Russia are likely to discuss a relaxation of over-compliance by Opec and non-Opec producers. More barrels in the market could mean Nigerian differentials must weaken once more. With reliability problems surfacing once again, it is not the best of times in the Niger delta.

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