Bad luck for Goodluck

Author Ben Winkley

If it’s a difficult time to be in the oil business anywhere, it’s plain miserable to be in Nigeria.

If it’s a difficult time to be in the oil business anywhere, it’s plain miserable to be in Nigeria.

The value of the Nigerian naira has fallen in lockstep with the price of crude since June last year. The currency has lost more than a fifth of its value against the US dollar since the middle of 2014 and is now on the tenth straight day of a losing streak — the longest since the Russian rouble crisis of August 1998 shivered currency markets across the globe.

Nigeria’s really shaking now, but it’s been quivering for a good few years. West Africa was among the first oil producing regions to feel the full force of US crude output expansion, some time before the tremors from the Bakken, Eagle Ford and Permian began to be felt in Riyadh and the Gulf states. Around 1mn b/d of Nigerian crude was sent to the US as recently as 2011 — now that has diminished to nearly nothing as the sort of light, sweet crude that attracted companies like Shell, ExxonMobil and Chevron to the Niger delta is virtually unwanted on the US Gulf coast.

Nigeria has fallen from being the fifth largest supplier to the US in 2011 to the eighth in 2013. It has sought new markets in Asia-Pacific, but faces stiff competition there from aggressive price discounting by Mideast Gulf producers. The market for Nigerian crude is settling into a pattern — Asia-Pacific refiners buy further ahead than those in Europe and the US, leaving an overhang of mostly Nigerian grades that depresses prices and eventually attracts bargain hunters.

So, few buyers — even at lower prices — for the oil that makes up more than 90pc of total export revenue. Couple this with the violence in the north, where Boko Haram is waging a brutal campaign against anything that moves, and the six-week delay to the general election and no wonder the naira is under so much pressure.

For producers, perennial concerns remain about governance. Accusations by a former central bank governor of enormous graft at state-run NNPC were dismissed this week by the government.

And it could yet get worse. Continued peace in the Niger delta may depend on the outcome of the delayed poll. Incumbent president Goodluck Jonathan was the erstwhile rebels’ choice for leader. A change may lead to escalating unrest in a region where festering concerns linger around security.

Nigerian output fell by 120,000 b/d in January, when sabotage attacks led to temporary closures on the oil pipelines carrying the Forcados, Escravos and Bonny Light grades, resulting in export disruptions. Shipowners are reviewing their terms for calling at Nigerian ports after an attack this month on the VLCC Kalamos, while moored at the Qua Iboe offshore terminal.

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