The decision by the Nigerian National Petroleum Corporation (NNPC) is seen as part of efforts to check incidences of oil theft, but now seems to be scaring away vessel owners from the nation’s waters to lift crude oil.
A report by Reuters quoted oil traders and shipping brokers as complaining that a newly implemented “letter of comfort” requirement from Nigeria, under which vessel owners must sign a guarantee that their ships will not be used for theft has made it more difficult and expensive to load Nigerian crude, putting some buyers off.
According to the report, a copy of the letter to vessel owners by NNPC requires vessel owners to ‘guarantee to indemnify’ the government and the corporation against any illicit use of their vessel, which led some owners to reject pending bookings. Traders say others are refusing future requests for now.
The report quoted the head of refineries at India’s HPCL, K. Namdeo, as saying: “Nobody is coming forward for offering the vessel and whoever is willing to go to Nigeria is asking exorbitant rates. They would “be cautious in future” about buying Nigerian crude.
It noted that tanker owner Heidmar rejected an HPCL Nigerian fixture due to insurance concerns over the letter, saying that finding a replacement proved difficult.
It also noted that a tracking data had shown that provisional fixtures for MT Solana, a vessel, sailing to West Africa for HPCL, turned away from Africa, and is now en route to the Bahamas without oil.
Talk911 Nigeria said in the report that some European buyers are also now treading carefully with Nigeria, noting that an oil trader for one Mediterranean refiner said they “will not touch a single drop of Nigeria crude until this matter on the letter of comfort is solved.”
There is also an insinuation that NNPC might use the letter arbitrarily to seek penalty for breach of local law.
The report noted that Oil tanker industry association INTERTANKO said the letter as drafted would give Nigerian authorities a “blank cheque” for any perceived violations.
“NNPC’s guarantee terms would allow the Nigerian authorities to impose an arbitrary penalty for breach of local law – of which owners might be unaware – and then demand an indemnity for their losses without the need to prove any loss,” said INTERTANKO’s General Counsel Michele White, adding that “owners’ insurance would not respond to that.”
Shipping sources, it noted, said that in addition to Heidmar, Asian companies China Shipping and AMCL will not call at Nigerian ports for the time being, nor will Greece’s Chandris.
According to the report, this action has contributed to a marked rise in freight; noting that JBC Energy said the cost of booking a Suezmax tanker from West Africa to the United States spiked by 80 cents late last week to $2.75 per barrel, while rates for Very Large Crude Carriers (VLCCs) to Asia rose by 20 cents to around $3.40 per barrel, adding that the increase could deter buyers.
“It’s making the arbitrage less workable,” said Eugene Lindell, JBC’s senior crude market analyst. “This ultimately means the crude prices would have to be depressed so you can shift the barrels.”
In a country staring down a potential oil price collapse-induced recession, any hit to income is a problem.
Head of energy research with Ecobank, Dolapo Oni, said “The revenue impact will be significant. Due to the expensive freight, we are likely to see differentials weaken considerably, which means we could have lower revenue than normal.”
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