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NIGERIA - The Chinese Scramble.

Because of their diesel- and gasoline-rich qualities, Nigerian crudes are much sought after by refiners from both side of Suez. Chinese companies, scrambling for light/sweet crudes from Nigeria and other West African countries, have offered to invest in Nigeria's refining sector and IPPs in return for long-term crude oil supply agreements and E&P blocks. NNPC is giving preferential treatment in its 2005 offering of E&P blocks to bidders having pledged to invest in the downstream sector (see DT No. 6).

China, having become the world's second biggest oil market next to the US, was in April visited by President Olusegun Obasanjo who called for closer ties with Beijing in the petroleum sector. His talks with Chinese leaders focused on Beijing's concern over the long-term security of Chinese energy imports.

Chinese companies, including trader giant Sinochem, are major buyers of Nigerian crudes from the spot market. Refiner Sinopec and CNPC's unit PetroChina are lifting 80,000 b/d of crudes under term contracts with NNPC and other volumes of Nigerian crudes from the spot market.

China's third largest oil firm, China National Offshore Oil Corp. (CNOOC) in April opened offices in London to bring it closer to potential targets in West Africa and the Middle East. It intends to bid for deep-water blocks in Nigeria and other West African countries. CNOOC made a splash recently when it made a second bid for Unocal, the ninth largest US oil company by reserves. Its first bid for Unocal had followed CNOOC's purchase of MEG Energy Corp., representing a small stake in Canada's vast oil-sands deposits. CNOOC expanded its drilling operations from China into Indonesia when it acquired Repsol/YPF's oil and gas fields there in 2002 (see survey of Indonesia in Vol. 64, No. 10).

China's surging oil demand caught world oil producers off guard last year and has helped underpin high oil prices. Demand in 2005 is forecast to slow down to about 9% from last year's breakneck growth rate of about 16%. China's crude oil imports in 2004 topped 122.72m tons (2.46m b/d). The figure, up 34.8% from 2003, breached the full-year tally above 100m tons for the first time.

Saudi Arabia continues to lead a long list of China's crude suppliers, shipping 17.24m tons in 2004, up 14.3% from 2003. Angola delivered 16.12m tons to China in 2004, or 59.5% more than in 2003. African countries - 11 made the imports list, two of them for the first time - supplied a total of 35.2m tons, or 28.7% of China's imports. This has overshadowed China's crude intake from Russia, which doubled last year to 10.77m tons. Nigerian and other African crudes have a lower sulphur content than Middle Eastern grades, which need to be treated for processing into clean fuels such as diesel, gasoline and jet kerosine.

NNPC's marketing division sets its official selling prices (OSPs) for its seven export crudes at the level of Dated Brent, plus a premium, and in advance. It charges another premium for deferred pricing. The latter premium for August liftings for all seven crudes is $0.02, down from $0.03 in July.

Excluding the deferred pricing premium, the August OSPs are at premia over Dated Brent of $1.00/b (up from $0.60 in July) for Bonny Light; $1.05 (up from $0.65 in July) for Brass River; $0.80 ($0.50 in July) for Amenam; $1.00 (up from $0.60) for Qua Iboe; $2.75 ($1.60 in July) for Penington; $0.90 ($0.50 in July) for Forcados; and $0.60 ($0.35 in July) for Escravos.

In November 2004, NNPC refused to set December and January OSPs below Dated Brent, despite falling spot market differentials for Nigerian crudes. As a result, some traders reselling term supplies bought from NNPC at OSPs incurred losses - over $1m each on cargoes resold on spot basis. Term clients later had to link spot sale prices to the OSPs. Only the main traders managed to avoid incurring losses, by selling to refiners such as those of China.

NNPC's display of market power has upset trading clients who resell term crudes to the spot market. Petroleum Argus on Feb. 21 quoted one trader as saying: "Sellers have become scared of doing anything unless they can sell on an OSP-related basis. The situation is not good for anybody, but we have no choice. This is all a consequence of NNPC policy, which does not allow the OSP to fall below parity to the [Brent] benchmark even when the market is well under that".

Shell's crude oils are blended into three export grades: Bonny Light, 37.6[degrees] API with 0.13% sulphur, a gasoline-rich blend also known as Nigerian Light; Bonny Medium (or Nigerian Medium) 25.7[degrees] API with 0.24% S, also rich in gasoline and diesel/gasoil; and Forcados, 30.5[degrees] API with 0.2% S, rich in diesel/gasoil. The three blends are popular among European, US and Asian refiners.

Shell has two terminals: Bonny Island, which is 42 years old, and Forcados. Shell is upgrading and expanding Bonny and Hyundai of South Korea is doing the work under a $480m turnkey contract. When complete in 2006, the project will enable Shell to export up to 1.5m b/d from Bonny.

ExxonMobil's crude oils are blended into Qua Iboe, 37[degrees] API with 0.1% S. Its Oso condensate is a far lighter, almost sulphur-free liquid. Both are exported from ExxonMobil's Qua Iboe terminal.

Chevron's blend is Escravos, 36[degrees] API with 0.2% S. This is shipped by SBM from the Escravos terminal on the mouth of the Niger Delta. The terminal has been partly improved.

Agip has the most popular blend, Brass River, 43[degrees] API with 0.1% S. This is shipped from the Brass River terminal in the Niger Delta.

Total's JV has the Amenam light/sweet grade, plus a variety of crude oils mostly of the Bonny Medium type. But the include the Odudu grade which is similar to Bonny Light. The French major exports from the offshore Odudu terminal, close to Qua Iboe and Oso.

Texaco's blend is Pennington, 38[degrees] API with very little sulphur content. This crude, which commands the highest premium, is shipped from the Pennington terminal on the Apoi offshore platform.

Among producers under PSAs, Agip exports its share of an offshore venture separate from its Brass River JV with NNPC. A joint blend of crudes is exported by Addax, a Swiss-based firm operating fields sold by Ashland, and Monipulo Petroleum which is a small local firm producing oil from an offshore platform near Antan of Addax.

Petrobras and NNPC on Aug. 15 were expected to sign an agreement on increased co-operation. This will include Petrobras' export of ethanol fuel from sugar cane in Brazil to Nigeria to be blended into gasoline in the west African country. This is an important development for both countries as the Brazilian ethanol is an ultra-clean fuel for motor vehicles. Brazilian ethanol can become the idea fuel for big and highly polluted Developing World cities, such as Tehran.

The Brazilian news agency, Agencia Estado, on Aug. 9 reported that Petrobras intended to boost its international oil and gas output to 350,000 b/d of crude oil equivalent by 2009. Petrobas now was producing about 260,000 b/d oe now, the agency quoted Petrobras' Nigerian General Manager Samir Awad.

For a boost in Nigeria's offshore E&P, Petrobras is to spend $1.9 bn in the next four years. NNPC in May authorised development of the deep-water Akpo in Nigeria's OML 130 block, in which Petrobras holds 16%. Total is the operator of the field with 24% equity. The companies are to receive their share of Akpo's output when this comes on stream in 2008. Akpo should quickly reach its plateau capacity of 225,000 b/d oe. The field will produce natural gas as well. Petrobras also has a stake in Agbami, another deep-water giant off the Nigerian coast which is operated by Chevron (see Gas Market Trends No. 6).
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Publication:APS Review Oil Market Trends
Geographic Code:9CHIN
Date:Aug 15, 2005
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