Showdown In Nigeria

Jim Brown
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Nigeria was placed on the list of terrorist nations by the White House this week and that did not sit well with the Nigerian government. Why do we care? We care because the U.S. imports one million barrels per day of light crude from Nigeria. Or at least we have in the past.

Nigeria produces 1.7 mbpd of light crude and 1.0 mbpd comes to the USA. President Obama placed Nigeria on the terror list after the Nigerian man tried to blow up the plane over Detroit on Christmas Day.

Nigeria's National Assembly reportedly has threatened to announce a break of diplomatic ties with the U.S. within one week if the country is not removed from the terror list. This would be a last resort to diplomacy but rumors are strong that it is being considered.

The loading schedule for tankers destined for the USA shows that 55 million barrels are expected to be loaded in January. That averages to 1.931 mbpd. Nigeria has a 1.673 mbpd OPEC export quota so obviously they were cheating.

Nigerian crude is the light sweet crude favored by U.S. refiners because it produces the best gasoline with the least effort.

China is reportedly lining up to take over the shipments previously destined for the USA if Nigeria halts shipments to the USA. China's demand surged 18.7% in November and a similar number in December. China's current oil demand is 8.22 mbpd.

Nigeria is also troubled with MEND rebels (Movement for the Emancipation of the Niger Delta) attacking oil facilities. There had been a truce over the last few months and oil production was increasing and hit a record of 2.2 mbpd. That truce broke down in December and the rebels are again attacking pipelines and production facilities. Before the truce production had fallen to 1.3 mbpd. Current production halts are costing Nigeria about $1 billion per month in lost oil revenues.

Both Shell and Chevron, the two biggest companies operating in Nigeria, have asked to leave the country. They are fed up with the government no longer being able to provide security for their facilities and crews.

Chevron shut down the Makaraba-Utonana pipeline in Delta State on Tuesday following an attack on a 20,000 bpd facility over the weekend. Five days earlier four of Chevron's workers were killed in another incident.

It will be interesting to see if President Obama backs down from the terror nation listing once he understands that oil will be difficult to replace. Additional oil is available on the market but it is different crude types and not the light crude refineries want. This is not a major concern for the market because it will simply change who gets what oil from whom. It is a concern for the U.S. because it will turn another nation against us as well as deprive us of the light crude.

Jim Brown