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Sunday, January 27, 2013

NIGERIA - Budget 2013 - impact of bunkering on Excess crude oil account and Economy

author thomas ramseyer
Nigeria: Excess Crude Account Not Growing Enough, Okonjo-Iweala, Minister of Finance and the coordinating Minister of Economy

Nigeria's Excess Crude Account is not growing as it should because of bunkering activities in the Niger Delta
Remark: The Excess Crude Account's growth is based on oil prices ralized as well as the volume of oil output.

Dr. Ngozi Okonjo-Iweala says that oil bunkering is affecting revenue projection for the year.

Remark: Oil bunkering is affecting revenue projection only because the said bunkering is not included. As bunkering has emerged since the price spread between Brent (Bonny Light) and WTI widened two years ago, it has been predictable. It is naive to not take this activity into consideration when budgeting.

The Excess Crude Account has risen from $3.6 billion last month to $4.2 billion currently. Minister said the balance in the account should be higher because price of oil at the international market is rising.

Remark: When estimating the excess account's growth following formula is applicable: (bbl-output * price of Brent oil * 83%)-(bbl-output * benchmark price)

This is a time of high oil prices and we should be expecting more in the Excess Crude Account.
Remark: What is she talking? Does she want to teach people arithmetics?

The Nigerian National Petroleum Corporation reported that as at April, it lost 17 percent of output to bunkering.

Remark: where does NNPC get its information from? The bunkering must be going on right at the pump

It was reported that a boat was caught carrying about 1.3 million barrels of oil illegally. 
Remark: the aforesaid boat is to be considered sacrifice for the sake of news. The bunkering supposedly is taking place on a regular basis meaning that all of the tankers are loaded by roughly 20% more oil than billed.
For bunkerin 1.3 Million bbl which are 2
06000 tons there is Very Large Crude Carrier (VLCC) or Ultra Large Crude Carrier (ULCC) needed. To do this facilities such as on Bonny Island are needed. 206000 tons on one carrier is big time bunkering protected by a sophisticated network infiltrated in the Nigerian upstream oil business.

  • 160,000–319,999 DWT:   Very Large Crude Carrier (VLCC)
  • 320,000–549,999 DWT:   Ultra Large Crude Carrier (ULCC)
Government's oil output projection was 2.5 million barrel per day for the year 2012.
Remark: Thus bunkering counts for some 425'000 bbl/day.

One fifth of production missing to bunkering certainly affects revenue projection.

Remark: (153'000'000 bbl/year or USD 17'136'000'000 per year or NGN 2'690'532'270'000 per year)

Nigeria just needs people to stop bunkering says the minister.
Remark: Nobody will believe that 425'000 bbl/day are stolen off pipelines. This just is a farytale to mislead ignorant people in NIgeria as well as all over the world. The minister is just looking like never having stepped one foot out of her airconditionned environment to visit e.g. Bonny Island to check on procedures and workflows.

To stop bunkering Okonjo-Iweala  in the first place must understand bunkering. It is too easy to blame some activators in the Delta Region.
When looking at the market conditions - Brent trading far above WTI - it is evident tht Nigeria since quite some time would not have been able to sell its oil in the world markets. Nigerian Oil-contracts outline that a certain amount of oil is to be sold on a monthly bases at the brent oil market price of the delivery date. Common sense says that NOBODY is buying oil at a price trading systematically USD 10 to USD 20 above WTI. Oil companies considered Bonny Light (tagged to Brent because of its similar quality) too expensive since the spreadwidening started in 2010.
SEE possible TRUTH
As the example below is showing bunkering may be used to offset the pricespread Brent/WTI by simply bunkering the price difference on top of each load in form of additional barrels of oil not stated on the bill.

E.g. Billing 100 bbl at USD 112 equals 117 bbl at USD 95.7

Bloomberg: Nigeria February Exports to Rise

Bunkering explained ???
crude oil versus brent 

Longterm Chart WTI vs Brent

since October 2011 Brent has been substantially above WTI. 

95.90 / 112.80 = 0.850177305

Brent Crude 
WTI - West Texas Intermediate
Bonny Light
How many barrels of crude oil in one MT? by Robert Fogt on 07/14/03 at 21:27:32 
Petroleum has a specific gravity of 0.88
which means 
1 liter weighs 0.88 kilograms. 
From the volume page we know that: 
 1 barrel [US, petroleum] = 158.9872972 liter 
So 1 barrel weighs: 158.9872972 * 0.88 = 139.908821536 kilograms 
1 metric ton is 1000 kilograms: 
kg 139.908821536 / 1000 = 7.1475121 barrels 
Barrel 7.1475121 = 1 metric ton
correct specific gravity 0.88

1.3 million barrels  =   tons 206'683.486

Oil Tanker capacity
  • 10,000–24,999     DWT:   General Purpose tanker
  • 25,000–54,999     DWT:   Medium Range tanker
  • 55,000–79,999     DWT:   Long Range 1 (LR1)
  • 80,000–159,999   DWT:   Long Range 2 (LR2)
  • 160,000–319,999 DWT:   Very Large Crude Carrier (VLCC)
  • 320,000–549,999 DWT:   Ultra Large Crude Carrier (ULCC)
Definition of 'Excess Crude Account'

A Nigerian government account used to save oil revenues above a base amount derived from a defined benchmark price. The Excess Crude Account was established in 2004, and its objective is primarily to protect planned budgets against shortfalls due to volatile crude oil prices. By delinking government expenditures from oil revenues, the Excess Crude Account aims to insulate the Nigerian economy from external shocks. 

Investopedia explains 'Excess Crude Account'
Surging crude oil prices led to the Excess Crude Account increasing almost four-fold, from $5.1 billion in 2005 to over $20 billion by November 2008, accounting for more than one-third of Nigeria's external reserves at that time. By June 2010, the account had fallen to less than $4 billion due to budget deficits at all levels of government in Nigeria and the steep drop in oil prices. In 2010, Nigeria's National Economic Council approved a plan to replace the Excess Crude Account with a national sovereign wealth fund.


Read more:

NIGERIA - Petroleum Industry and History  

Nigerian oil market to implode - international firms to leave niger delta 

Jonathan Budget presentation 2013

Nigeria: The 2013 Budget