Crude Oil Theft: Experts Canvass Change Of Crude Trade Policy

As Crude Carriers Shun Nigeria Waters Over NNPC Conditionality
THE refusal by some crude carriers to lift Nigerian crude oil because of the new requirement involving presentation of Letter of Comfort from their owners, has led to some stakeholders clamouring for a change of trade policy with Nigeria’s foreign trading partners.

Specifically, they urged the Federal Government to use the opportunity to change crude trade policy from Free On Board (FOB) to Cost Insurance and Freight (CIF)

Under CIF policy, Nigeria will be required to deliver crude to all her customers, using own or chartered vessels, unlike the present arrangement when the buyers provide their own vessel to lift crude from the country.
Trade experts said CIF is the modern trade policy, adding that Nigeria remains the only country in the world still adopting FOB as a trade policy, especially for wet cargoes, like crude.

The Government had banned 113 Very Large Crude Carriers (VLCC) from engaging in crude and gas loading activities in any of the terminals within Nigerian territorial waters. The Nigeria National Petroleum Corporation (NNPC) defended the action, saying it was ordered by President Muhammadu Buhari. The ban was aimed at curbing the theft of the Nigerian crude oil.

But the vessel owners, through International Association of Independent Tanker Owners (INTERTANCO) protested the ban, saying the Nigerian authorities failed to substantiate the allegation of crude oil theft against the vessels.

“Intertanko protests in the strongest possible way that these bans should be lifted with immediate effect until grounds and evidence for the ban have been given to each vessel and vessel owner/operator, and the owner/operator has had an opportunity to respond,” said Intertanko general counsel Michael White in a letter addressed to Gbenga O. Komolafe, the Group General Manager (GGM) of NNPC’s crude oil marketing division recently.

The government later lifted the ban after over one month, with a caveat requiring vessels owners to provide Letter of Comfort to guarantee that the ships will not be involved in illegal activities while in Nigeria. The ship owners, however, described the condition as unfavourable.

The move by the government to curb crude oil theft by imposing strict conditions on vessels wishing to lift Nigeria’s crude is threatening the exports of the country’s crude oil, as many vessels, especially those from Asia are now beginning to shunned the country’s territorial waters. The vessels owners described the condition as unfavourable.
“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,” White said, adding that “owners’ insurance would not respond to that.”

Nigeria had, before now, planned to export about 68 cargoes of about 2.04 million barrels per day (totalling 63.1 million barrels) of crude oil this October.

The provisional loading programmes showed that Shell is expected to export seven crude oil cargoes of 221,000 bpd (a total of about 6.85 million barrels) of Bonny Light in October, but the recent development may have jeopardised that arrangement.

According to the loading programme, Agbami is expected to load eight cargoes with a total of 7.8 million barrels for the month of October; Amenam, three cargoes (2.85 million barrels); Bonga, seven cargoes (6.65 million barrels); Bonny seven cargoes (6.85 million barrels); Brass River, five cargoes (4.11 million barrels); EA, one cargo (0.95 million barrels).

Also, Ebok is planned to export one cargo (0.65 million barrels); Erha, three cargoes (2.99 million barrels); Escravos, six cargoes (5.7 million barrels); Forcados six cargoes (5.7 million barrels); Okono one cargo (0.9 million barrels); Oyo one cargo (0.65 million barrels); Qua 12 cargoes (11.4 million barrels); Usan three cargoes (three million barrels); Yoho two cargoes (1.9 million barrels) and Okwuibome one cargo with a total of 0.3 million barrels in the month.

Reuters reported during the week that oil traders and shipping brokers said the “Letter of Comfort” requirement 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 oil, putting some buyers off.

The news agency said a tanker owner, Heidmar, refused to lift Nigerian crude oil, for India’s Hindustan Petroleum Corporation (HPCL) due to insurance concerns over the Letter of Comfort being demanded by the NNPC.

Asian shipping company, China Shipping and AMCL, as well as Greece’s Chandris were alleged to have refused to call at Nigerian ports for the time being over the same issue.

With the refusal of Heidmar to lift the Nigerian crude oil for India’s HPCL, it was gathered that the Indian refiner plans to use two Suezmax vessels for the journey, and this will potentially add to costs.

MT Solana, which was sailing to West Africa for HPCL, was also said to have turned away and is now en route to the Bahamas without loading Nigerian oil. An oil trader for one Mediterranean refiner was also quoted by Reuters as saying that they “will not touch a single drop of Nigeria’s crude oil until the matter on the Letter of Comfort is solved.”

It was also reported that some European buyers are also now treading carefully with Nigeria.
This development was said to have contributed to a marked rise in freight with the cost of booking a Suezmax tanker from West Africa to the United States rising by 80 cents late last week to $2.75 per barrel, according to JBC Energy.
Also, rates for Very Large Crude Carriers (VLCCs) from West Africa to Asia rose by 20 cents to around $3.40 per barrel, a development, which could deter buyers.

“It’s making the arbitrage less workable,” Eugene Lindell, JBC’s senior crude market analyst, said,

“This ultimately means the crude prices would have to be depressed so you can shift the barrels,” head of Energy Research at pan-African lender, Ecobank, Mr. Dolapo Oni, told Reuters.

The Executive Secretary of Nigerian Shippers Council, Mr. Hassan Bello advised Nigeria to start looking inward, by developing indigenous shipping capacity through the creation of enabling environment to encourage Nigerians to invest in crude carriers.

“The government should promote capacity in vessel ownership and management in Nigeria. We should begin to start thinking of how to operate and manage merchant vessels and be trading internationally to avoid this kind of situation in the future. The move, no doubt comes with enormous benefit to the country. The earning from freight by the country will be unimaginable; it could be in billions of Dollars every year. This would trigger the development in ship building and repair with resultant economic boom, besides the creation of employment and specialization that will follow,” he said.

Listing the advantages of indigenous carriers, Bello said it would eradicate deficit in transport infrastructure, ensure security of the nation and the multiplier effect on other services like bank and insurance.

According to him, Nigeria would only enjoy all the benefit by changing its trade policy to enable Nigerians participate and invest in vessels for international trading business.

“Government must initiate policy to enable capacity building. For example, government should change carriage of crude on CIF rather than FOB. NIMASA should be empowered to carry out its statutory duties of developing indigenous capacity. The duty of NIMASA is to encourage vessel acquisition and management by Nigerians,” he said.

Captain Dada Olaniyi Labinjo, Managing Director of Aldwood shipping company Limited, urged government to use the opportunity to change her trade policy to avoid theft of the country’s crude oil.

The master mariner described the action by VLCC owners as an attempt to blackmail Nigerian government, so as to continue their nefarious activities in the country.

He said Nigeria has about the best crude oil, in terms of quality, adding that many other vessel owners would soon be scrambling to take over their position if they continue to boycott the Nigerian territorial waters for crude oil lifting activities.

“Those ships were not on contract with Nigeria. Those who wanted to buy our oil brought them in. As they come, they have no objective than to steal our oil in pretense of buying our crude. They do this stealing in connivance with unpatriotic Nigerians. All these are pressures on government and the government must not succumb to their pressure. We have quality product and if they don’t come, others will be ready to come because people must buy our oil. There are over 50, 000 vessels carrying goods from one country to another all over the world, so the 113 vessels put together is a negligible number. They have gone to hide under INTERTANCO. So government should close its eyes to their threats, he said.

According to the Master Marina, government should use this as an opportunity to change its trade policy from FOB to CIF and empower Nigerians to do crude carriage by creating the enabling environment for them to grow.

He said no reasonable investor would be willing to invest in an environment where policies are unstable and unfavourable.

“An investor is a dreamer. If you use millions of naira to buy a ferry, it is because you believe there are passengers for you to carry. But if you buy it and there are no passengers, you lose your money. If you enabled NIMASA, NIWA, LASWA to devour investors because of their overlapping functions and all of them are charging, this is not the enabling environment. When government is afraid that if it takes a measure there will be glut, a coinage of the English man, even if there is scarcity of fuel, Nigerians will see an opportunity in it to invest. So they can go to hell and nothing will happen to us. Market forces not vessels cause the glut in the market. Nobody will be ready to invest $110 million on ship and there will be no crude to carry. That person will commit suicide, if the trade policy changes, Nigerians will invest in crude carriers. You need to change trade policy and that change is the enabling environment. The change in policy must be enduring too and it must not change arbitrarily.”