Russian Oil Exports Threaten OPEC’s Output Freeze Deal


•Independent marketers offer to partner NNPC on importation

Ejiofor Alike with agency reports and Chineme Okafor in Abuja
Russia is set to export more crude oil to Europe in April than it had exported in any month since 2013, thus threatening a global agreement between the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC members on freezing production in a bid to lift the price of crude oil.

This development, Reuters has reported, illustrates how hard it would be to enforce the forthcoming agreement that is due to be finalised on April 17 in Qatar.
It also shows the potential for countries to use loopholes to keep exporting crude, and erode the intended impact on prices.

This is coming as the price of Brent crude oil slumped by 2.3 per cent on Thursday and West Texas Intermediate, the US benchmark price for crude oil, lost by 2.7 per cent.

Crude oil prices are down nearly five per cent from Monday for one of their worst weeks of the year.
Moscow said the agreement on freeze between OPEC and non-OPEC covered only production and not sales abroad, hence the country can raise exports while keeping production flat by re-routing some crude oil away from refineries and into exports.

The International Energy Agency (IEA) said on Wednesday that the deal may be meaningless, while Iran and Libya have said they will not participate, at least for now, and they also plan to raise production.

Nigeria’s Minister of State for Petroleum, Dr. Ibe Kachikwu, said the country expected oil exporters to agree a supply freeze in Doha next month but that the country also plans to boost its own output.
The increase in Russian exports is mainly because of planned maintenance at refineries that reduced their capacity to process crude oil.

Reports that members of the Organization of the Petroleum Exporting Countries as well as non-OPEC producers were discussing an output freeze have helped lift world oil prices from glut-induced 12-year lows hit in January.
Asked what would be covered by the agreement, Russian Energy Minister Alexander Novak told reporters: “The discussion is only about freezing production. And not exports.”
The high level of Russian oil exports next month was confirmed to Reuters on Wednesday by export pipeline monopoly Transneft.

According to the company, Russia is set to export 7 million tonnes from Baltic Sea ports in April, the largest volume since October 2013. That marks a nine per cent increase on the 6.41 million tonnes planned for export in March.
Oil prices tumbled by over two per cent per cent on Wednesday, with the US’s Energy Information Administration (EIA) saying that crude stockpiles rose 9.4 million barrels last week.

Oil prices have rallied about 50 per cent over the past two months. While declining U.S. oil output and strong gasoline demand drove some of the gains, the bulk was powered by OPEC and other major producers’ plans to freeze production at January’s highs.
Kachikwu was confident crude prices would stabilize after the producers group agrees to a supply freeze in Doha next month.

Meanwhile, the Independent Petroleum Marketers Association of Nigeria (IPMAN) has offered to partner the Nigerian National Petroleum Corporation (NNPC) to import petrol.

The partnership decision followed Wednesday’s declaration by the Minister of State for Petroleum, Kachikwu that the protracted scarcity of the product across the country could continue for a very long time because the burden of importation was weighing heavily on the corporation.

The National Secretary of IPMAN, Danladi Pasali, told THISDAY yesterday that the association was capable of ending the scarcity within two weeks if the NNPC was willing to engage with the association and its plans.
Pasali noted that IPMAN, with its large membership base could help ease the scarcity if the government curbs the unhealthy bureaucracy in the management of the downstream sector.

He said the association had presented its position to the government but the government had remained adamant on it.
“IPMAN controls almost 80 per cent of the stations in the country, stakeholders should be consulted and meetings held.

They should allow people to bring in products. We have partners that are willing to come in with products and the government must be willing to open up, there is no way we will continue to wait for this. I want to believe the minister didn’t mean that we will wait for this long. The whole issue is that the government tried to do direct-sale-direct-purchase programme, we have partners across the world that need Nigeria’s crude and they are contacting us all the time, now, we are asking the minister to wipe out all these bureaucratic bottlenecks and allow people with the capacity to bring in refined products, and we don’t need CBN forex in this situation because it is going to be direct-purchase-direct-sales,” Pasali explained.

“We will review the situation even though we have presented our position to the minister earlier. NNPC is importing 100 per cent but we are insisting that we can correct this issue within two weeks. There is no issue in it because we know the problem” Pasali added.

Another downstream operator, who spoke to THISDAY on condition of anonymity, said the government had from the onset shot itself on the foot by tightening importation of petrol by marketers.
He said by doing that against the policy of the last government of Dr. Goodluck Jonathan which liberalised importation and reportedly failed to exert some good controls, the present government had already lost some marginal advantage it would have gained in products availability.

He noted that the marketers were abiding by the forex rules of the Central Bank of Nigeria (CBN), and only importing products according to what amount of forex was provided to them by the CBN.
According to him, Kachikwu by his Wednesday declaration has only showed the country’s vulnerability in security of petrol supply. “What he has done is to put out the hazard, it is a hazardous warning of what it could be for a long time,” he added.

Similarly, an oil and gas expert, Mr. Dan Kunle, stated that given the country’s poor showing with its refineries, products importation and scarcity could linger beyond the minister’s projection.

Kunle explained that with a focused team and budget, it would take Kachikwu at least 18 months to repair the country’s three refineries in Kaduna, Port Harcourt and Warri and produce maybe 70 per cent of their capacity.

He noted that unless holistic repair works on the refineries are done, the reported unit-by-unit repairs will not bring them to work well, adding that as long as importation persists and NNPC is unable to fix its distribution logistics, there would be instances of products shortage.

“Like our own situation where it is a total mess, you will need to have to budget two years of diagnostic study, parts procurement from Original Equipment Manufacturers (OEM), and then work. This is the minimum time it will take to repair those refineries and get some level of in-country supplies,” said Kunle.

Kachikwu had on Wednesday admitted the enormous challenges the NNPC is facing in importing petroleum products into the country against the backdrop of dollar shortages, moribund refineries, and the misallocation of fuel imports by the Petroleum Products Pricing Regulatory Agency (PPPRA) for the first quarter of 2016.
The minister said there was no quick fix to the perennial problem.