A Rising Number Of U.S. Refineries Are Ditching U.S. Shale For Nigerian Crude – This Is Why

By  |  September 10, 2019

How The Nigeria-U.S. ‘Oil Affair’ Came To An End

For several months since 2014, Nigeria has seen its crude oil exports to the United States plummet, decline, and effectively reduce to almost zero. This happened because the U.S. — a one-time big buyer of Nigerian oil — found a great substitute for Nigerian crude in shale.

By developing its shale output, the U.S went from one of the biggest buyers of Nigerian crude to a strong competitor. And this is because the U.S. didn’t just stop buying Nigerian crude, but also took the global oil market for a ride by aggressively marketing and selling its shale to even other big buyers of Nigerian crude, most notably India.

The move by the U.S. may have tanked Nigeria’s oil sales and revenue, but a new opening that seems to have popped up in the United States a few months ago might offer some glimmer of hope for the holders of Africa’s largest oil reserves. And even though this new opening cannot guarantee that things will go back to how they once were, it is quite certain that it does serve up some respite.

Could This Be A Reignition Of The “Old Flame”? 

Nigeria’s oil has found an unlikely new market on the coast of the United States that is farthest from the shores of the West African nation.

According to a Reuters report, crude oil grades from the Niger-Delta region have found new buyers in California. The report revealed that up to six million barrels of crude have left the southern part of Nigeria on the arduous 20,000-kilometre or 12,500-mile trip to the U.S. via an unusual route. The journey typically takes up to 40 days.

And apparently, the new route is seeing a lot of activity. The six million barrels that the U.S. West Coast imported from Nigeria between April and August this year was almost four times higher than the amount for all of 2018.

The tedious journey involves sailing through the relatively rare route from Nigeria’s Niger-Delta area, passing around South America’s Tierra del Fuego before reaching Los Angeles.

It does sound like a lot of work but oil refineries in California are opting for this option in order to bypass the difficulty and expense of getting U.S. crude oil to the West Coast.

Why Refineries In The U.S West Coast Are Now All Up For Nigerian Crude

It’s kind of crazy that U.S refineries would rather wait 40 days for a Nigerian crude shipment to arrive their shores than get their supplies in far less time from the U.S. shale hub. But that’s the current choice for many refineries in the U.S west coast due to a combination of factors. Viz.

  • Oil Shipment Restrictions Within The U.S

First off, no pipelines easily connect the shale hub at the Permian basin, located in Texas and New Mexico, to the West Coast, driving the refineries in the region to look to Nigeria to get its fix of crude.

  • Cost Implications

Even though its looks like a logistics nightmare on the map as U.S. shale sources are, in fact, much closer to those U.S. refineries than Nigeria, the current price and availability of taking in barrels from Nigeria does make more cost sense because it is cheaper despite the distance. 

In the U.S., oil supplies sailing to domestic shores are subject to added costs due to something called the Jones Act. The Jones Act mandates that only U.S.-flagged vessels can transport the supplies.

Because of the restriction, freight within the United States can easily cost a lot more than journeys that take a much longer time.

  • Environmental Concerns

There is a global environmental directive that requires refineries to only refine oil into low-sulphur derivatives as from next year. And shipping fuels in time may have lured those cargoes, as West Africa is home to the kinds of crude most suited to such products.

All these have contributed to the latest boon and Nigeria appears to be benefitting from the increased crude sales, though it may yet prove a shortlived success.

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