Buhari moves to tackle Nigeria's oil monster; the money 'eaten' there is bigger than GDP of 38 African nations

http://mgafrica.com/article/2015-08-10-buhari-moves-to-tackle-the-nigerias-oil-corp-monster-which-diverts-more-money-than-the-gdp-of-23-african-countries

Some estimates put "lost" funds at $50 billion. If it were a country, it would be Africa's 11th biggest economy, at par with Tunisia's entire GDP.

Set up to defend Nigeria’s interests with foreign majors, the NNPC controls an aggregate 55% share in joint ventures with the likes of Royal Dutch Shell Plc, Exxon Mobil Corp. and Chevron Corp. (Photo: AFP).

NIGERIA’s national oil corporation has reportedly diverted more than $30 billion in oil revenue since 2009, equivalent to the gross domestic product of more than 30 African countries, but President Muhammadu Buhari is determined to clean it up.

Some estimates even put the “lost” funds at $50 billion. If that were a country, it would be Africa’s 11th biggest economy, at par with Tunisia’s entire GDP, and larger than the economic output of Ghana, Tanzania, Uganda, Ivory Coast or the Democratic Republic of Congo.

Buhari is in for a monumental task, as the corporation is deeply opaque and has been linked to “mind-bogging” theft of public funds.

In a way, Buhari’s presidency brings Nigeria’s oil story full circle. As oil minister during military rule in the 1970s,  Buhari himself oversaw the birth of the Nigerian National Petroleum Corporation (NNPC), that was intended to manage the oil assets of Africa’s biggest crude producer, in the public interest.

Now, as democratically elected president, he intends to break up the opaque bureaucracy to ensure taxpayers get their fair share. History isn’t on his side.

“No Nigerian leader, including Buhari himself from the 1980s, has managed to sanitise the oil sector,” said Philippe de Pontet, head of the Africa practice at the Eurasia Group in New York. “Buhari’s challenge is not only to depoliticise NNPC but to disentangle its vested interests and its rogue commercial operations, which won’t be easy.”

Buhari made cleaning up the 24,000-employee colossus—the largest government-owned company—a key plank in the election campaign that toppled President Goodluck Jonathan in March. He plans to split the NNPC in two, creating a regulator and a vehicle for investments, according to Femi Adesina, a presidential spokesman.

So far the president has fired the board and management of the company and replaced its Jonathan-appointed chief with Emmanuel Ibe Kachikwu, who was executive vice-chariman of Exxon Mobil Africa. He has also ordered a review of oil-swap contracts and barred 113 vessels from loading oil and gas—about 250,000 barrels of Nigerian crude, about 10% of the country’s daily output, are stolen daily, Buhari has said.

‘Mind-boggling’

“A lot of damage has been done to the integrity of Nigeria with individuals and institutions already compromised,” Buhari told an audience in Washington last month. “The amount involved is mind-boggling.”

Nigeria’s transparency watchdog says the NNPC has diverted more than $30 billion in oil revenue from the state since 2009. That exceeds the annual economic output of more than half the nations in Africa and roughly equals the federal budget.

The situation is increasingly desperate because, with a halving in Brent crude prices in the past year, government coffers are “virtually empty,” Buhari said after less than a month in office; about two-thirds of the country’s almost 180 million people live on less than a dollar a day.

Set up to defend Nigeria’s interests with foreign majors, the company controls an aggregate 55% share in joint ventures with the likes of Royal Dutch Shell Plc, Exxon Mobil Corp. and Chevron Corp. Crude exports account for about two-thirds of government revenue.

Sixth MD in five years

NNPC’s four-tower headquarters building in the capital dominates Abuja’s skyline. It’s the landlord to the petroleum ministry, whose minister chairs the organisation. Group managing director Kachikwu is its sixth head in five years.

 For all its importance to Nigeria, the NNPC is largely inscrutable. It had the worst disclosure record of 44 energy companies analysed in a 2011 report by anti-corruption nonprofit organisations Transparency International and the Revenue Watch Institute.

 Allegations of missing funds go back as far as when Buhari was oil minister. The Lagos-based Punch newspaper reported in 1978, a year after the NNPC took its current name, that the company failed to remit the equivalent of about $3.5 billion it owed the Treasury.

Blank cheque

In the 1990s, a military-sanctioned investigation found $12 billion in oil revenue was unaccounted for under the government of army ruler Ibrahim Babangida.

After the return to democratic rule in 1999, Nigeria signed up in 2005 to the Extractive Industries Transparency Initiative, a global effort in which governments committed to disclosing all extractive industry payments. 

Since then, the Nigeria Extractive Industries Transparency Initiative, or NEITI, has said at least $23.2 billion due wasn’t deposited into the national accounts from 2009 to 2011.

More recently, then-central bank Governor Lamido Sanusi alleged in a memo to Jonathan that the corporation retained as much as $50 billion in oil revenue that was due to the government.

Sanusi’s claims led Jonathan to commission a PricewaterhouseCooper LLP audit for the period from January 2012 to July 2013. PwC found the NNPC had a “blank cheque” to spend without control and had accounting and monitoring systems filled with “significant” discrepancies.

The NNPC should refund as much as $4.29 billion to the government, the report said. Then-Petroleum Minister Diezani Alison-Madueke said on April 22 that the company had started to refund the minimum $1.48 billion the audit recommended.

Opaque debts

Then, there’s the money it owes commercial partners. The NNPC’s debts to its eight joint ventures have “ballooned over the years,” according to a ruling All Progressives Congress policy report submitted to Buhari after the election and obtained by Bloomberg.

In 2012, the state company paid $6.9 billion of the $10.4 billion it owed. The difference was covered by loans from international oil companies including Shell, Exxon Mobil and Total. The companies declined to comment.

Critics say any shakeup would have to resolve NNPC’s dual role as regulator and oil company.

“Corruption would vanish if Buhari refocused the NNPC as just a regulator so people like us can get on with the job,” said Kola Karim, head of a Nigerian oil explorer.

Producing about 60,000 barrels a day, Karim’s Shoreline Group, founded in 1997, could be pumping more than double that amount if the NNPC wasn’t a partner in his business and with civil servants slowing investment decisions, he said.

Senior officials in Buhari’s party are calling for even more drastic measures.

“We should replace the NNPC,” Nasir el-Rufai, the governor of northern Kaduna state, said in Abuja this month. Nigeria needs to “tackle the monster that the NNPC has become.”

—With assistance from Chris Kay in Lagos and Daniel Magnowski in Abuja.

Oil slides toward 6-year low after China yuan devaluation

 

http://www.marketwatch.com/story/oil-prices-edge-lower-as-china-devalues-yuan-2015-08-11

China’s decision to devalue the yuan sent the U.S. oil benchmark tumbling back toward a six-year low on fears over the health of the Chinese economy and the country’s appetite for crude.

Light, sweet crude futures for delivery in September CLU5, -4.00%  fell $1.59, or 3.6%, to $43.36 a barrel on the New York Mercantile Exchange, trading below the six-year closing low at $43.46 set in March.

US:CLU5

$40$45$50$55$60$65

Brent crude LCOU5, -2.86% the global benchmark, fell $1.22, or 2.4%, to $49.19 a barrel on London’s ICE futures exchange.

China’s decision to devalue the yuan will make imports of a number of commodities including crude oil more expensive. The drop saw oil futures give back most of the gains scored in a sharp Monday rebound inspired in part by a weaker dollar.

“Since July, every time oil gets a bid there is some news to squash the rally,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.

Crude oil, like most other commodities are pegged to the dollar, which means China’s imports will become costlier.

The yuan move also raises the fear that China’s slowdown is accelerating and that the country’s government might be panicking, Flynn said, in a note. It also raises fears that other countries will respond with competitive devaluations of their own, he said.

A glut of supplies has been the main driver behind a slump in oil prices.

The Organization of the Petroleum Exporting Countries on Tuesday said the group’s production rose to its highest level in more than three years. Members pumped 31.51 million barrels a day in July—a rise of 101,000 barrels a day over June to the highest level since May 2012. Read:OPEC pumps at 3-year high despite oversupply.

Oil demand is already at near seasonal peak levels and will fall from the second half of this year while excess supply may extend to the second half of this year as well as next year because of high output levels from OPEC members, a Morgan Stanley report said.

Over and above, Iran has signaled its intent to push up its output and increase international supplies as soon as sanctions are lifted.

Barnabas Gan, an economist with OCBC Bank, said investors will also be closely monitoring weekly U.S. crude oil inventory data to be issued late Wednesday as any slippage may support prices.

Meanwhile, September gasoline futures RBU5, -1.94% fell 2.21 cents, or 1.3%, to $1.6717 a gallon. September natural gas NGU15, -1.51%  shed 1.7 cents, or 0.6%, to $2.824 per million British thermal units.

Brent crude oil price falls 1.7 per cent as Opec output reaches three year high

 

http://www.cityam.com/222075/opec-output-reaches-three-year-high

Crude oil production by members of the Organisation of Petroleum Exporting Countries (Opec) reached its highest in three years in July, despite Saudi Arabia indicating it had pulled back, figures published today showed. Brent crude oil is trading 1.7 per cent lower.

Opec's monthly oil market report suggested total output among member countries rose 100,700 barrels per day to 31.5m.

The increase was driven partly by Iran, which increased oil output to 2.86m barrels per day, its highest level since June 2012. That figure was up from 2.83m in June. International sanctions against Iran started in July 2012.

But Saudi Arabia, Opec’s largest oil producer, said it had reduced production to 10.36m barrels per day in July, down from 10.56m in June.

Global demand for Opec crude oil is projected to increase by 900,000 to an average of 30.1m barrels per day in 2016, the report said. That's up from 29.2m in 2015.

Oil prices fell below $50 per barrel last week, hitting a new six month low, due to a resurgence of US production and rising Opec output. Signals of a boost in demand in Asia weren't enough to raise prices significantly.

Here's what the 'spectrum of pain' looks like for the 12 members of OPEC

http://www.businessinsider.com/rbc-opecs-spectrum-of-pain-2015-8

All the OPEC members unhappy with lower oil prices, but not all are struggling equally.

"The 'spectrum of pain' is wide indeed," RBC Capital Markets' Global Head of Commodity Strategy Helima Croft wrote in a note to clients.

Some countries are smaller and richer, and thus weathering the storm relatively well.

Others are poorer and have more interal political instability — and thus face greater challenges.

RBC Capital Markets assessed the status of each OPEC producer, and identified which ones were doing well, and which ones were "most at risk for a meltdown in the months ahead."

Each country is given a "risk for the next year" rank, where 10 is the highest. We listed them from least at risk to most at risk.

Kuwait

Reuters/Faisal Al Nasser

Foreign Minister of Kuwait Sheikh Sabah al-Khaled al-Sabah.

Risk for next year: 2
Oil production last month: 2.83 mb/d
Oil production 2014: 2.87 mb/d
Kuwait has a small population, a "substantial" sovereign wealth fun, and more shock absorbers for managing discontent. However, since oil accounts for 94% of Kuwait's revenues, lower oil prices have hurt the OPEC nation, according RBC Capital Markets analysts.

Source: RBC Capital Markets

Qatar

Reuters/Heinz-Peter Bader

OPEC President Qatar's Minister of Energy and Industry Mohammed Saleh al-Sada.

Risk for next year: 2
Oil production last month: 0.67 mb/d
Oil production 2014: 0.71 mb/d
Qatar has a small population and lots of resources, which gives the OPEC nation one of the highest GDP/capita measures in the world. Plus, it has focused most of its resources on liquefied natural gas.
"Qatar's challenge will emerge later this decade," writes RBC Capital Markets' Helima Croft.
Source: RBC Capital Market

United Arab Emirates

Ahmed Jadallah/Reuters

A group of Emiratis walk past the Burj Dubai Tower, the tallest tower in the world, on the day of its inauguration, in Dubai.

Risk for next year: 2
Oil production last month: 2.80 mb/d
Oil production 2014: 2.77 mb/d
"Flush with cash and few citizens, UAE sits in the sweet spot," writes Croft. That being said, the past year was still tough on the Emirates, and the government announced that it would cut spending by 4.2% and scale back on fuel subsidies.
Source: RBC Capital Markets

Iran

Reuters/Morteza Nikoubazl

A member of the Iranian Army waits for the farewell ceremony for Russian President Vladimir Putin in Tehran.

Risk for next year: 3
Oil production last month: 2.85 mb/d
Oil production 2014: 2.79 mb/d
"Iran is our turn-around story of the year as it is poised to emerge from decades of economic and international isolation after the recently concluded nuclear deal," writes Croft. "While the pace of sanctions relief may prove slower than some are anticipating, given the low base Iran was starting from, we believe that it will prove a meaningful improvement — especially the access to SWIFT and hard currency in frozen accounts."
Source: RBC Capital Markets

Saudi Arabia

REUTERS

Saudi Arabian Minister of Petroleum and Mineral Resources Ali bin Ibrahim Al-Naimi.

Risk for next year: 4
Oil production last month: 10.57mb/d
Oil production 2014: 9.67 mb/d
"Saudi Arabia continues to plunge deeper into the red in order to maintain its expansive social programs and muscular foreign policy," writes Croft. "Saudi recently resorted to domestic borrowing for the first time since 2007 to avoid an even larger draw-down of their FX reserves."
Source: RBC Capital Markets

Angola

Reuters/Siphiwe Sibeko

Head office of Angolan state oil company Sonangol in the capital Luanda.

Risk for next year: 5
Oil production last month: 1.81 mb/d
Oil production 2014: 1.65 mb/d
Angola was in the middle of a civil war from 1975 to 2002, but now the country is relatively stable. Plus, foreign direct investment in the OPEC-nation shot up over the last five years.
"While there are risks stemming from cuts in government expenditures necessitated by lower oil prices, we think that bond issuance and economic diversification will help put a dent in these headwinds and thus help maintain stability," writes Croft.
Source: RBC Capital Markets

Ecuador

Reuters/Javier Amores

President of Ecuador Rafael Correa.

Risk for next year: 6
Oil production last month: 0.54 mb/d
Oil production 2014: 0.56 mb/d
Ecuador has seen huge protests recently over the weaker economy, even despite the president's track record. And "protests could get worse going forward," writes Croft.
"Unfortunately we do not see a way out for Correa as even newly issued debt has already started to fall in price, making further borrowing prospects for the government even more expensive and exacerbating the risk of an unruly populace."
Source: RBC Capital Markets

Algeria

Reuters/Louafi Larbi

Security guards use binoculars to keep watch during the Algeria Cup final soccer match between CR Belcourt and Entente Setif in Algiers.

Risk for next year: 7
Oil production last month: 1.10 mb/d
Oil production 2014: 1.12 mb/d
"We believe that the looming leadership transition poses perhaps the biggest political near term risk. President Bouteflika (78) is reportedly in poor health and the recent sacking of three top generals has stoked fears of a power struggle within the ruling elite," writes Croft.
Additionally, violence between the Arabs and the Berbers is on the rise, and terrorism remains a concern following the Al Qaeda killings in July.
Source: RBC Capital Markets

Nigeria

Thomson Reuters

Nigeria's new President Muhammadu Buhari rides on the motorcade while inspecting the guard of honor at Eagle Square in Abuja.

Risk for next year: 8
Oil production last month: 1.88 mb/d
Oil production 2014: 2.04 mb/d
"President Buhari is currently fighting a two-front war — (1) against Boko Haram and (2) corrosive corruption — with empty coffers and critical cabinet vacancies," writes Croft. "The ex-general has dissolved the board of the state oil company and has banned over 100 tankers from accessing Nigerian waters after accusing them of complicity in the crude theft trade."
Source: RBC Capital Markets

Venezuela

REUTERS/Jorge Silva

A motorcycle taxi driver waits for customers in downtown Caracas.

Risk for next year: 9
Oil production last month: 2.49 mb/d
Oil production 2014: 2.46 mb/d
"Venezuela seems to be going from worse to worse," writes Croft. "The problems for the incumbents in the December 2015 parliamentary election are only going to magnify as sustained lower oil prices complete the troubling combination of rampant inflation and dwindling FX reserves."

Iraq

Reuters/Thaier Al-Sudani

Iraqis shout slogans during a demonstration against power cuts amid an intense heatwave at Tahrir Square in central Baghdad, Iraq.

Risk for next year: 10
Oil production last month: 4.19 mb/d
Oil production 2014: 3.26 mb/d
"Iraq is the poster child for the divergence between political stability and the oil story," writes Croft. Oil output is at record highs, while "the economic and security picture continues to darken."
Source: RBC Capital Markets

Libya

REUTERS/Ismail Zitouny

A tank truck exits from the main gate of the Zawiya refinery and oil port towards the local market in Libya.

Risk for next year: 10
Oil production last month: 0.38 mb/d
Oil production 2014: 0.45 mb/d
Analysts write that there has been "near zero" progress in peace talks, and the country remains unstable.
"Overall, we see little indication that the country will improve imminently, and caution against factoring in the return of Libyan barrels any time soon," writes Croft.
Source: RBC Capital Markets

As Crude Oil Prices Slide So Do Prices at the Pump

 

http://www.dailyfinance.com/2015/08/10/gas-prices-fall-crude-oil-prices/

The average price of a gallon of gasoline in the United States fell 11 cents in the past two weeks, pulled down by the ongoing slump in crude oil prices, according to the Lundberg survey released Sunday.

Regular grade gasoline fell to an average price of $2.71 a gallon, according to the biweekly survey dated Aug. 7, down 11 cents from the previous survey on July 24.

Gasoline is down 81 cents a gallon from the same year-ago period, according to the survey.

"This is a continuation of dynamics that have been building in the past several weeks, as both U.S. and global benchmarks are down steeply again," said survey publisher Trilby Lundberg in Camarillo, California.

Brent, the global crude benchmark, touched a six month low of $48.45 a barrel Friday before settling at $48.61. The price has fallen by 23 percent in the past six weeks.

U.S. crude hit a four-month low Friday of $43.80 before settling at $43.87. The U.S. benchmark slid 7 percent on the week and lost 26 percent in the last six weeks.

The low pump prices has led to a surge in demand and is enticing refiners to ramp up production, resulting in large stockpiles of gasoline. The build in gasoline stocks have helped keep prices low, Lundberg said.

"U.S. refiners are cranking up the volumes, running at high rates and we are more than meeting the strong demand for gasoline," Lundberg said.

The highest-priced gasoline in the survey area of the 48 contiguous U.S. states was in Los Angeles at $3.80 a gallon, thanks in large part to a refinery outage. The lowest price was in Charleston, South Carolina, at $2.19 a gallon.

Pump prices should continue to fall, Lundberg said, as there is no clear end to the ongoing rout in oil prices.

"Unless there is some change in the crude oil market, we will probably be seeing more of the same in the next few days," she said.

OPEC leader Saudi Arabia is having to borrow money

 

Saudi Arabia is not as rich as you thought.

http://money.cnn.com/2015/08/06/news/economy/saudi-arabia-oil-deficit/

The oil kingdom is facing a big hole in its budget, caused by the slump in oil prices and a sharp rise in military spending. That's forcing the government to raid its reserves, and it may even borrow from foreign investors, analysts say. 

Saudi Arabia has already burned through almost $62 billion of its foreign currency reserves this year, and borrowed $4 billion from local banks in July -- its first bond issue since 2007. 

Its budget deficit is expected to reach 20% of GDP in 2015. That's extraordinarily high for a country used to running surpluses. Capital Economics estimates that government revenues will fall by $82 billion in 2015, equivalent to 8% of GDP. The IMF is forecasting budget deficits through 2020. 

Oil's slump from $107 a barrel last June to $44 right now is largely responsible for the squeeze. Half of the country's economic output and 80% of government revenue is generated by the oil industry. 

Yet Saudi Arabia has only itself to blame. Its aggressive fight to defend OPEC's share of the global oil market has led to a massive supply glut. 

Riyadh is refusing to cut output, hoping to drive other producers, such as U.S. shale companies, out of business. 

At the same time, it is ratcheting up spending. It has intervened in a war in neighboring Yemen, and has been involved in airstrikes against ISIS in Syria. Its military budget grew by 17% last year to roughly 10% of GDP. 

King Salman also lavished generous bonuses on public sector workers after his accession to the throne in January. The gesture was popular, but stretched the kingdom's finances even further. 

Saudi Arabia opens up its stock market ... but not to you

 

"We will see increased borrowing in the coming months," Fahad al-Mubarak, the governor of the Saudi Arabian Monetary Agency, told local media last month. 

The country's central bank would not comment on how many bonds it might issue. 

Analysts suggest the Saudis could issue around $5 billion worth of bonds a month through the end of this year, some of those to foreign investors. 

Still, it could quickly revert to drawing on reserves, rather than borrowing, if global interest rates rise.

Its foreign currency reserves, while depleted, still amounted to $660 billion at the end of June.

Nigeria’s tanker ban underscores disarray in oil industry

https://bakken.com/news/id/242360/nigerias-tanker-ban-underscores-disarray-in-oil-industry/

LONDON/ABUJA – The Nigerian president’s sudden, unexpected and seemingly unilateral decision to ban nearly 100 oil tankers from the country’s waters has sown confusion in the operations of Africa’s largest crude exporter.

The edict directly from President Muhammadu Buhari’s office appeared to be part of a campaign pledge to crack down on oil industry corruption and theft.

But the disarray it has caused, even three weeks on, underscores the problems Buhari faces in trying, as an oil industry outsider, to tackle problems in the sector head on.

“It’s a mess,” one trader said of the ban. “Nobody knows anything concrete.”

Buhari has kept the oil portfolio for himself for now, and said that he would not appoint ministers until September. Last month, he announced plans to cleave state oil firm NNPC in two, though details are vague, and sacked the chiefs of the Navy and the Nigerian Maritime Administration and Safety Agency (NIMASA) – agencies that would help enforce the ban.

Some warn the ban could hurt the country’s near-term oil revenue more than the thieves it aims to stop.

“In the end, it’s going to make a much bigger problem for Nigeria than tanker owners,” said Ehsan Ul-Haq, senior market consultant with KBC Energy.

Traders are still struggling to get to grips with the list of tankers, which sources said is haphazard and confusing; while the headline number is 113 vessels, at least nine are listed twice, and shipping sources said one was scrapped in 2012.

Of the others, many have not called at Nigerian ports in years, if at all.

“The whole list stinks if a lot haven’t been to Nigeria for a long time,” one Nigeria-based oil industry executive said.

An NNPC spokesman and the head of crude marketing did not respond to several requests for comment. The presidency confirmed it had sent the list to NNPC but declined to elaborate on the rationale for vessels included.

Inside and outside Nigeria the origin of the list seemed to be in a locked box inside the president’s inner circle, and NNPC itself appeared only to have limited information. Oil traders who asked NNPC officials directly for answers said their attempts had borne little fruit.