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Henceforth, Nigeria to bear costs, risks of crude oil sales — NNPC

…To ship, sell crude directly to buyers
By Michael Eboh
The Nigerian National Petroleum Corporation, NNPC, Thursday, said it plans to undertake a review of its approach to crude oil sales, declaring that in the days ahead, it would commence the sale of more of the country’s crude oil on a Cost, Insurance and Freight, CIF, basis.

Fuel tanker Manace

Speaking at the 2017 Annual Asia Pacific Petroleum Conference in Singapore, General Manager, Crude Oil Marketing Division of the NNPC, Mr. Mele Kyari, said the corporation’s decision to review its approach to crude oil sales was to enable it sell directly to customers and ensure security of supply.

Cost, Insurance and Freight, CIF, is a term used in international trade covering both sea and inland waterways, requiring the seller to arrange for the carriage of goods by sea from the port of origin to a port of destination, and also provide the buyer with the documents necessary to obtain the goods from the carrier.

Currently, Nigeria’s crude oil is sold on a Free On Board, FOB, basis, an agreement whereby the seller arranges for the transport of goods to a designated port or other point of origin. Once the seller releases the goods to the buyer, when the goods are onboard the ship, the delivery is considered accomplished.

In FOB, the point at which responsibility shifts from the seller to the buyer occurs when the shipment reaches the point of origin. With a CIF agreement, the seller assumes responsibility and pays costs until the goods reach the buyer’s chosen port of destination. Furthermore, unlike CIF, FOB contracts are not limited to sea freight, and may also be used for inland and air shipments.

In its definition of CIF, the International Chamber of Commerce, ICC, stipulated that “The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination. The seller is also responsible for insuring the goods to cover the risk of loss or damage during carriage.”
Kyari told Standards and Poors (S&P) Global Platts, a global energy information platform, on the sideline of the event that Duke Oil, NNPC’s trading subsidiary, would be given more equity oil to enable it directly trade and market Nigeria’s crude oil in the next few years.

He said, “There is a plan to see how Duke Oil can directly trade the volumes in the market, up to 80 per cent and ultimately 100 per cent of our equity in the long term.
“The NNPC was looking at engaging one-on-one as a CIF supplier to customers. We are growing it. It existed but we have not been patronising it. Now we see a great need for that.”

He further stated that as parts of efforts to attract new buyers, the NNPC would make sure that Nigeria’s crude oil grades were appropriately, stating that it would also focus on ensuring supply stability, which was a key issue.

In addition, Kyari disclosed that the NNPC would continue to depend on Asia and Europe as its two main traditional destinations and hopes to increase its share in both regions.

He stated that while 29 per cent of Nigerian exports went to Asia, most went to India and Indonesia, and not other key demand hubs in China, Japan and South Korea.
“So Europe and Asia will be our prime buyers in the short term, and there is growing consumption in Africa also but it is of a smaller volume,” Kyari said.

He averred that so far this year, Nigeria had exported 17 per cent of crude oil to the United States, representing a significant improvement since 2015.
However, Platts noted that although Nigeria was enjoying a recovery of late, it had faced two difficult years, with oil exports falling almost 40 per cent due to renewed militancy in the oil-rich Niger Delta.

That, it explained had left regular customers keener to buy crude on a delivered basis to ensure supply security as attacks on the Forcados and Qua Iboe terminals had put off some players from buying crude on an FOB basis.


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