Oil market wary as firms offer Nigeria’s crude at $10m discounts

28 June 2012, Sweetcrude, HOUSTON – SOME largely unknown oil companies, which claim to have privileged access to Nigeria’s prized sweet crude oil, are offering to sell it at huge discounts with traders saying the deals are too good to be genuine.

Reuters reports that documents available to it showed that thousands of barrels of crude can be picked up at discounts of up to $10 million.

But the documents are suspiciously flawed, suggesting financial scams. The Nigerian National Petroleum Corporation (NNPC) has placed a “scam alert” on its website warning of “unsavoury characters purporting to be bona fide staff or contractors to NNPC or purchasers of crude oil or contractors to the government,” the report said.

The sellers, according to the report, include one UK-registered firm purporting to be near the top of a sales chain in which oil cargoes can change hands up to half a dozen times before being refined.

Two of the firms contacted by Reuters said they were able to sell oil cheaply because of special access to NNPC contracts.

The documents point to the difficulty faced by President Goodluck Jonathan in making reforms when there is doubt over who is responsible for selling the oil.

Nigeria has pledged to take measures to fight corruption in the oil sector after a hike in state-subsidised petrol prices sparked mass protests in January.

One recent step has been the creation of higher barriers to entry for participation in NNPC’s 2012-2013 term allocations. The results have not appeared since the initial tender document was released in March.

On Tuesday, Jonathan sacked the managing director of the NNPC and three other senior directors.

“To further strengthen the ongoing reforms and in furtherance of efforts to achieve greater transparency and accountability,President Jonathan has approved the re-composition of the executive management team of the NNPC,” a statement said.

Alexandra Gillies, governance adviser at Revenue Watch Institute, said the proliferation of middlemen in selling oil since Jonathan’s election last year, had resulted in considerable uncertainty over ownership.

“If NNPC only issued term contracts to companies with the capacity to lift crude, then nobody would be able to pose as a company flipping (reselling) a cargo. The confusion is a symptom of Nigeria’s sub-optimal system for selling its oil,” she said.

A report that the government-funded watchdog the Nigeria Extractive Industries Transparency Initiative (NEITI) sent to the authorities in January showed billions of dollars missing from oil revenues.

Five written offers reviewed by Reuters showed a close resemblance to official paperwork circulated among traders, including documents attributed to NNPC, stamps from terminal operators and shipping lists with vessels and loading dates.

They include arcane oil market jargon such as ‘laycan’, which refers to the timeframe for loading and ‘STS’ meaning ship-to-ship transfer of the cargo.

One shipping list showed a tanker called the ‘Elsa Craig’ – a name close to an actual Panama-flagged crude oil tanker called the Ailsa Craig 1 – next to other cargoes booked by western oil majors such as Chevron.

“They are full of imagination,” said a West African oil trader, commenting on the document.

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