A Review of the Nigerian Energy Industry

Financial market products & services update

Financial markets 130 July 2014, Sweetcrude, Lagos – Local and international financial market products and services update.
FX: NGN sustained its recent gains last week, closing at its strongest level in 10 weeks, buoyed by the customary month-end sales by the oil majors and a general drop in market’s appetite for USD. Market opened the week quiet but the pair was capped around mid162 levels after which we saw a downward trend in rates by mid-week.

We’ve started seeing some benign effect on the currency of some government policies – the food import bill is down almost 40% to $4.3 billion from $7 billion annually due to successful agric reforms, while the move by the Central Bank to sanitize the parallel market is bearing dividends and is partly responsible for the recent accretion of FX reserves.

FIXED INCOME: CBN came back to market to offer OMO bills on Friday. 80bn of 125-day maturity (27/11/2014) and sold 415.bn at 10.80% discount (about 5 times the amount on offer). This caused an immediate uptick in the yields across the curve on both the bills and bond market. There was some recovery in the bills move as renewed demand came into the market. T.bills inched up by an average of 2bps and bond by 3bps.”

COMMODITIES: WTI crude traded near the lowest price in two weeks before government data that may signal the strength of fuel consumption in the U.S., the world’s biggest oil user. The European Union and U.S. imposed more sanctions on Russia, the world’s largest energy exporter, to get President Vladimir Putin to back down in Ukraine.

NIGERIA: Nigeria’s spiralling public wage expense is making it harder to meaningfully address the nation’s infrastructure deficit. Africa’s largest economy needs at least $20 billion a year, or up to $200 billion in the next 10 years to finance its huge infrastructure deficit, according to the Urban Development Bank of Nigeria. The minister of Finance, Ngozi Okonjo – Iweala said at the House of Representatives earlier last week that the wage bill for public servants had more than doubled from N857bn in 2009 to N1.8trn ($11.1bn), per annum, by 2014.

US: The U.S. and European Union sought to put more pressure on Russia’s stumbling economy by targeting banking, energy and defence industries for sanctions in another attempt to get President Vladimir Putin to back down in Ukraine. EU governments agreed yesterday on their most sweeping sanctions against Russia to date, barring state-owned banks from selling shares or bonds in Europe, restricting the export of equipment to modernize the oil industry and barring export of equipment with military uses. That was followed hours later by U.S. penalties against three Russian banks and a state-owned shipbuilder, adding to sanctions announced two weeks ago.

CHINA: China is unlikely to meet its 2020 target for shale gas production, as a lack of infrastructure and technology hampers development of the world’s largest reserves of the fuel, according to a government official. China is attempting to replicate a shale boom that’s seen energy costs plummet in the U.S. With deposits almost double those of the U.S., it had set a national output target of as much as 100 billion cubic meters by the end of the decade. U.S. production reached about 290 billion cubic meters in 2012.

Macro Economic Indicators
Inflation rate (YoY) for June. 2014              8.20%
Monetary Policy Rate current                      12.00%
FX Reserves (Bn $) as at July 18th 2014   38.90

Money Market Highlights

O/N                       10.9167
30 Day                  12.2108
90 Day                  13.1576
180 Day                14.2074
USD 1 Month       0.1550
USD 2 Months     0.1970
USD 3 Months     0.2371
USD 6 Months     0.3300
USD 12 Months   0.5646

Benchmark Yields
Tenor           Maturity        Yield

91d                  23-Oct-14         10.57
182d               22-Jan-15          10.81
364d              07-May-15         10.50
2y                   16-Aug-16          11.08
3y                   31-Aug-17          11.03
5y                   29-Jun-19          11.13

Indicative Currency Exchange Rates
Bid          Offer

USDNGN        161.42         162.12
EURUSD         1.3303        1.3505
GBPUSD         1.6835         1.7037
USDJPY          102.16         102.19
USDCHF         0.9023       0.9125
GBPEUR         1.2534        1.2736
USDZAR        10.4829     10.6847
JPYNGN         1.5328        1.6339
CHFNGN        177.55        179.32
EURNGN        216.14        217.50
GBPNGN         273.27       274.67
ZARNGN          14.38        16.19


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