Nigeria Has Failed To Capitalize On High Oil Prices

1. 2022 Hurricane Season Not As Bad for Oil

- As S&P Global Platts notes, the US hurricane season is picking up steam after a slow start, already producing seven named storms and the first hurricane to make landfall, Hurricane Ian.

- Before making landfall, Hurricane Ian shut 11% of oil production in the US Gulf of Mexico (some 190,000 b/d and 184 million cf/d) yet mostly as a measure of precaution.

- Considering the brevity and relatively little impact, this year will be much weaker than 2021 in terms of lost production – in September 2021 alone some 800,000 b/d of output was lost to storms.

- In less than two days after Hurricane Ian passed through respective parts of the US Gulf, Chevron, and BP already started returning personnel to their platforms there, with no damages reported.

2. Indonesia Is Becoming the Nickel Problem

- Seeing its production surge by 41% year-on-year in January-July to a total of 814,000 tons, Indonesia is bringing about an increasingly bearish outlook for the nickel market.

- Nickel prices have slumped from their March high of $55,000 per metric ton to just $23,000/mt right now, as nickel’s traditional market deficit shifted into a slight surplus.

- Indonesia’s government banned exports of unrefined nickel ore in 2020, so now most of the exports going towards China’s stainless steel mills are in the form of nickel pig iron.

- US investment bank Goldman Sachs has just revised its three-month pricing target downwards from $26,000/mt to a mere $16,000/mt, with the Indonesian supply surge aggravated by low nickel demand in Europe.

3. Nigeria Misses Out on Oil Bonanza

- Whilst other OPEC producers have used the windfall revenue of 2022 to build up piles of cash, Nigeria has failed to capitalize on it as fuel subsidies spin out of control.

- Data from Nigeria’s national oil company NNPC shows that it did not contribute a single naira to the country’s budget, despite marketed crude prices averaging 94 per barrel in Jan-Aug 2022.

- The crux of the matter is that Nigeria imports market-price gasoline into the country and then sells it at a subsidized rate, only to see the barrels smuggled into neighboring countries which have higher gasoline prices.

- Nigeria does not have an operational refinery and even the much-lauded Dangote refinery is at best going to see first production at the very end of 2023.

4. Corn Stocks Remain Dangerously Low

- The double whammy of worldwide droughts and the Russia-Ukraine war are squeezing corn availability to the tightest level since 2011, heightening the risk of famine in some of the world’s poorest nations.

- Whilst the restart of corn exports from Ukraine provided some ray of hope, the US harvest is expected to be the lowest in three years whilst Europe will suffer a 15% drop compared to last year amidst the worst drought on the continent in at least 500 years.

- According to Reuters, the world’s buffer stocks of corn will be enough for a mere 80 days of consumption, down almost 30% from 5 years ago.

- Considering that the harvest is still up for further downgrades as Latin America’s crop cycle remains extraordinarily dry, the idea that the 2012 food riots might repeat themselves is not that unlikely.

5. Blue Ammonia Might Not Be As Clean As Thought

- On September 10, the German port of Hamburg saw the first delivery of blue ammonia, a non-emitting fuel made from hydrogen, coming from the United Arab Emirates.

- Up until now, blue ammonia has been a nascent niche industry with several deliveries to Germany, Japan, and South Korea, almost exclusively from Middle Eastern exporters.

- As Bloomberg writes, the problem with Middle Eastern ammonia production is that the process isn’t particularly non-emitting – blue ammonia is made from natural gas, then associated carbon emissions are captured and trucked to producing oil wells, where it is used for enhanced oil recovery.

- Hence, the net emissions benefit of blue ammonia is questionable, however for as long as the EU does not have coherent standards for new fuels, blue ammonia deliveries might see substantial trade volume increases.

6. Once a Stale Industry, Europe’s Geothermal Plans Get Big

- Europe’s often-forgotten geothermal industry is set to experience a purple patch in the upcoming years as EU countries struggle to find viable alternatives to gas-fired heating.

- Whilst Europe’s geothermal landscape has up until now been dominated by Iceland, France, and Hungary, Germany is poised to become the largest up-and-coming region with investments tallying €1.5 billion by 2030.

- The one big challenge ahead of geothermal drillers will be success rates. In France or Hungary, success rates exceed 90%, but for newcomers, wells are less likely to be successful and often require ultra-deep drilling to depths of up to 5,000 meters.

- According to Rystad, the average capacity-weighted levelized cost of heating for Europe stands at €39 per MWh, roughly half of gas condensing boilers and a third of solar thermal heaters.

7. US Seeks to Develop Home-Grown Uranium Enrichment Know-How

- As Russia-US relations continue to worsen, the Biden Administration is doubling down on developing the United States’ uranium enrichment capacities.

- The thing is that Russia remains by far the largest uranium enricher, covering two-fifths of the market and still supplying a quarter of nuclear fuel used in the US’ 93 operational reactors.

- The US lacks domestic uranium-enrichment companies as the only remaining enrichment facility in New Mexico is owned by Urenco, a British-German-Dutch consortium.

- Meanwhile, uranium prices have been trading around the $50 per pound mark, effectively in stagnation since May as the wider retreat of commodities has been offset with a renewed momentum for nuclear energy.