As if the recent drop in oil prices was not enough bad news for Nigeria’s economy, recent data show that this summer the US completely stopped importing crude oil from Nigeria. This marks a dramatic reversal for Africa’s largest economy: Nigeria, according to Deutsche Bank.Nigeria in 2010 was still among America’s top-5 oil suppliers and exported at its peak 1.3 million barrels per day to the US. Declining US oil imports due to the “shale revolution” are a general pattern, but the decline in imports from Nigeria proceeded much faster than for the US’s other major suppliers.

So far, the economic effects for Nigeria have been mitigated by a successful shift of oil exports towards Europe and Asia, but the current drop in oil prices poses stark challenges for Nigeria’s external and fiscal accounts and puts heavy pressure on the exchange rate.

For the first time since records started in 1973 the US did not import a single barrel of crude oil from Nigeria in July 2014. US crude oil imports have been on a downtrend in general as domestic production surged due to the “shale revolution“, but the decline in Nigeria’s crude oil exports to the US stands out as the most pronounced among major oil exporters. Whereas total US average monthly crude imports shrank by roughly one-fifth between 2010 and 2014, imports from Nigeria dropped by 91% over the same period, Deutsche Bank said.

The reason Nigeria (a similar story holds true for Angola) is more affected than other major suppliers, like Saudi Arabia or Kuwait, is partly attributable to the type of oil Nigeria produces. Nigeria’s crude oil, the Bonny Light, is characterised as a light and sweet crude (i.e. containing a low level of sulphur). It is of high quality, which was a blessing in the past as it allowed Nigeria to sell at a premium.

However, the shale revolution is resulting in a sharp increase in the production of light tight oil (LTO) in North America. US LTO production increased from virtually nothing in 2010 to around 4.1 million barrels per day in 2014.

Nigeria’s misfortune is that this light tight oil shares similar characteristics with its Bonny Light. Consequently, the US refining capacities for sweet light crude oil are now mainly used to process the increasing volumes of domestic LTO, thus crowding out refining capacities and demand for imported sweet light crude oil, among others Nigeria’s Bonny Light.

By contrast, refining capacities for heavy sour crude oil, the kind of oil produced in the Gulf, are not absorbed by domestic production, thus keeping demand for crude oil from countries such as Saudi Arabia or Kuwait less affected.
Source: Deutsche Bank