The demand from Nigeria for ship-owners to sign a “letter of comfort” before loading at Nigerian oil terminals has caused a lot of uncertainty in the global shipping and oil markets, pushing up West African Suezmax freight rates, and it is beginning to apply brakes on spot trading activity in the Nigerian crude oil market, trading sources said.
Two weeks ago, state Nigerian National Petroleum Corp. put into a place a requirement that tankers entering Nigerian oil facilities sign a letter of comfort that critics said exposes vessel owners to responsibilities outside their control.
NNPC released a template of the letter of comfort last week, asking tanker owners to guarantee that they will not indulge in any illegal activity.
But ship-owners and maritime lawyers have said that due to vague language and legal issues relating to “indemnity” in the letter, there was little chance they could sign it.
A lack of clarity and dialog with the Nigerian authorities has caused this uncertainty, leading to a firming of freight rates and causing a furor amongst traders and ship-owners active in the Nigerian oil market.
Some ship-owners have created their own template for a letter of comfort and are in discussions between charterers, terminal and NNPC to use this version of the letter for the time being.
“It is sort of impeding spot trading- and a knock-on effect on freight. It’s a completely nonsensical proposal and the market reacts accordingly,” said a crude trader active in the Nigerian oil market. He added there had been meetings between oil majors and the Nigerian government on this issue and that there might be a grace period.
“But there might be a compromise between all of them,” the trader said. “It’s not clear on what will happen but spot trading is on hold.”
West Africa-UK Continent route freight rates, basis 130,000 mt, have risen by more than Worldscale 10 points since September 16 and shipping sources have said a tanker was placed on subjects at an even-firmer w72.5 Monday for a voyage on the route loading October 12. This is close to a five-week high, Platt’s data showed.
So far, a majority of ship-owners have been unwilling to sign NNPC’s letter of comfort. They say their refusal comes on the back of advice received from legal sources and Protection and Indemnity [P&I] clubs.
As uncertainty regarding the NNPC situation still persists, there is currently reluctance among many ship-owners to offer their ships for Nigerian loadings, and those that do are asking for higher freight rates.
“Until we are given some sort of clearance or the OK from our P&I club we will try and avoid Nigeria,” said a shipowner with multiple Suezmaxes on the current West African position list. “No doubt money talks though so we will see owners going there, but with a premium [on the freight].”
Though ship-owners refuse to sign the NNPC letter, loading in Nigeria has continued as normal, according to shipping sources.
“Vessels are being cleared [to load] without the letter; it just seems to be a procedural problem for the charterers at the moment,” said a second Suezmax owner.
Some shipping sources, however, said NNPC were beginning to accept alternative letters to the one they originally wrote last week.
“As far as I know,” said a charterer recently active in the Nigerian Suezmax market, “NNPC are now accepting the following letter from the owners: ‘Owners confirm that Master and crew will not knowingly participate in any unlawful or prohibited activity whatsoever while in Nigerian territorial waters and all activities will be carried out in compliance with orders received from Charterers.’ Progress is definitely being made.”
A spokesman from NNPC was unavailable for immediate comment.
A spokeswoman at Shell, one of the major terminal operators in Nigeria, declined to comment. A spokesman for ExxonMobil, another major terminal operator in Nigeria was also unavailable for comment.
SLOWDOWN IN ACTIVITY
This issue has also begun to impact activity on the Nigerian crude markets, with some regular buyers staying away from buying on the spot market until there is further clarity.
“It is proving quite tricky – there are talks between the oil majors and NNPC, looking at mutual agreeable wording [for the letter] – it’s a question of who wants liability,” said another Nigerian crude oil trader. “In essence, what NNPC wants is agreeable but it’s a matter of legal wording that suits everyone.”
Due to this ambiguity, there has been some hesitation in buying Nigerian crude and fixing ships loading there, some traders said. One regular buyer said this could potentially become “a big issue” and that some buyers were not moving Nigerian barrels before it is resolved.
Another Nigerian crude trader, however, was less pessimistic, saying ship-owners were working together with terminal operators and NNPC to redraft the letter of comfort and that it has so far not had a negative impact on the market.
“This situation could have been worse but there is some [encouraging] discussion going on between the operators and ship-owners to work something out,” he said.
Shipowners calling at Nigerian terminals have taken steps to protect themselves against any possible losses arising from disputes with NNPC, and a charter party clause created by The International Association of Independent Tanker Owners (Intertanko), is their primary means of protection.
The Intertanko Nigerian clause — which was seen by Platts — states that “To the best of Owner’s knowledge, the vessel is not at the date of this charter-party subject to any ban by Nigerian Authorities from calling at and/or using any Nigerian ports, places or terminals, or sailing within Nigerian waters, whether arising out of any previous calls by the vessel or any other vessel owned or controlled by Owners or otherwise.”
The clause also states that the responsibility for providing NNPC with out-turn data from the discharge port — which may include an independent cargo survey — rests with the charterer of a vessel, rather than the shipowner. If there are any expenses incurred or time lost in obtaining the out-turn data, it will be for the charterer’s account.
Intertanko has also said that is continuing to advise caution in any trade in Nigeria and it also recommends that banned ships stay away from the country despite the lifting of a ban.
This letter of comfort episode appeared two weeks after Nigeria took steps to review a controversial blacklist for oil tankers loading at its ports. NNPC announced the lifting of the ban on more than 100 tankers from entering Nigerian oil facilities and territorial waters almost two months after it imposed the embargo without any official explanation for the move.