How Iraq’s new oil field threatens Nigeria’s oil revenue

Iraq’s recent discovery of a significant new oil field in the eastern province of Missan has sparked concerns for Nigeria’s oil-dependent economy. The newly discovered Al-Dima field, estimated to hold billions of barrels of recoverable oil, could potentially disrupt Nigeria’s position as a major oil producer and exporter in Africa.

Expected crude production in Iraq’s semiautonomous Kurdistan region has sparked concerns for Nigeria’s oil-dependent economy.

As a member of the Organisation of Petroleum Exporting Countries (OPEC), Iraq is the second-largest oil producer after Saudi Arabia and a solid chunk of its total comes from the fields in the northern Kurdistan region.

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The Kurdistan Regional Government (KRG), a semi-autonomous Iraqi region, and the central Iraqi government reportedly reached a new production-sharing agreement, resolving a dispute that halted Kurdish oil flows for over a year.

“Previously, the KRG signed several agreements with the federal government regarding oil exports. However, the Iraqi budget law set oil extraction and transportation costs at $6 per barrel, which became a major obstacle to oil exports,” Kamal Mohammad Salih, Acting Minister of Natural Resources in KRG, said.

According to the Acting Minister, Erbil and Baghdad have now reached an agreement to amend the budget law, increasing oil extraction and transportation costs to approximately $20.6 per barrel. “In the initial phase, companies will receive around $16 per barrel,” he stated.

This development could undercut Nigeria’s primary markets in Europe and Asia, where recent years have seen Nigerian crude lose market share to cheaper alternatives from the Middle East.

China, India, Spain, Netherlands, France, and Italy are the major buyers of crude oil from Nigeria. For context, Nigeria’s crude revenue stood at N23.84 trillion in the first half of 2024, according to the National Bureau of Statistics (NBS), and the six major buyers account for N13.78 trillion of the total, indicating a 57.8 percent share.

These six Nigerian crude major buyers and more are also markets for Kurdish oil.

Iraq’s State Organisation for Marketing of Oil (SOMO) announced earlier this year that Chinese energy firms emerged as the largest buyers of Iraqi oil in December.

According to SOMO, “Chinese companies accounted for the majority, with 12 out of 44 international firms purchasing Iraqi oil during December.”

Indian companies ranked second with seven firms involved, followed by South Korean companies in third place with four.

Turkish companies also came third with three firms, while American, Italian, Japanese, UAE, and Greek companies shared fourth place, with two firms each.

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The statement further noted that the remaining buyers included Spanish, Dutch, British, Jordanian, Kuwaiti, Russian, Malaysian, Azeri, and French companies.

Energy analysts predict a significant impact on Nigeria’s budget, which is already strained by fluctuating oil prices and production challenges.

“While there are many variables at play, it’s a negative signal for the government’s economic plans when Nigeria is pushing hard to produce more of something the market may want less of,” said Clementine Wallop, director for sub-Saharan Africa at Horizon Engage.

According to analysts, Africa’s largest crude producer must boost production efficiency and address oil theft, or face further revenue losses.

Ndubuisi Okereke, Senior Lecturer, Petroleum Engineering, Afe Babalola University, said that the greatest challenge that led to the drop in production in this administration has been oil theft.

Nigeria has recorded an average crude oil output of 1.5 million barrels per day (bpd) this year, falling well short of its estimated production capacity of 2.2 million bpd.

This production gap has been linked to issues such as theft, insufficient investment, and operational difficulties at aging oil fields, according to S&P Global Commodity Insights.

The Nigerian National Petroleum Company (NNPC) Limited has outlined plans to revamp infrastructure and attract investment, but progress has been slow.

However, Mele Kyari, the Group Chief Executive Officer of the NNPC, announced an increase in output, reaching 1.8 million bpd of crude oil and 7.4 billion cubic feet per day (Bcf/d) of gas.

Kyari attributed this improvement to coordinated efforts by the government, security forces, and joint venture partners in addressing theft and acts of sabotage.

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However, the announced figures differ from the official data provided by the Nigeria Upstream Petroleum Regulatory Commission and OPEC.

According to these sources, October’s production, excluding condensates, was estimated at 1.32 million barrels per day (bpd) and 1.44 million bpd, respectively.