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Marketing Nigeria’s crude: Still business as usual?

Crude-oil-revenue (1)

Nigeria remains Af¬rica’s number one oil producing country ever since the first commercial well was drilled with an estimated 2.3 million barrels per day. With a reserve base of about 37 billion barrels, Nigeria presently ranks tenth on the list of most petroleum-rich nations.

Sales of crude oil in Nigeria are usually done through the Nigeria National Petroleum Corporation (NNPC) often via private traders. According to the Nuhu Ribadu-led Petroleum Revenue Special Task Force in its report, “Nigeria is the only major producing country that sells 100 percent of its crude to pri¬vate traders rather than market it it¬self and benefiting from the resulting added value. A number of beneficiaries of export allocations are nothing but letterbox companies”.oil facility

Nigeria’s petroleum grade is largely free of sulphur and is classi¬fied mostly as “light” and “sweet”, one of the attributes that makes Nigeria’s crude hot commodity on the inter¬national oil market. Nigeria is the largest producer of sweet crude in OPEC. Thus, over the years, Nigeria marketed its crude effortlessly. But times are changing especially with the advent of shale oil and emerging hydrocarbon discoveries in many countries across the world.

It may sound like a fairy tale but someday, Nigeria may wake up and find out that there is no market for its crude.

The picture is getting blur

The return of Libyan oil pr0duction and higher freight rates are already undermining European demand for longer-haul West Afri¬can cargoes including Nigeria sweet crude. The question now is; where is NNPC seeking new market and what efforts are they making to snap up and lock down opportunities?

NNPC seem to be consumed with deals; from the swap programme un¬der the offshore processing arrange¬ment to subsidies. And things are getting scarier. With rising US shale oil output, it has already started re-routing flows of Nigeria and Alge¬rian light, sweet crude oil which used to flow regularly to the United States. US imports of light, sweet crude will fall to virtually zero by 2014, an ex¬ecutive of French Energy Company Total’s trading arm predicted in Oc¬tober 2013. This upheaval in crude oil patterns has prompted European refiners to look at suitable crude oil grades to adapt for use as feedstock.

Analysts are of the view that the extra volumes of Canadian crude arriving in Europe have depressed prices for Nigerian grades, which have fallen around $1 since early De¬cember 2013.

Though more Nigerian crudes are expected to head to Europe in March 2014 compared to February, there is still need for cautious optimism. About 25 cargoes or 36 percent of the Nigerian cargoes loading in March 2014 will be going to Europe, com¬pared with about 15 to 17 cargoes or 25 percent in February.

What to do with India

In 2013, India emerged as the single largest importer of crude oil from Nigeria after significant drop in United States’ imports.

Twelve Nigerian crude cargoes, each carrying close to 1 million barrels, will be going to India in March 2014, making it more than 16 percent of the export programme compared to nine or 15 percent in February. Indian Oil Corporation has already bought up to 8 million barrels of West African crude for April loading, the majority from Nigeria, which should continue to support the market. India’s import of Nigeria crude oil is projected to grow by 26 percent to reach 116.8 million barrels in 2014 according to BusinessDay Research and Intelligent Unit (BRIU).

But is there any strategic plan by Nigeria to lockdown the Indian crude market? One Mahesh Sachdev in an online response to a recent report by BusidessDay West Africa Energy feels that Nigeria is not doing enough. According to Sachdev, “un¬like its competitors, Nigerian crude is not marketed aggressively in India even as India has become the largest buyer of Nigerian crude”.

Sachdev feels that Nigeria has not offered India any viable long-term win-win arrangements, such as large volume term contracts, barter trade and netback deals (under which Nigeria can swap crude supplies with sourcing of refined products of which India is a major exporter). Ni¬geria, he said, needs to do more for India especially as Nigerian crude is traditionally more expensive for In¬dia than the Gulf-based crude due to its distance from India, Brent-bench¬marking, need to buy it on spot-market and higher tanker insurance premium for piracy and fraud.

Any lessons from Iran?

Even with the thirst for crude oil still prevalent; it’s no longer enough for hydrocarbon-rich nations to fold its hands for their crudes to be snapped up. There is need for a strategic and aggressive marketing plan.

While the sanctions over the country’s sensitive nuclear program lasted, Iran offered deep discounts if refiners raise purchases and fol¬lowed up with free delivery of crude to major client, India. When signs emerged for the lifting of the sanc¬tions, Iran began to fire on all cyl¬inders to ensure that it regains its status in the international markets and quickly restores its pre-sanctions crude sales levels.

On the sidelines of OPEC’s min¬isterial meeting in Vienna in early December 2013, Bijan Zanganeh, Iranian Oil Minister, said Tehran would engage seven oil giants, including France’s Total, Royal Dutch Shell, Norway’s Statoil, Italy’s Eni, British Petroleum as well as U.S. Exxon and Conoco make investment in Iran’s energy sector once the interna¬tional sanctions are lifted.

At the World Economic Forum in Davos, in January 2014, Zanganeh held face-to-face meetings with se¬nior officials of big international oil and gas companies to outline the new situation after the implementa¬tion of the Geneva deal on Iran’s nu¬clear program and to negotiate with them and lure investment in Iran’s oil and gas projects.

Also as part of its efforts to regain its pre-sanctions sales level, Iran is planning a conference in July 2014 for the introduction of a new frame¬work governing oil contracts. Mehdi Hosseini, the head of a committee tasked with overhauling the oil con¬tract framework, said Iran is pushing for a “win-win” formula for the new contracts which no doubt will impact on its crude production and sales.