Nigeria’s crude oil revenue looks set to take a hit, as the country’s largest buyer, India, is about to build the world biggest refinery, thanks to Saudi Arabia.
India, one of the world fastest growing currently among the world’s fastest growing economy, has seen its gasoline and gasoil demand climb sharply over the past few years, which has encouraged the country’s refineries, Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL), and Hindustan Petroleum Corp Ltd (HPCL) to buy more Nigerian crude Qua Iboe, Bonny Light, Escravos, EA Blend, Erha, Usan and Agbami.
In a situation that will make Nigeria lose its targeted market, Saudi Arabia, the world’s biggest oil exporter, is looking at making India a regional hub for supply of crude oil and will invest billions of dollars in the country to build storage facilities and strengthen refineries, which will keep pace with growing demand.
There are also plans to build a new refinery on the western coast, with a mooted capacity of about 1.2 million bpd, with Saudi Aramco. That would make it the largest single refinery in the world, and put it within touching distance of the Arabian Gulf.
Saudi Foreign Minister Adel bin Ahmed Al-Jubeir, who was part of Saudi Crown Prince Mohammed Bin Salman’s delegation to New Delhi, said his country has looked at India as a rising economic power and was very bullish about its potential to grow further.
“We are looking to make India a hub (for crude oil supply) in the region. We are looking to build storage facilities in India, we are looking at refineries and downstream assets in India,” Al-Jubeir said in New Delhi.
The Kingdom is the subcontinent’s fourth-largest trading partner, providing almost 20 percent of its crude oil imports while India is the third-largest consumer of crude in the world after the US and China, using more than four million barrels of crude oil per day (bpd) as Demand is expected to rise in the medium-term to nearly six million bpd, climbing to around 10 million bpd by 2040.
Aramco’s stake in this mega refinery will also be an important strategic step for the oil giant, adding a key link to its global refining chain in one of the world’s fastest-growing markets, whilst diversifying away from domestically produced petroleum products.
The rapid growth in oil consumption is a major challenge for India, which has a total refining capacity of about 4.6 million bpd. Currently, that is not enough to meet local demand.
The country’s energy policies also restrict imports of petroleum products, placing greater strain on local refining. A partnership with Saudi Arabia therefore, the world’s largest oil exporter, will be invaluable to safeguard future supply.
India is expected to increase import of oil from countries such as Saudi Arabia and the United Arab Emirates if the US does not extend the six-month-long waiver it granted to New Delhi and several other countries to buy oil from Iran.
Charles Akinbobola an energy consultant in a Lago- based oil and gas firm said Nigeria might need to start looking for other buyers of it crude products because Saudi Arabia has plans to dominate the India market.
“By building the proposed refinery, Saudi Arabia is strategically positioning itself to dominate the supply of India’s oil demand which will automatically threaten Nigeria’s supply to India,” Akinbobola explained by phone.
Despite being an economy that relies majorly on proceeds from crude oil exports, successive governments in Nigeria have been unsuccessful in putting in place adequate structure that will ensure policy stability, attract foreign investors and continuity in the economy.
Luqman Agboola, head of energy infrastructure at Sofidam Capital, said with better regulations Nigeria National Petroleum Corporation (NNPC) should be operating like Saudi Aramco by not only meeting local demands but also expanding to neighbouring countries.
“Nothing stops NNPC from building refineries in Benin or Togo but due to weak laws and regulations the corporation still seems to be struck in past glory,” Agboola said to BusinessDay.
