The emergence of India as the single-largest importer of crude oil from Nigeria may be helping in cushioning the negative impact occasioned by the significant drop in the United States’ (US) import of crude from Nigeria. But analysts say Nigeria needs to take drastic measures to sustain and attract increased demand from the energy-hungry Asian nation and other buyers, as well as stimulating further economic growth.
Some of the drastic measures, according to the analysts, include offering of discounts to buyers, increasing domestic refining capacity, expansion of the midstream and downstream sectors of the oil and gas industry and diversification of the economy.
The growth of US domestic light shale oil production resulted in a 63 percent drop in the country’s dependence on import of Nigeria sweet crude over the past five years, but India has now replaced the US, accounting for around 17 percent of the crude imports from the country, according to a recent analysis by energy research firm, Platts.
“Certainly, the fact that the US has reduced its imports of crude from Nigeria implies availability for other buyers,” said Omowumi Iledare, professor of petroleum economics and policy research and director of the Energy Information and Data Division of the Center for Energy Studies, Louisiana State University.
“But you probably could see the implications in the short run. The economy of the country replacing US in the purchase of Nigerian oil is not as developed neither is it as petroleum consumption prone as the US economy, especially the transportation sector.”
India is expected to import at least 13 cargoes, or 17 percent of the 75 scheduled for export, from Nigeria by end May. In March and April, India imported six and seven cargoes, respectively. On an average, one cargo has around a million barrels of crude oil.
India’s state-run Hindustan Petroleum Corp Ltd has bought 2 million barrels of Nigerian Qua Iboe crude oil via tender from BP, trade sources told Reuters last Wednesday.
Noting the possibility that more oil from Nigeria will find its way to Asia as the economy expands in India, South Korea and China, Iledare, however, expressed worry over the expanding competition from the West African coast for these same markets.
Nigerian light crude is becoming attractive because the Brent-Dubai differential has become very less in the last five to six months and there are growing environmental concerns over sulphur dioxide emission. Nigerian crude is low in sulphur content.
The Brent-Dubai differential is the difference between two benchmark prices—Brent (which is for light crude) and Dubai (for heavier crude). The difference in prices between the two has come down from around $6 to $1 per barrel in the past six months.
“What is going on in the market for Nigerian crude is a wake-up call,” said Iledare, in an emailed response to questions from BusinessDay, adding that “in the short run, however, the emerging economies in Asia (China, Malaysia, and Singapore) are our best bet to market Nigerian crude, but only as a temporary measure.”
He noted that Nigeria might need to give these emerging economies discounts, more so when the stolen Nigerian oil possibly competes in these markets as well. “But the long-run path is the expansion of the midstream and downstream sectors of the oil and gas industry in Nigeria. This begins with subsidy removal with a gradual deregulation of product pricing, especially petrol.”
Emmanuel Usanga, controller, subsurface, Peak Petroleum Industries Nigeria Limited, said: “Now that we are seeing a potential crumbling of the oil export market we should be looking inward at portfolio diversification. We can best survive the impending calamity if we diversify into manufacturing and agro processing.”
“The only factor that would sustain Nigeria’s crude oil exports is lowered oil prices. Saudi Arabia and OPEC as a whole face the same challenge.
