Saudi Arabia and Iraq are battling Nigeria to gain more market share from India, the world’s third-largest crude oil importer, with the two Middle East countries’ oil exports hitting the highest levels in more than a decade, in January 2016.
Competitive prices and shorter shipping distances are giving the Middle East countries the upper hand in the battle for higher Indian crude market share.
Dubai benchmarks are also priced lower, making the Middle East imports more attractive.
In addition, compared with similar grades, Iraq provides discounts that could amount to more than $1 a barrel to compensate for crude quality changes, according to market sources. “There is heavy competition for Nigeria. Saudi can afford more discounted sales barrels than Nigerian, due to its relatively better cushioned economy and foreign exchange reserves, so Nigeria may be affected to some degree”, said Rolake Akinkugbe, Head, Energy and Natural Resources, FBN Quest.
“Iraq is under pressure and dependent more than ever on its oil and gas industry, so it will be pushing its exports aggressively. However, Saudi competition may be tempered by talk of output curbs by OPEC in order to influence prices”, Akinkugbe added.
Nigeria was the third largest supplier of crude oil to India for the month of January, with about 500,000 barrels per day (bpd) or 11.7 percent of Indian oil imports, behind Saudi Arabia’s 940,000 bpd (22 percent) and Iraq’s 930,000bpd (21.6 percent). In the past, Middle East heavy crude grade was not seen as a threat to Nigerian light crude grades but market dynamics are changing.
Dolapo Oni, Head, Energy Research, Ecobank Development Company (EDC) said that “Indian refineries are getting really complex and can process heavier sour crudes and still get as much gasoline and light ends as needed”.
However, Nigeria may have some competitive edge due to some long-term contracts. “Nigeria has several on-going term contracts with Indian buyers well into 2016, so these are not going to be directly affected by competition from Saudi and Iraq; where things may get tricky is in the spot market”, said Akinkugbe.
Despite some of the long-term contracts, Nigeria is still finding it difficult to sell its crude. Akinkugbe said, “you only need to look at the first two months of the year to realise the potential challenge for the rest of the year. Several of Nigeria’s cargoes from February remain unsold. Already, at least, 25 million bbls of March crude are struggling to find buyers”. If the Chinese demand does not pick up, we might have issues, as Indian demand drops. We do not really sell much to China currently but if that increases, it might help reduce the impact”, said Oni.
On the way forward for Nigeria, Oni suggests Nigeria needs to involve more Indian companies in the lifting of crude cargoes, in addition to developing local refining capacity. “The resurgence of the refinery in Ghana should also mean we are able to sell more regionally as against exporting to foreign markets. Furthermore, if we can get our power sector issues sorted, ultimately the gas-fired plants can also burn light crude oil to generate power but at a higher cost, which they need to be able to pass through via tariffs”.
The focus for Nigeria, according to Akinkugbe, will be for the Asian export market. “However, there is some pick-up in activity back towards the Atlantic Basin and towards North America, which should not be ignored. So a degree of openness towards Western buyer markets, including Europe is necessary.
“ Asia will consume the bulk of our exports in the foreseeable future, but the narrowing differentials with Brent, and the discount game being played on global markets by major exporters such as Saudi, necessitate a flexible crude oil marketing/selling strategy by Nigeria. This should see a mix of both spot and term contracts at play”.
According to Nigerian National Petroleum Corporation (NNPC) data, India was the highest buyer of Nigerian crude with 127,566,029 barrels for January – October 2015, representing 19.95 percent, followed by the Netherlands with 102, 215,314 barrels (15.99 percent) and Spain with 67,061,382 barrels (10.49 percent). India imports nearly 80 percent of its oil needs.
January 2016 data show Saudi Arabia supplying 22 percent, Iraq 21.6 percent, Nigeria 11.7 percent, United Arab Emirates 9.1 percent, Venezuela 8.7 percent, Iran 6.3 percent and Kuwait 4.8 percent.
FRANK UZUEGBUNAM
