Despite the dip in oil industry outlook, Indian state-run oil refiners are eager for Nigeria to increase its total term contract volumes next year, by more than 20% as demand from the South Asian country climbs.
Anibor O. Kragha, group executive director of the Nigerian National Petroleum Corporation (NNPC) said the request comes a few weeks before Nigeria’s crude oil term lifting contracts for 2017 are finalised.
“Three Indian companies mentioned that they are looking for a combined total of 11 million metric tonnes in 2017 from nine million metric tonnes this year.”
Kragha spoke at the Petrotech conference in New Delhi, India, to S&P Global Platts. He added, “Now what they will get is a balance between term contracts and spot sales contracts.”
About 224 companies have submitted bids to the Nigerian National Petroleum Corporation (NNPC) to be contracted for the lifting and sale of its crude oil in the next 12 calendar months.
The NNPC’s introduction of new requirements in the bid process ensured the reduction in the number of applications for the job in 2015.
Maikanti Baru, Group Managing Director of the NNPC said refiners and big crude oil lifters will be given priority in the process, which is expected to be concluded in February 2017.
About 700,000 barrels per day of oil (bpd), including Joint Venture and Production Sharing Contract volumes will be put up for lifting within the term.
The demand is also coming on the heels of the recently negotiated $15 billion investment for Nigeria’s oil and gas industry from India, with terms to be agreed by Emmanuel Ibe Kachikwu, Minister of State for Petroleum Resources.
According to the agreement, the government of India would make an upfront payment for Crude purchase to Nigeria, to be repaid on the basis of firm Term Crude Contracts over some years and in consideration for Indian public sector companies collaborating in the refining sector, as well as exploration and production activities on a Government-to-Government basis.
India as the largest buyer of Nigeria’s crude has always said it should have a longer-term arrangement with theNNPC to ensure security of supply.
“Now what they will get is a balance between term contracts and [spot] sales contracts,” he added.
The Nigerian crude oil term contracts involve the export of around 1.17 million b/d of Nigerian crude, out of the 2.2 million b/d the country can theoretically produce. It is then sold by contract holders to end-users, refiners and other buyers.
But with Nigerian oil output sharply down due to renewed militancy, the term volumes could be much lower for 2017 if output does not rebound.
Nigerian oil output had recovered sharply after it fell to a 30-year low in early summer but renewed attacks on oil infrastructure in the Niger Delta have shut in production of popular export grade Forcados, in the past month.
Total oil and condensate production was around 1.9 million b/d, including 300,000 b/d of condensates, Kachikwu said recently.
He said output could reach 2.2 million b/d if the militancy issues were resolved by early next year.
Kragha said that negotiations are ongoing and that he was not sure if the deal would materialise. He added that once Nigerian output recovers, it will “increasingly look towards India” as the major buyer of its crude.
“Indian demand is very positive for us. A vibrant Indian economy is good for us,” he said.
The two countries have been working on a memorandum of understanding in the past month, to enable the participation of Indian companies in Nigeria’s up and downstream oil and gas sectors.
The deal being negotiated by Nigeria will also have the Indian government make an upfront payment for the purchase of Nigeria’s crude on a long-term basis, as well as Indian public sector companies investing in Nigerian refineries.
Indian state-owned refiners tend to buy most of their crude on term contracts, while their remaining requirements are sought via tenders.
“We just came out of a meeting with key Indian oil companies and they are pushing to get incremental allocations for the term contracts,” said Kragha. “We explained to them that there needs to be a balance.”
India is a significant buyer of Nigerian crude, which is largely light and sweet, rich in gasoline and diesel and low in sulfur, and meets the needs of Indian refiners.
State-owned refiners like Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd are major regular buyers of Nigerian crudes like Qua Iboe, Bonny Light, Escravos, EA Blend, Erha, Usan and Agbami.
A source from an Indian refiner told Platts that Nigerian crude is a must for most of its refineries, especially the older ones which have been designed to run light sweet crudes.
“Despite all the militancy issues, we still buy Nigerian crude, as our refineries need it. We will continue to buy Nigerian crude, but we want them to supply us with more,” he said.
India, which is currently among the world’s fastest growing economies, has seen its gasoline and gasoil demand climb sharply over the past few years. This has encouraged Indian refineries to buy more Nigerian crudes.
In 2015-16, India imported nearly 23.7 million mt of Nigerian crude, nearly 12% of India’s overall oil imports, according to official Indian data.
The South Asian country also imports some two million mt/year of LNG from Nigeria.
Every month almost 20-25% of total Nigerian crude exports travel to India, particularly to IOC, which is the main recipient of Nigerian crude.
Indian refiners like IOC, HPCL and BPCL are currently on crude oil term lifting contracts for 2016 with NNPC.
Olusola Bello with agency report
