of Iran and Nigeria

Iran’s deal with the West complicates a difficult situation for Nigeria.

When Nigeria sells crude oil, what gets to the Consolidated Revenue Fund (FAAC) is a function of the price of crude oil and volume pumped.

We can’t do anything about the price of oil, that is mostly an OPEC and commodities markets decision. On production, we can control what we pump out. The 2016 budget estimates 2.28mbpd production, is this feasible?

According to OPEC the highest production figure Nigeria has ever attained was 2.058mbpd in 1980. OPEC indicates. The latest figures we have is Third Quarter 2015 from the Central Bank of Nigeria which puts production at 1.95mbpd.

So today we have falling oil prices and falling oil production, these have grave implications for the economy but the real danger has been the lack of strategic visioning and marketing by the NNPC.

According to OPEC, in 2010 Nigeria was North America largest supplier of crude oil. Nigeria supplied more crude oil to North America (1,623,000 barrels) than Saudi Arabia (1,212,000 barrels).

According to the NNPC, Nigeria largest export market was North America, as at 2004, North America got 46% of our exports, in 2007 North America got 54%, This was a telling over concentration. What I find interesting is that Nigeria was selling to Saudi Arabia, but could not even secure it own backyard of Africa. By 2010, Saudi Arabia exported more crude oil to Africa than Nigeria but I digress…..

as at 2014 our exports to North America was down to 3%, yes Three percentage!, Saudi Arabia meanwhile has maintained its crude exports to North America, how? Well they invested in refineries in America, that ensured those refineries bought Saudi crude oil. We North America largest supplier of crude at a time did not copy them.

The reason for the fall is outside the scope of this article, but the fact is that we lost a key market for 50% of our crude oil exports. To cover this loss of a key export market, NNPC has increased its exports of crude oil to Europe and Asia, specifically India. This is smart.

The Oil Market report date December 2015, published by International Energy Agency states that only one region is projected to see an increase in crude oil demand…. that region is non OCED Asia, specifically China and India.

All the Middle East nations in OPEC export the bulk of their oil to Asia, the African nations in OPEC exported the bulk of their oil to North America. The US has cut down imports of crude oil, Angola has efficiently switched her crude exports to China, Algeria has moved to Europe.Nigeria is now targeting Europe and specifically India…our exports to Asia has ballooned.

This is where the problem lies.

The biggest exporter of crude oil to Asia is Saudi Arabia, next is Iran, Iran has remained second in spite of the sanctions. Now sanctions over, Iran has indicated it will go back to India,

"Indian crude demand is growing faster than other Asian countries. Like our competitors, we see this country as one of the main targets for Asian sales," an Iranian official told Reuters,

And India says they will buy from Iran if the price is right….

"It makes sense to buy oil from nearby options (like Iran)," said H. Kumar, managing director of another Indian oil firm, Mangalore Refinery and Petrochemicals, but added "intake will depend on prices."

So it’s a buyers’ market, buyers are going to buy from the cheapest source.

Now it costs Iran $12.60 to pump a barrel of oil, it cost Nigeria $30 to pump a barrel of oil. Thus all Iran has to do to take out Nigeria is to sell oil to India below $30….

Our crude the Bonny Light is one of the best in the world, it commands a premium price in the market, however Nigeria is left with no choice than to sell our oil at a discount to get buyers, even with the discount we still have unsold cargos.

Another factor that will play against Nigeria is our lack of tankers to carry and store our oil to market, as at 2014 according to OPEC Iran has 46 tankers, Angola has 27, Nigeria has 2 tankers.

So overall, the issues are not just a fall crude oil prices, but a narrowing of the market. Even If oil prices were high, we have a very limited market to sell our oil…

So what are our options?

1. We have to restructure the entire value chain of NNPC, with the aim to drive down costs. The NNPC already has a detailed plan as revealed by the Minister of State for petroleum. That needs to be fast-tracked.

2. Over 6,000 items are made from petroleum waste by-products including fertilizers. We simply can’t export crude oil anymore, we have to start to add value locally and export the byproducts of petroleum. Nigeria has to create a petrochemical economy on the back of our crude deposits.

3. We have to seriously look at gas, Especially NLNG, we have to fund our share of the upcoming trains and give NLNG every support, but we can also pass legislation to make gas available at a steep discount (even free) if an investor will invest in a company in Nigeria to use the gas, and get the gas out of the ground. Heck we fare the damm thing,

Ultimately, we have to look away from only oil, we have depended too much on it, time for the nation to seek wealth elsewhere.

Its our problem, we can solve it