Nigeria’s crude market to shrink as South Africa looks to Iran
Nigeria’s international crude market may shrink further as South Africa; the country’s fifth largest buyer resumes purchase of Iran’s oil with an order of 100,000 barrels per day (bpd) of oil.
This may impact Nigeria’s oil income as South Africa bought crude oil worth N160bn from Nigeria last year.
However, the trade relations with Iran is a not a new development. Before Iran suffered sanctions in 2012, it was the major exporter of crude oil to South Africa, exporting about 380,000 bpd of oil.
After signing a series of agreements with South Africa in April last year, both countries are moving to forge closer economic ties including investments in refineries and new gas investments.
Bijan Zanganeh, Irans’s oil minister told journalists on the side-lines of a meeting with the visiting South African energy minister Tina Joemat-Pettersson in Tehran on March 4, that Iran is selling 100,000 barrels per day (bpd) of oil to South Africa and is also buying shares in the country’s oil refineries.
“Along with talks around oil and oil products exports to the African country, we have also discussed gas-to-liquids (GTL) projects which South Africa is willing to execute in Iran,” said Zanganeh.
This move is seen by analysts as a way to prepare against supply uncertainty in Nigeria and secure a bargain that will deodorise the odorous reputation of the current Jacob Zuma-led ANC government.
“With uncertainty lingering over Nigeria’s oil output in 2017, the Cape Town government has opted to enter partnership with a less volatile producer in the form of Iran – which has recently been reintegrated into the international market place,” says Luke Doogan, a former Lead Africa Analyst at West Sands Advisory, now an independent analyst.
“It can perhaps be argued that the embattled ANC government may have feared that Nigeria might fail to reach its supply quotas, which would – in turn – result in an oil or petrol shortage in South Africa – a blow from which Zuma might not recover with the 2019 elections looming.”
Adeola Adenikinju gas policy analyst for the World Bank and professor of Economics at University of Ibadan told BusinessDay by phone that this decision could be attributed to “supply uncertainties in Nigeria, or a better supply terms from Iran.”
None of these scenarios bodes well for Nigeria who badly needs oil revenue to fund its N7.2trillion 2017 budget. Lull in militancy has increased output to nearly 2.1m barrels according to Maitanti Baru, NNPC’s group managing director, a figure industry operators quote with nervous care.
“Nigeria should be worried because this may indicate that the South African have become concerned about their energy security and so they may want to diversify the sources of their supply and we need new markets for our oil,” says Wunmi Iledare, director of Emerald Energy Institute, University of Port Harcourt, Rivers State.
Iledare says that it was not different from what the United States after diversified the sources of their imports when it was clear they could no longer rely on Nigeria for supply.
A potential loss of N160bn revenue, analysts say can be averted if Nigeria quickly finds alternative market for its crude oil and improves refining capacity at home to reduce exportation of crude oil and enjoy the benefits of its derivatives such as naphtha, sulphur and mercury that is lost to refiners abroad.
“Nigeria should quickly resolve fiscal, regulatory issues including militancy to attract investments and guarantee supply, otherwise it will continue to lose market share,” says Adenikinju.
Doogan says that in the short to medium term, it may not be such a significant loss as Nigeria will likely be struggling to fulfil its obligations to its more important buyers but it shows the need to resolve militancy and insufficient domestic refining capacity in Nigeria.
ISAAC ANYAOGU