Strategic plan to engage Africa’s oil market

As the move to add Nigeria and Libya to OPEC supply cap deal which has seen the cut of about 1.8m bpd of production since November 2016, gains momentum, Africa’s largest crude producer’s plan to diversify its market looks pragmatic.

Ibe Kachikwu, minister of state for petroleum resources, in remarks made at the sixth edition of the annual Sustainability in the Extractive Industries (SITEI) conference in Abuja last week, said that Nigeria will make a calculated change of direction in its oil and gas business in order to focus on meeting the growing demands of countries in the African continent.

Nigeria has traditionally sold her crude to markets in Europe and America and recently to Asian markets but demand is falling especially in Europe and America largely for two key reasons. There is a surge in renewable energy investments in Europe with major powers on the continent coalescing around banning combustion engines.

This is helping electric cars which are seeing a demand surge as the option is acknowledged to help check carbon emission and protect the earth.

In the United States, shale producers are ramping up capacity such that US production is at 10 year high. Baker Hughes rig count for oil production was over 765 last weekend showing that shale producers have no plans to slow

Against this backdrop, Kachikwu said that Nigeria would now shift its focus to African market, making sure that majority of the volumes of oil and gas demands of the continent came from her oil fields.

According to the minister, Nigeria would work with Angola to ensure that both countries secure and satisfy oil demands from the continent. He also said that it was time for Nigeria to consider her interests first above any other interests.

Favouritism, not protectionism – just add a little common sense

Kachikwu emphasised that Nigeria will not seek a protectionism policy, but rather favour its local oil firms in the award of oil contracts.

However, a strategy that seeks to capture the African market on the basis of selling oil as commodity is not very pragmatic. Firstly, in a world that is awash with oil, its derivatives make a better value proposition.

Already Africa has good refiners like South Africa, Egypt and even Angola but the West African market is perhaps the largest in Africa and the most poorly served. It is also the sub-continent with the highest energy poverty in the world.

A PwC report that validates the notion that Nigeria could be a refining hub in the subcontinent, using demand data from the region called on the government to take advantage of an underserved refining market in the sub region.

“With oil prices expected to remain low in the medium to long term, the focus on ramping up domestic refining capacity should become imperative. Lower oil prices would mean cheaper crude feedstock and higher refining margins for refiners. A shift from crude production to crude value realisation will see Nigeria becoming a net exporter of refined products by start of the next decade,” said the report.

The West African sub region alone consumes 22 billion litres of PMS, 11 billion litres of AGO and 1 billion litres of Aviation fuel annually constituting a huge market on its own. Of this figure, Nigeria accounts for 17 billion litres of PMS consumed in transportation and power sectors, 3 billion litres of AGO and 400 million litres of Aviation fuel.

The potentials are enormous but the rewards are the consequence of long term planning and strategic thinking.

ISAAC ANYAOGU