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Falling crude price: Nigeria risks losing Asian market to Arab producers

By Clara Nwachukwu

LAGOS — Nigeria’s share of the Asian market is now seriously being threatened by the ongoing price war among the big Arab oil producers. Asia became Nigeria’s safe haven after the loss of the American market, but this may not be sustained for much longer, a development that has made oil industry experts to urge the Federal Government to form alliances with the Asian customers to cushion the effects.

crude-oil-pipe-702x336-436x336The Arab producers, who have always been on constant price war last week even pushed the notch higher because of the sliding crude oil prices, by offering discounts as high as above $4 per barrel, the highest in over a decade in order to retain their respective market shares. Bloomberg recently reported that Iraq, Kuwait and Iran have joined Saudi Arabia in cutting their March crude prices for Asia, signaling the battle for a share of OPEC’s largest market is intensifying.

According to the report, “Iraq’s Basrah Light crude will sell at $4.10 a barrel below Middle East benchmarks, the deepest discount since at least August 2003, the Oil Marketing Co. said Tuesday. National Iranian Oil Co. said its official selling price for March Light crude sales will be a discount of $2.10 a barrel, the widest since at least March 2000, according to a company official who asked not to be identified because of corporate policy. Kuwait Petroleum Corp. said Wednesday its discount will be $4.10, the biggest since August 2008.

“The cuts come after Saudi Arabia, the largest crude exporter, reduced pricing to Asia last week to the lowest in at least 14 years. The Organisation of the Petroleum Exporting Countries, OPEC, left its members’ output targets unchanged at a November meeting, choosing to compete for market share against U.S. shale producers rather than support prices. Iraq is the second-biggest producer in OPEC, Kuwait is third and Iran fourth.”

The report further added: “Middle Eastern producers are increasingly competing with cargoes from Latin America, Africa and Russia for buyers in Asia. Oil prices have dropped about 45 percent in the past six months as production from the U.S. and OPEC surged.”

Nigeria’s budget’ll be distorted

Assessing the impact of this price war on Nigeria, industry experts argued that the price war will further distort Nigeria’s 2015 Appropriation Bill, as according to them, if the price war continues, it will increase pressure on the oil market, particularly for the buyers, until it gets to saturation point. Speaking in a telephone interview with Vanguard, Managing Director/Chief Executive, International Energy Services Ltd, Dr. Diran Fawibe, said: “Nigeria’s budget plans are already in trouble, so government now has to look for other ways to finance its expenditures.

“As it is, there is no way we can succeed with the budget without cutting down significantly on the import of unnecessary goods. This is because the Naira is under severe pressure, and with declining reserves, there is no other way out.” Fawibe insisted that the situation called for further financial prudence, particularly on the part of the state governments, whom he said are “financially undisciplined” and lacked good leadership.

In view of the foregoing, Fawibe suggested that in the absence of processing our own crude, thereby adding value and cutting down on fuel importation for domestic need, government should consider buying interests in refineries in Asia and Europe, since the Asian market can no longer be taken for granted. Similarly, the President, Nigerian Association of Petroleum Explorationists, NAPE, Dr. Chikwe Edoziem, told Vanguard exclusively that government needed to engage in serious economic restructuring.

He suggested that this could be done by government “growing the reserve base thereby saving for the rainy day; drastically reducing personnel size, particularly of political appointees; cutting down on capital expenditures to reduce capital exposures, as well as, look at areas of efficiency and becoming self sufficient in our energy needs.”

Edoziem, whose association is responsible for oil and gas exploration and production, noted that the price war among the Arab producers is possible because their unit cost per barrel is much cheaper than in most regions of the world, compared with Nigeria’s where cost per barrel is among the highest in the world.

He argued that due to their cheap costs, the Arabs have been reaping huge profits from the sale of crude for years when prices were high, adding that now that prices are falling, they could afford to give discounts even if price fell to as low as $30 per barrel.

He said further, “Under the circumstances, we have to find ways to retain market share for our crude, and this will depend on how much per barrel, because the cost per barrel differs according to the specific fields.

Like Fawibe, he suggested that to avoid further economic woes, government could work out relationships or alliances with refineries that use sweet crude, since the Arab crude is heavier, for Nigeria to retain our market share.

NNPC undecided about what to do

Despite the growing threats to the crude market share, the Nigerian National Petroleum Corporation, NNPC, which is responsible for marketing the country’s crude remain undecided about what to do.

When contacted on the issue Thursday last week, the NNPC spokesman, Mr. Ohi Alegbe, in a text message to Vanguard, simply said: “We will get back to you once I hear from our crude marketing department,” but has yet to do that, as at the time of this report.

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