It’s still a signature away from being formalised. But the tentative oil deal between India and Nigeria has the potential to quietly fuel their mutual aspirations to become formidable regional leaders and boost their economic fortunes. Together Nigeria and India have the potential to be an economic power-couple and dominate Africa and South Asia .
In a three-day visit to India in October Nigeria’s petroleum minister Emmanuel Kachikwu signed an MoU with his counterpart on oil agreements worth $15 billion. Even though it’s one fifth of the value Kachikwu signed up with a number of Chinese companies three months earlier, the deal with New Delhi could have greater potential to expand economic cooperation in other areas than with Beijing.
For a start, India is already Nigeria’s biggest trading partner and reciprocally, Nigeria is India’s biggest trading partner in Africa. The volume of trade between New Delhi and Abuja is worth $16 billion. Even though their partnership mainly hinges on a single commodity – oil, India’s new-found enthusiasm under PM Narendra Modi to expand ties with Africa overall is bound to benefit its strongest continental partner first. Two weeks ago the Indian government cleared a proposal to revise and expand air connectivity with Nigeria. The last time the air services agreement between the two was revised in 1978. Economically and demographically too Nigeria faces similar complexities and challenges as India than China.
But the greatest catalyst for Nigeria would be India’s hunger for oil. The emerging economy has inched up as the world’s third largest energy consumer. And it’s hungrier for oil still. By OPEC’s own estimates India’s demand for oil will more than double to 10 million barrels per day by 2040. Currently it’s consumption is in the ballpark of 4.5 million barrels per day – a 9% increase over last year – and imports 80% of its crude oil consumption.
The demand for Nigerian crude varieties such as Bonny Light, EA Blend, Erha, Qua Iboe, Agbami and Usan is particularly high amongst Indian state-owned refiners. An official in the Nigerian National Petroleum Corporation revealed last week the major refineries have asked for over a 20% increase in the total term contract volumes totalling 11 million metric tonnes, up from 9 million metric tonnes, in 2017.
I asked Josh Holland, a senior analyst at IHS Markit, what increasing the crude volume to India would mean. “Getting larger allocation of Nigeria’s crude exports would provide its economy a hedge against rising oil prices. India’s refineries, especially its older less complex facilities, prize Nigeria’s light sweet crude, which is easily turned into gasoline and diesel. Indian oil and gas companies would also get preferential access to Nigeria’s petroleum industry, which appears set to undergo a major overhaul in the next few years,” he said. Holland believes such reform could open up attractive investment opportunities for both state-owned and private Indian firms, which could result in them playing an important role in the industry’s future.
Nigeria on the other hand can benefit from the deal with India and the much-needed injection of funds it will bring to help stabilize its beleaguered hydrocarbon sector and economy. The oil dependent country has been battered by a dual oil price and production shock – with renewed sabotage in the Niger Delta disrupting 2016 oil and gas output, and in turn, reducing investment, government revenues, energy supplies and foreign exchange earnings. This has pushed Nigeria into a recession for the first time in three decades while also causing a spike in inflation – both of which have weakened investor and public confidence in the government.
The OPEC member, which draws 70 % of its national income from crude exports, badly needs to revamp its oil and gas infrastructure. Due to poor production values and lack of maintenance Nigerian refineries operate at sub-optimal levels. Ironically, this forces the West African economy to import 80% of fuel to meet its domestic energy requirements.