New Delhi: The Nigerian government has gone back on its word and refused to increase supply of crude oil to India.
The African country had agreed to India’s request to increase the term or assured supply of high quality Bonny light crude by 50% to 3 million tonnes per annum. Edmund Daukoru, the Nigerian energy minister, had promised petroleum minister Murli Deora during the Petrotech meet last month that his country would increase supplies.
Nigeria maintains that on account of a likely cut in crude quotas by the oil cartel, Organization of Petroleum Exporting Countries or Opec, and the unstable domestic situation, it will not be able to hold to its promise. This oil was to be supplied to Indian Oil Corporation (IOC), the country’s leading refiner.
Now, IOC will be forced to make up the shortfall from the spot markets. Though, there is no price difference between spot and long term rates, there is an associated risk: that even though the company may be able to afford spot rates, there may be circumstances when actual supplies are not available for offtake.
At present, IOC refines 47MT of crude every year. It raises 7MT at spot rates and imports 30MT on long term contracts—with the balance 10MT procured domestically. With the Nigerian government’s refusal to increase supplies, IOC’s reliance on spot markets may go up by 14% to 8MT.
IOC’s primary crude import sources are Iraq, Kuwait and Saudi Arabia. The company sources its spot cargoes from Malaysia, Iran and Abu Dhabi.
IOC officials, when contacted, denied that they would be affected by the Nigerian volte face as they were confident of picking up the crude from spot markets.
“We may have to wait a little longer. As of now the Nigerian government is not in a position to increase the term contract to 3MT. This hitch will not affect us greatly,” a senior IOC executive said.
Industry experts too are of the opinion that the problem will not turn grave for IOC if it is able to procure the same quantity from the spot crude market.