According to a statement by Jaafaru Yakubu, chairman of Nigeria’s House of Representatives Committee on Nigeria-China Relationship, on March 5, the shift was “signalling a major boost for the sector”.
While China obtains oil from sources closer to home, such as from Russia, observers note that its growing engagement with Nigeria is driven by broader opportunities, including infrastructure projects and access to the West African nation’s large market.
Until recently, Nigeria has relied heavily on imported refined petroleum products despite the country being Africa’s largest oil producer. But the recently built mega Dangote oil refinery – owned by Africa’s richest man, Aliko Dangote – can process 650,000 barrels of oil a day.
For now, China is less dependent on Nigeria’s oil overall since it buys from closer markets such as Russia and the Middle East, according to Johnston.
“So, adding value to Nigeria’s oil and gas exports may be as much about investor opportunity for China and Nigeria’s overall trade opportunities, and probably less about trade with China,” Johnston said.
Nigeria, the largest economy in West Africa, has a huge infrastructure deficit and has had to turn to China to fund the upgrade of its oil and gas facilities, construction of railway lines, highways and ports. Crude petroleum and gas exports account for more than 85 per cent of the country’s total exports but because of underfunding, production dropped from a high of 2 million barrels a day in the 1980s to about 1.5 million in recent years.
In addition to its value as an oil producer, Nigeria appeals to Chinese companies as a market for their goods. As the continent’s most populous nation with more than 227 million people, Nigeria has Africa’s largest consumer market with potential for further growth.
Already, Nigeria is China’s largest engineering contract market in Africa, with many Chinese engineering firms thriving in the country, according to Yu Dunhai, the Chinese ambassador to Nigeria.
And, according to Charlie Robertson, an Africa-focused economist, Chinese companies and banks nearly always want to be “close to the money” when they invest in Africa.
“This means they like involvement with companies or countries that have a reliable export revenue stream. Nigerian oil and gas companies satisfy that criteria,” said Robertson, author of The Time-Travelling Economist, a book about issues facing poorer nations.
According to John Calabrese, a senior fellow at the Middle East Institute, the interest of Chinese companies is not just about tapping into Nigeria’s abundant natural resources but also about driving broader industrialisation.
Calabrese said that with projects such as the Ogidigben Gas Revolution Industrial Park, Chinese firms might be helping set the stage to transform the sector by financing modern infrastructure and laying the foundation for diversified industrial growth.
In January, Alpha Grip Management Company (AGMC), a subsidiary of the UAE-based Alpha Group, partnered with China National Chemical Engineering International Corporation (CNCEC) to develop, construct and finance the US$20 billion industrial estate in Ogidigben, Delta State.
“So, beyond the oil and gas sector, the Nigeria-China relationship agreement signals potential expansion into other areas such as manufacturing, transport and telecommunications, suggesting a diversification of Nigeria’s economic base with Chinese support,” Calabrese said.
But Nigeria, while acknowledging China as its largest trade partner, was increasingly concerned about the significant trade imbalance that favoured Beijing, according to Ovigwe Eguegu, a policy analyst at the Beijing-based consultancy Development Reimagined. The imbalance has been a key point of discussion during recent ministerial-level bilateral meetings.
Eguegu said the energy and natural resources sector could address the trade balance and Abuja was now pushing for a shift towards value-added exports, rather than simply supplying raw materials.
“The energy and natural resource sector is an easy way for Nigeria to boost exports to China,” he said.
Nigeria was emphasising value-adding for its minerals, such as lithium, and there was already Chinese investment into a lithium processing plant in central Nigeria.
Also under way was a new US$7.9 billion green hydrogen project with investment from China that would produce 1.2 million tonnes of green hydrogen-based methanol annually for export, along with medical oxygen and food-grade carbon dioxide, Eguegu said.
China’s consistent trade surplus with Nigeria is largely because of the West African nation’s reliance on Chinese manufactured goods, according to Johnston.
Nigeria’s total crude petroleum exports reached US$43.5 billion in 2023, with the United States receiving US$4.73 billion of the total as well as exports to France (US$4.38 billion) and the Netherlands (US$3.73 billion).
In contrast, Nigeria’s crude petroleum exports to China amounted to only US$409 million, and petroleum gas exports to China were US$995 million, according to trade data site the Observatory of Economic Complexity (OEC).
Last year, China shipped goods worth US$18.9 billion to Nigeria but imports, including oil, from the African country only stood at US$2.98 billion, according to Chinese customs data.
Johnston said that China as an investor “wants to be there, since not only can this compensate for the trade imbalance, but Nigeria also has solid and scalable pockets of human capital and industry capability”.
“Nigeria is a rare country in Africa offering both a relatively large domestic consumer market alongside industry and talent bases of size,” she said.