The new scramble for Africa’s resources

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In the past decade, Africa has seen an unprecedented boom in oil and gas investment.

By Dino Mahtani

With big companies shut out, or deterred from investing in the Middle East, Africa has by contrast offered multinationals relatively lenient terms and extensive access to its oilfields in the past 15 years. The continent has been able to attract money from the biggest supermajors, from ExxonMobil to Shell, looking to exploit its prolific and relatively untapped geology, particularly in the Gulf of Guinea and North Africa.

It also has the world’s highest ratio of “light” and “sweet” crude oil, preferred by refiners in big consuming countries, and 83 per cent of its oil resources comes from fields yielding more than 100m barrels.

In 2006, US President George W Bush laid out a strategy of reducing oil imports from the Middle East – a policy that is likely to result in greater strategic importance for Africa. “The rise of Africa as an energy region is not a short-term trend,” says Robert Gillon of John S. Herold, the industry consultancy.

Libya’s Sirte Basin is the largest site, holding more than 20 per cent of the continent’s 300bn barrels of reserves. The rest lies in 10 big basins, including those in Nigeria, Angola, Algeria and Egypt. Angola and Nigeria, with their large deepwater deposits, are expected to become important producers.

With oil prices so high, Africa has also seen a boom in the exploitation of its marginal fields and investment and interest in new frontiers, from Tullow Oil’s significant finds in Ghana and Uganda to China’s sudden interest in exploration rights in the failed state of Somalia. Asian companies, particularly state- owned ones from China, have also begun to pile in, challenging the hegemony of the traditional majors.

Research by John S. Herold estimates that, between 2002 and 2006, publicly-listed oil companies tripled their spending in Africa, a rate that was 20 per cent more than their spending across the world during the same period.

Yet the effect of increased corporate interest has not always translated to economic well-being for African countries.

Soaring oil prices have threatened to wipe out recent economic gains on what is both the world’s poorest continent and its fastest-growing oil and gas exploration zone of the past decade. According to the International Energy Agency, the increase in the cost of oil in 13 non-producing countries, including stable economies such as South Africa, Senegal and Ghana has since 2004 been equivalent to 3 per cent of their combined gross domestic product. This is more than the debt relief and foreign aid received during the same period.

Even in some of Africa’s biggest producers, where high oil prices have driven rapid economic growth, poor governance in the use of oil funds as well as high fuel prices brought about by a lack of refining capacity and heavy import bills have added to social woes.

The contrast between the multi-billion dollar international oil industry and the grinding realities of Africa is nowhere more apparent than in Nigeria’s Niger Delta, the most prolific zone in the Atlantic basin, from where the US expects to source up to a quarter of its oil imports in the next decade. There, armed militants using an anti-poverty rhetoric have cut a quarter of Nigeria’s production in pre-dawn raids on oil facilities and kidnapped scores of oil workers in the past two years, a potent symbol of the kind of disorder that can occur on the doorstep of huge investments.

Much of the capacity being added on the continent may be too far offshore to be affected by the kind of militancy seen in the delta. But US policymakers nevertheless remain deeply concerned about stability in oil-producing zones. In response to this concern, President Bush last year ordered the creation of Africom, a dedicated US military command centre for Africa which is expected to be situated in a yet-to-be chosen country on the continent.

The US military has recently started focusing on West Africa, with a $500m plan to help Saharan states eradicate Islamist cells linked to al-Qaeda that could otherwise threaten stability in oil-producing countries in the region, particularly Nigeria. The co-operation has drawn criticism from human rights groups which say the US is repeating its Middle East mistakes by cosying up to despotic and corrupt regimes on the continent.

Indeed, Condoleezza Rice, the US secretary of state, typified US confusion on Africa policy when she described Teodoro Obiang Nguema, the president of oil-rich Equatorial Guinea where US supermajors Chevron and ExxonMobil have interests as a “good friend”, despite widespread concern over human rights abuses and corruption.

But it is not especially surprising that such mercantile attitudes to Africa persist in this way, with slowing oil production growth in member countries of the Organisation for Economic Co-operation and Development and hostile and protectionist regimes in the Middle East and Russia increasing paranoia in the west.

Africa’s share of oil production is expected to grow to up to 30 per cent of the world total, from roughly 12 per cent in 2006. By 2012, energy consultant IHS expects liquids production to have reached a plateau of about 16m b/d.

Throw into this equation the rising interest of China, other Asian countries and state-owned oil companies from emerging markets, and one has the recipe for a new scramble for Africa – most recently typified by talk of an impending gas mega-deal between Russia’s Gazprom and Nigeria.

Across the continent, Chinese state-owned companies have been busy obtaining exploration or supply contracts, often promising billions of dollars in infrastructure development or stepping up military supplies to oil-producing countries. Inevitably, China too has come in for criticism for doing business with autocratic regimes, notably Sudan.

But China’s flourishing relationship with Africa looks unstoppable. In 2006, Angola, the fastest-growing oil producer on the continent in recent years, became China’s top supplier of oil, notwithstanding the billions of dollars invested by western multinationals in the country’s deep offshore sector. Chinese and other Asian companies have begun featuring more prominently in new oil and gas licensing auctions in Africa and there are even signs that Asian companies are ready to start competing with western companies for control of African oil.

Despite Eni of Italy beating Korea’s state oil company for control of Burren Energy, the UK listed company with assets in the Democratic Republic of Congo, it is now being courted by two Indian companies.

Where Africa’s resources are becoming hot property, big energy producing countries are beginning to push for greater control of their own oil and gas industries, much to the chagrin of the traditional oil majors.

Legal amendments giving Algeria the right to 51 per cent of any hydrocarbons project in the country, government plans to revisit the terms of offshore projects in Nigeria and newly tightened terms and conditions for access to Libyan oil and gas are all policies that have emerged in the past two years.

“We are not seeing the sort of irrational exuberance of five years ago. The Chavez effect is half-cooked in Africa, but it is there and people are thinking about it,” says Jon Marks, editorial director of the specialist newsletter, Africa Energy.

culled from The Financial Times

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