Untapped:
the Scramble for Africa's Oil Untapped
Apr 02, 2007
John Ghazvinian
John Ghazvinian
has a doctorate in history from Oxford. He has written for
Newsweek, the Nation, Time Out New York, and other publications.
Born in Iran and raised in London and Los Angeles, he currently
lives in Philadelphia, where he is a visiting fellow at the
University of Pennsylvania.
Since 1990 alone, the petroleum industry has invested more
than $20 billion in exploration and production activity in
Africa . A further $50 billion will be spent between now and
the end of the decade, the largest investment in the continent's
history -- and around one-third of it will come from the United
States . Three of the world's largest oil companies -- the
British-Dutch consortium Shell, France's Total, and America's
Chevron -- are spending 15 percent, 30 percent, and 35 percent
respectively of their global exploration and production budgets
in Africa. Chevron alone is in the process of rolling out
$20 billion in African projects over a five-year period.
The overwhelming
majority of this new drilling activity has taken place in
the so-called "deep water" and the "ultradeep"
of the Gulf of Guinea , the roughly 90-degree bend along the
west coast of Africa that can best be visualized as the continent's
"armpit." Its littoral zone passes through the territorial
waters of a dozen countries, from Ivory Coast in the northwest
down to Angola in the south, and a good deal of its geology
shares the characteristics that have made Nigeria a prolific
producer for decades. Indeed, a number of unexpectedly productive
fields have been discovered in the Gulf over the past decade.
But although the Gulf of Guinea has lately been sub-Saharan
Africa 's most exciting region for the oil industry, it is
hardly the only "prospective" part of the continent
(to borrow the industry term). The parched semideserts of
southern Chad and southern Sudan have recently added hundreds
of thousands of barrels a day to global markets, and a growing
chorus of voices is now touting the East African margin as
the industry's "next big thing."
But be
it east or west, jungle or desert, it is a safe bet that where
the drillers go, the politicians, strategists, and lobbyists
are not far behind. Washington in particular has taken a keen
interest in Africa 's growing significance as an oil-producing
region since the headline discoveries of the late 1990s. In
December 2000 the National Intelligence Council, an internal
CIA think tank, published a report in which it declared unambiguously
that sub-Saharan Africa "will play an increasing role
in global energy markets," and predicted that the region
would provide 25 percent of North American oil imports by
2015, up from the 15 percent or so at the time. (This would
put Africa well ahead of Saudi Arabia as a source of oil for
the United States .) In May 2001 a controversial and fairly
secretive energy task force put together by U.S. Vice President
Dick Cheney declared in its report: " West Africa is
expected to be one of the fastest-growing sources of oil and
gas for the American market."
In the
following months, a group of congressmen, lobbyists, and defense
strategists came together under the umbrella of the African
Oil Policy Initiative Group, and began preaching the message
that the Gulf of Guinea was the new Persian Gulf, and that
it should become a strategic priority for the United States,
even to the point of requiring an expanded military presence.
A series of well-placed articles in the American media followed,
some breathlessly announcing the inauguration of a new Middle
East off the shores of Africa . Before long, the influential
Center for Strategic and International Studies had chimed
in with a couple of reports, its most recent, in July 2005,
claiming that "an exceptional mix of U.S. interests is
at play in West Africa's Gulf of Guinea ."
During
these years, a number of prominent lawmakers in Washington
began getting excited about the possibility of shifting some
of America 's oil dependence from the Middle East to Africa
. One former senior official charged with African affairs
recalls Kansas Senator Sam Brownback rushing up to him one
afternoon in October 2002, positively glowing with excitement.
"What do you think about bases in Africa ?" Brownback
asked. "Wouldn't that be great?"
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But does
Africa measure up to the hype? After all, the entire continent
is believed to contain, at best, 10 percent of the world's
proven oil reserves, making it a minnow swimming in an ocean
of seasoned sharks. Africa is unlikely ever to "replace"
the Middle East or any other major oil-producing region. So
why the song and dance? Why all the goose bumps? Why do so
many influential people in Washington let themselves get so
carried away when they talk about African oil?
The answer
has very little to do with geology. Africa 's significance
as an oil "play," to borrow the industry lingo,
lies beyond the number of barrels that may or may not be buried
under its cretaceous rock. Instead, what makes the African
oil boom interesting to energy security strategists in both
Washington and Europe (and, increasingly, Beijing ) is a series
of serendipitous and unrelated factors that, together, tell
a story of unfolding opportunity.
To begin
with, one of the more attractive attributes of Africa 's oil
boom is the quality of the oil itself. The variety of crude
found in the Gulf of Guinea is known in industry parlance
as "light" and "sweet," meaning it is
viscous and low in sulfur, and therefore easier and cheaper
to refine than, say, Middle Eastern crude, which tends to
be lacking in lower hydrocarbons and is therefore very "sticky."
This is particularly appealing to American and European refineries,
which have to contend with strict environmental regulations
that make it difficult to refine heavier and sourer varieties
of crude without running up costs that make the entire proposition
worthless.
Then there
is the geographic accident of Africa 's being almost entirely
surrounded by water, which significantly cuts transport-related
costs and risks. The Gulf of Guinea , in particular, is well
positioned to allow speedy transport to the major trading
ports of Europe and North America . Existing sea-lanes can
be used for quick, cheap delivery, so there is no need to
worry about the Suez Canal , for instance, or to build expensive
pipelines through unpredictable countries. This may seem a
minor point, until you look at Central Asia, where the Baku-Tbilisi-Ceyhan
pipeline, stretching from Azerbaijan through Georgia and into
Turkey , and intended to deliver Caspian crude into the Mediterranean,
had to navigate a minefield of Middle East politics, antiglobalization
protests, and red tape before it could be opened. African
oil faces none of those issues. It is simply loaded onto a
tanker at the point of production and begins its smooth, unmolested
journey on the high seas, arriving just days later in Shreveport
, Southampton, or Le Havre .
A third
advantage, from the perspective of the oil companies, is that
Africa offers a tremendously favorable contractual environment.
Unlike in, say, Saudi Arabia, where the state-owned oil company
Saudi Aramco has a monopoly on the exploration, production,
and distribution of the country's crude oil, most sub-Saharan
African countries operate on the basis of so-called production-sharing
agreements, or PSAs. In these arrangements, a foreign oil
company is awarded a license to look for petroleum on the
condition that it assume the up-front costs of exploration
and production. If oil is discovered in that block, the oil
company will share the revenues with the host government,
but only after its initial costs have been recouped. PSAs
are generally offered to impoverished countries that would
never be able to amass either the technical expertise or the
billions in capital investment required to drill for oil themselves.
For the oil company, a relatively small up-front investment
can quickly turn into untold billions in profits.
Yet another
strategic benefit, particularly from the perspective of American
politicians, is that, until recently, with the exception of
Nigeria , none of the oil-producing countries of sub-Saharan
Africa had belonged to the Organization of Petroleum Exporting
Countries (OPEC). Thus they have not been subject to the strict
limits on output OPEC imposes on its members in an attempt
to keep the price of oil artificially high. The more non-OPEC
oil that comes onto the global market, the more difficult
it becomes for OPEC countries to sell their crude at high
prices, and the lower the overall price of oil. Put more simply,
if new reserves are discovered in Venezuela , they have very
little effect on the price of oil because Venezuela 's OPEC
commitments will not allow it to increase its output very
much. But if new reserves are discovered in Gabon , it means
more cheap oil for everybody.
But probably
the most attractive of all the attributes of Africa's oil
boom, for Western governments and oil companies alike, is
that virtually all the big discoveries of recent years have
been made offshore, in deepwater reserves that are often many
miles from populated land. This means that even if a civil
war or violent insurrection breaks out onshore (always a concern
in Africa ), the oil companies can continue to pump out oil
with little likelihood of sabotage, banditry, or nationalist
fervor getting in the way. Given the hundreds of thousands
of barrels of Nigerian crude that are lost every year as a
result of fighting, community protests, and organized crime,
this is something the industry gets rather excited about.
Finally,
there is the sheer speed of growth in African oil production,
and the fact that Africa is one of the world's last underexplored
regions. In a world used to hearing that there are no more
big oil discoveries out there, and few truly untapped reserves
to look forward to, the ferocious pace and scale of Africa
's oil boom has proved a bracing tonic. One-third of the world's
new oil discoveries since the year 2000 have taken place in
Africa . Of the 8 billion barrels of new oil reserves discovered
in 2001, 7 billion were found there. In the years between
2005 and 2010, 20 percent of the world's new production capacity
is expected to come from Africa . And there is now an almost
contagious feeling in the oil industry that no one really
knows just how much oil might be there, since no one's ever
really bothered to check.
All these
factors add up to a convincing value proposition: African
oil is cheaper, safer, and more accessible than its competitors,
and there seems to be more of it every day. And, though Africa
may not be able to compete with the Persian Gulf at the level
of proven reserves, it has just enough up its sleeve to make
it a potential "swing" region -- an oil province
that can kick in just enough production to keep markets calm
when supplies elsewhere in the world are unpredictable. Diversification
of the oil supply has been a goal -- even an obsession --
in the United States since the Arab oil embargo of the 1970s.
Successive U.S. administrations have understood that if the
world is overly reliant on two or three hot spots for its
energy security, there is a greater risk of supply disruptions
and price volatility. And for obvious reasons, the effort
to distribute America 's energy-security portfolio across
multiple nodes has taken on a new urgency since September
11, 2001. In his State of the Union address in January 2006,
President Bush said he wanted to reduce America 's dependence
on Middle East crude by 75 percent by 2025.
Copyright
© 2007 John Ghazvinian
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