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We
are pleased to present the following
excerpt from the book
Untapped: The
Scramble for Africa's
Oil
by John Ghazvinian
Harcourt - April
2007
From
the
Introduction
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?"
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.
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.
Copyright
© 2007 John Ghazvinian and reproduced
with permission.
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