Africa’s energy vital globally

By the end of the decade, the continent’s significance will rise dramatically. Africa currently contributes 12 percent of the world’s liquid hydrocarbon production, and one in four barrels of oil discovered outside of the US and Canada between 2000 and 2004 came from Africa. IHS Energy, an oil and gas consulting firm, calculates that Africa will supply 30 percent of the world’s growth in hydrocarbon production by 2010. West Africa’s low-sulfur oil is highly desirable for environmental reasons, is readily transported to the eastern US seaboard, and can be easily processed by China’s refineries. Fifteen percent of US oil imports come from Africa; by 2010 this could reach 20 percent. In this decade, US$50 billion will be invested in the Gulf of Guinea’s energy sector, according to a recent report by the Council on Foreign Relations. While US companies will account for 40 percent of this investment, other major players ‘ particularly state-owned energy companies ‘ will play a critical role in determining the shape of Africa’s energy industry. From 1995 to 2005, national oil companies more than doubled the number of licences they hold in Africa, from 95 to 216. China’s energy firms are the largest state-owned investors, but India has also made significant investments and is looking to expand its presence in the region. However, political instability, criminal syndicates and terrorism threaten growth in the region. These factors are the main reason the region’s hydrocarbon industry has not fully developed in the past, but as China and India demand more oil and gas to fuel their rising economies and as major oil fields reach maturity in other regions, Africa’s oil and gas supplies have become more attractive investments. The rise of Africa’s energy industry is changing the geopolitical landscape of the region. The West has found its leverage in the region challenged by China’s willingness to invest in oil-producing states in order to ensure Beijing’s energy security. For instance, a US$2 billion low-interest loan from China has all but scuttled the International Monetary Fund’s (IMF) attempts to tie economic assistance to reform in Angola. In other areas, China and the West find their interests aligned, such as on the north-south peace accord in Sudan. In the coming years, Washington will be forced to adjust its policies towards Africa in order to compensate for China’s rising influence. China has been involved in Africa since before the 1960s, but, recently, the nature and level of its involvement has changed. China is primarily invested in Africa in order to secure access to the region’s natural resources to fuel its expanding economy. Beijing is outbidding Western contractors on infrastructure projects, providing soft loans, and using political means to increase its competitive advantage in acquiring natural resource assets in Africa. China’s deputy foreign minister famously told the New York Times: “Business is business. We try to separate politics from business.” This statement is not strictly true; China uses politics for different aims than does the West. China uses its geopolitical position in order to gain access to natural resources around the world without regard to the domestic political situation where these resources are located, making China an attractive partner for many countries marginalised by the Western powers for internal strife, corruption, and human rights violations. India, South Korea, Malaysia and Brazil are following China’s lead. China, however, also has an asset that these other states cannot exploit ‘ a permanent seat on the UN Security Council. Beijing’s willingness to use its seat to protect states from international sanctions is welcomed in a region not lacking in egregious violations of international law and is undermining Washington’s influence in Africa. This can be seen in Sudan, where Beijing has helped to prevent any meaningful Security Council resolution from emerging that would help to end the conflict in the Darfur region. Beijing has not shied from investing in countries that are being marginalised by the West in order to secure access to energy sources. In other regions, China has repeatedly lost contracts to large, multinationals. Russia’s Siberian reserves were once thought to be all but wrapped up in a deal for China, but now Japan may win the contract. The Chinese National Offshore Oil Corporation’s (CNOOC) attempt to gain control of Unocal collapsed under pressure from the US Congress. Such failures have pushed Beijing to take risks in unstable countries that it may not otherwise pursue, in part to avoid competition from the major multinationals. The Financial Times reported on February 28 that Nigeria is shifting its sourcing for military equipment to China because US concerns about corruption within the Nigerian security forces have delayed the delivery of equipment. In July 2005, China signed a US$800 million crude oil agreement with Nigeria, and Beijing is considering US$7 billion worth of investments in Nigeria. Ethiopia called China “its most reliable [trading] partner” after Western states criticised its recent election irregularities and its continuing border dispute with Eritrea. A Chinese company, earlier this month, started drilling the first exploration well in the Gambella basin, west Ethiopia. Angola has delayed implementing IMF recommendations after receiving a US$2 billion soft loan from China. China recently won the rights to oil-exploration blocks in Angola away from Total and Shell. China, now the world’s second-largest importer of oil, imports 28 percent of its oil from Africa, mostly from Sudan, Angola, Congo and Nigeria. In each of these countries, a similar pattern emerges: China moves in after Western companies are forced to pull out because of domestic pressure, thus undermining the ability of Western countries to use economic isolation and economic aid to influence the policies of the oil-producing countries. China, however, is also buying oil that would otherwise be taken off the global market, which effectively reduces the price of oil for all oil-importing countries. China’s role in Sudan is both in conflict and alignment with the West’s agenda. Since 1996, China has invested heavily in Sudan as Western companies were forced to pull out or put their investments on hold. In 1996, CNPC took a 40 percent interest in the Heglig and Unity oil fields as part of the Greater Nile Petroleum Operating Company, in which India and Malaysia are also investors. In 1998, it participated in building a 1 50-km-long pipeline from these fields to the Red Sea. China’s Petroleum Engineering Construction Group is constructing a US$215 million export tanker terminal in the Port of Sudan, where a pipeline being built by another Chinese firm from the Melut Basin terminates. CNPC also owns most of an oil field in Sudan’s Darfur region. Beijing’s investments have helped to double Sudan’s proven reserves in the past three years, now estimated at 563 million barrels, and double production in the past two years, now at 500 000 bpd. China currently receives 7 percent of its oil imports from Sudan, and it is Sudan’s second-largest foreign investor with about US$4 billion invested. Estimates reach as high as 80 percent for the amount of revenue generated by Sudan’s oil fields that have been invested in fighting its recently resolved north-south civil war, the ongoing conflict in Darfur, and the mounting conflict in the country’s north-east. China is also Sudan’s largest arms supplier. Chinese-made tanks, fighter planes, bombers, helicopters, machine guns and rocket-propelled grenades have been purchased by the Sudanese government. China has also threatened to use its veto on the UN Security Council to protect Khartoum from sanctions and has been able to water down every resolution on Darfur in order to protect its interests in Sudan. Washington has called the conflict in Darfur “genocide” and has seen its ability to effect change in the region limited by Beijing. In January 2006, a US Energy Department report said China’s tolerance of despotic regimes could undermine Washington’s strategic goal to spread democracy and free trade. The report warns that China may be tempted to intervene in order to protect its investments. China’s thirst for oil is limiting Washington’s influence in Khartoum, but there are some areas of agreement between Beijing and the West in regards to Sudan’s future. The historic peace deal that ended the 21-year north-south civil war has allowed for the return of foreign investors that were forced out due to domestic pressures and politics. France’s Total, Marathon of the US, and the Kuwait Foreign Petroleum Company renewed their exploration rights in the south of the country in recent months. While the new competition may make Beijing nervous, it also means that Beijing and the West now have a similar stake in ensuring that the peace agreement holds. In 2004, China’s Eximbank approved a US$2 billion line of credit to Angola. The loan is being used to rebuild Angola’s infrastructure, ruined by the 27-year civil war that ended in 2002. A large portion of the contracts has gone to Chinese firms. For example, the Benguela Railway is being refurbished for US$300 to US$500 million. Chinese firms have also won contracts to refurbish two other rail lines, government buildings, and a new airport in Luanda. Angola’s 25 billion barrels of proven crude reserves make it an attractive target for China’s aid. Already pumping 1,6 million bpd, the infrastructure improvements should help to increase this to two million by 2010. China’s advancements have been welcomed by President Jose Eduardo dos Santos’ government, which has historically been wary of bowing to pressures to introduce more transparency to the country’s oil industry. Global Witness estimates that between 1997 and 2001, US$8,45 billion of public money was unaccounted for in Angola. The country is still without a formal monitoring agreement with the IMF because it has yet to fulfil most of the recommendations of a 2004 IMF study. With the price of oil hovering above US$60 per barrel, China’s US$2 billion loan, as well as interest from India and Brazil in making similar loans, Angola is unlikely to make significant concessions to the IMF. Angola has also been willing to use its oil for political aims. Many observers believe that Total lost its lead-operator rights to Block 3/05 because of France’s criminal prosecution of an oil-for-arms case involving the Dos Santos government in the 1990s. The biggest owner on France’s relinquished block is a joint venture between China’s Sinopec and Angola’s state-owned Sonangol. Chinese investors have also assumed a portion of Block 18 relinquished by Shell. China’s investments in Angola are a major threat to the West’s interests in the country, as evidenced by the limited influence of the IMF. ‘

March 2006
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