The Increasing Importance of African Oil

Posted in Africa | 21-Mar-06 | Author: Adam Wolfe

An oil terminal in the Niger Delta, Nigeria.

Africa is becoming an increasingly important factor in global energy markets. 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 U.S. 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 U.S. seaboard, and can be easily processed by China's refineries.

Fifteen percent of U.S. 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 U.S. 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 licenses 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 $2 billion low-interest loan from China has all but scuttled the International Monetary Fund's (I.M.F.) 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 toward Africa in order to compensate for China's rising influence.

China's Influence in Africa

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. [See: "Sino-U.S. Energy Competition in Africa"]

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