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Rise of Africa’s Petro-States

Africa has been hailed by Time Magazine as “the world’s next great growth engine.” China’s trade with Africa is gigantic at over $166 billion. The U.S. is the continent’s second largest trading partner at $126 billion. Other nations, including India, Japan, Brazil, Malaysia, Turkey and the Gulf Arab states, are in hot pursuit of Africa’s oil and gas, timber, coal, minerals and farmland.

Says Bob Geldof, Live Aid Organizer and Private Equity Fund Investor: “In the end, we all have to go to Africa. They have what we need.”

Part of Africa’s growth stems from its emergence as an important global center for oil and gas exploration and development and rising production. Of the 10 largest oil and gas discoveries in 2013, six were located in Africa, including Angola’s Lontra field, Nigeria’s Ogo discovery, and the Nene Marine find in Congo Brazzaville and natural gas finds in Mozambique and Tanzania.

In recent years, new major oil and natural gas finds have been announced in Nigeria, Equatorial Guinea, Mozambique, Namibia, Republic of Congo, and Ghana. Morocco, Liberia, Cote d’Ivoire, and Mauritania are also considered promising basins for exploration. Between 2005 and 2010, six of the largest African oil and gas producing countries, including Nigeria, Angola, Equatorial Guinea, Egypt, Sudan and Libya, conducted more than 20 bid rounds for new oil and gas exploration acreage.

In addition to new major oil and gas discoveries from traditional oil and gas fields across the continent, there is also the possibility that Africa has shale oil and gas resources as well. South Africa holds the eighth largest shale resources in the world, according to an assessment by the U.S. Energy Information Administration.

Shell, Falcon Oil and Gas, and other exploration companies have applied for permits to drill in the prolific Karoo region but environmental protesters have been demonstrating against the use of hydraulic fracking in that part of South Africa, which is water constrained.

A worker inspect facilities on an upstream oil drilling platform at the Total oil platform at Amenem, 35 kilometers away from Port Harcourt in the
Niger Delta. Amenem is the hub of Total oil production with two oil well producing over 100,000 barrels of crude daily.
Photo: Pius Utomi Ekpei/AFP/Getty Images

Africa’s Geopolitical Energy Importance
Africa’s importance as an energy supply region has grown significantly since the end of the Cold War and has been recognized by both China, Europe, and the U.S. in their diplomatic and strategic activities.

Africa currently represents 15-to-20 percent of European natural gas supply and will be a major source of increased oil and gas supply in the coming decades. Africa’s natural gas exports currently constitute more than 10 percent of global supply and Africa was the source of 20 percent of all global crude oil exports in 2011.

Africa’s new oil finds and shale potential means that the continent will emerge as an even more pivotal source of diversity of supply in global oil and natural gas markets.

Africa oil and gas serves an important strategic role, helping Europe diversify away from heavy reliance on energy supplies from Russia. African oil is also a very important energy supply source to Japan and China.

Finally, Africa’s emerging oil and gas wealth is prompting optimism about the continent’s future as a new growth engine to the global economy, despite a rise in terror attacks and civil violence.

Baggage of prosperity
Experience shows, however, that natural resource development in countries that do not have appropriate institutions for governance can be problematic. Academic studies have demonstrated the natural resources play a key role in triggering, prolonging, or financing civil wars. The current violence in South Sudan, Nigeria’s Delta region, and in Libya are cases in point.

For Africa to have a sustained position as an oil supplier of choice, it needs to resolve thorny conflicts across the continent that are fueled in part by competition for the spoils of high oil and gas revenues.

Former secretary general of the United Nations and Nobel Laureate Kofi Anan has called on the G-20 to support stringent transparency legislation that would require companies to publish payments made to governments, broken down to the level of individual projects. It is hoped that this level of accountability would empower citizens to demand better government. Still, transparency legislation is just a one small step in a long process of the establishment of rule of law and well-functioning government institutions that can ensure that complex conflicts, ethnic cleansing, corruption, and inequitable distribution of wealth don’t poison Africa’s future.

Conflict resolution diplomacy that starts first and foremost with solid agreements for the division of oil rents fairly across societies will be critical to Africa’s future, and the U.S. along with its European allies should take a leading role in such an endeavor

Rather than wait until armed intervention is needed, more visible diplomatic attention should be given to festering problems before surging oil and gas revenues deepen any existing potential for humanitarian tragedy.

Amy Myers Jaffe is executive director for Energy and Sustainability at University of California, Davis with a joint appointment to the Graduate School of Management and Institute of Transportation Studies.

Rise of Africa’s Petro-States was originally published on Ideas Lab

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