AFRICA ENERGY / OIL IN WORLD ECONOMY

Energy is the “oxygen” of the economy and the life-blood of growth, particularly in the mass industrialization phase that emerging economic giants are facing today as their per capita GDP moves between approximately US$ 5,000 and US$ 15,000 (Peter Voser Chief Executive Officer, Royal Dutch Shell, the Netherlands; Energy Community Leader 2011, World Economic Forum)

The economic progress of past decades has seen hundreds of millions of people enjoy major improvements in their material well-being, and these changes have been particularly noteworthy in the emerging economies. We all understand how globalization and market liberalization have underpinned these developments, but we must not lose sight of the crucial enabling role played by the energy sector. Without heat, light and power you cannot build or run the factories and cities that provide goods, jobs and homes, nor enjoy the amenities that make life more comfortable and enjoyable.

The energy sector constitutes a relatively modest share of GDP in most countries, except for those in which oil and gas income loom large. However, the energy sector’s impact on the economy is greater than the sum of its parts. Most importantly, energy is an input to nearly every good and service in the economy. For this reason, stable and reasonable energy prices are beneficial to reigniting, sustaining and expanding economic growth. The energy sector can make an important contribution to the recovery from the global downturn.

Energy can undoubtedly be a driver of economic growth.  The energy industry is undoubtedly an engine of growth, as its products serve as inputs into nearly every good and service imaginable. The energy industry contributes to economic growth in two ways.

·       First, energy is an important sector of the economy that creates jobs and value by extracting, transforming and distributing energy goods and services throughout the economy.

·       Second, energy underpins the rest of the economy. Energy is an input for nearly all goods and services. In many countries, the flow of energy is usually taken for granted. But price shocks and supply interruptions can shake whole economies.

Africa energy and oil

In the past 20 years Africa has become an important player on the world energy market and it is expected that its role as provider of oil, gas, biofuels, solar, wind, water and other forms of energy will become even more important during the 21st Century. Although Africa is estimated to hold about 9 per cent of the world’s oil reserves, it is regarded as the latest frontier in the global race for oil supplies in the face of growing demand from the West and the emerging powers in Asia and South America. In spite of the relatively smaller size of its oil reserves, Africa is viewed as an alternative to the volatile Arabian Gulf/Middle East which holds the world’s largest oil reserves, but also uses oil as a tool of resource nationalism. Africa with its more liberal (less tightly regulated) oil investment environment has therefore become critical to the energy security calculations of the world’s established and emerging powers, particularly China, India, Brazil and Russia (BRIC).

The competition over Africa’s oil is also fueled by the speculation that global oil production is nearing its peak, as oil companies are finding it difficult to replace every barrel of oil consumed and new large oil finds are becoming increasingly scarce. As a result of Africa’s proximity to oil markets, the fine quality of its light crudes (easier and cheaper to refine, less polluting), the immense potential for off-shore exploration in Africa’s continental shelf, relatively easier investment terms, and new offshore oil discoveries, the continent has become one of the most attractive destinations and an arena for the global search for prolific oil reserves, stable oil supplies and profits.

The oil sectors of most African oil producing states is dominated by oil multinationals or international oil companies from the West: Chevron Texaco, Royal Dutch Shell, Exxon Mobil, BP and Total. Apart from the oil giants, there are many smaller oil companies or ‘independents’ that operate in smaller high-risk exploratory arenas. The past decade and the half have witnessed the emergence of new actors on the global oil scene: state oil corporations from South America and Asia, sourcing for oil from all parts of the world, but particularly keen to establish a foothold in Africa’s largely untapped huge hydrocarbonreserves estimated at about 1.2 trillion barrels of oil and 181.6 trillion cubic metres of natural gas deposits.

In the past decade, China, India, and Brazil have imported substantial amounts of oil from Africa, and their state oil corporations have acquired exploratory rights to oil blocks in the continent with varying degrees of success. In some cases these state oil corporations have either joined international oil consortiums operating in African oil states or gone into joint ventures with African state oil corporations. The form of energy diplomacy used by the BRIC countries in which they leverage historical ties and a mix of incentives: low interest loans, capacity and knowledge transfer and infrastructure for oil deals to gain access into the African oil sector, opens up new possibilities for African states and has redefined their relations with the world’s oil-importing powers.

The New Entrants:

Asian National Oil Corporations

The latest ‘big’ entrants into the ‘scramble’ for Nigeria’s oil are the Asian National OilCorporations (ANOCs). This is against the background of growing energy demand anddependence by therapidly expanding Asian economies (that have emerged as formidableglobal economic players), greater resource diplomacy and engagement with Africa by theemerging powers from Asia, and the quest of African ruling elites to diversify theirdependence on the West—particularly its (interventionist) aid conditionalities, doublestandards and perceived condescending treatment of Africans.

China

With China’s emergence as the world’s second largest consumer of oil, its quest to diversify and expand its sources of supply has become a central focus of its energy security strategy. In this regard, Africa’s place is writ large in ‘China’s oil diplomacy and energy security calculations as an emergent power in a rapidly globalizing post-Cold War world’. China has put in a lot of effort in developing close ties with oil and gas producing countries in the world, and in Africa in particular. These are largely aimed at guaranteeing uninterrupted access to oil (through exploration and extraction rights). Thus, relations with its leading African suppliers: Angola, Sudan, Republic of Congo (Brazzaville), Equatorial Guinea and Nigeria, and other African oil producers occupy a special place in evolving Sino-African relations. A key component of China’s oil diplomacy in African petro-states has been the use of “generous investment in infrastructure projects, for which African states give oil as payment”.

India

In spite of the achievements of Chinese state-owned enterprises within a short period, Indian companies have also managed to establish some presence in Nigeria. Nigeria is the second largest oil supplier to India after Saudi Arabia, and supplies about 15 per cent of India’s crude oil imports. India’s approach to its energy security much like that of China and the other powers depended to a large extent of diversifying its sources of supply from the Middle East and looking for new stable sources of supply for its rapidly growing economy. As a recent entrant into the African oil scene, it had to contend with the oil multinationals and state oil corporations from emerging powers.

Russia’s

Russia is the world’s largest producer of oil, but at the current rates of extraction, its oil reserves are being depleted at a rate that is faster than they are being replaced. Thus, Africa features in its strategic energy calculations on terms that are rather different from those of the world’s powers which seek access to uninterrupted oil and gas supplies. For Russia, the turn to Africa is both an opportunity for its oil companies to make profit as well as provide ‘extra’ oil that will slow down the rate of depletion of its own oil reserves. It has been noted that “Africa’s rich untapped oil and natural gas reserves provide an opportunity for Russia’s outbound exploration drive and strategic goal of remaining the world’s largestexporter of oil (second to Saudi Arabia) and natural gas, and maintaining Europe’s dependence on its  export of gas”.

Brazil

Brazil first struck oil in 1974, however thediscovery of the (pre-salt) Tupi oil reserves in 2006 marked Brazil’s ascendancy as an oilproducer of note. Before this ‘pre-salt’ oil discovery the country had mainly relied on oilimports from the Middle East and built up its refining capacity to handle imported crudes.At the same time the strategy to reduce dependence on imported crude as well asenvironmental considerations contributed to the establishment of the National Alcoholprogram “to subsidize and standardize national production of ethanol fuel fromsugarcane to supplant production and supplies of transport fuels”. However, the combination of steady growth rates, global leadership in the knowledgeof ethanol production as a viable source of energy, and the continued need for oil importsas an important part of the energy mix have impelled an external thrust in Brazil’s quest foraccess to Africa’s crude oil and gas.Brazil’s trade with Africa in 2008 has grown steadily from $4.2 billion in 2000 to anestimated $25.9 billion in 2008. Of this figure “more than80 per cent of Brazil’s imports from the African continent are mineral products and crudematerials (oil and gas)”. The main African suppliers of oil to Brazil are Nigeria, Algeriaand Angola. Of these Nigeria is the largest trading partner of Brazil.

Conclusion

Given the fact that oil is a wasting non-renewable asset, African states must acquire the technology on renewables both the slow down the rate of exhaustion of their oil reserves and as a strategy of survival and sustainable development in a future post-oil age. It is also important to mention that the BRICS so far lack the sophisticated technologies to explore for oil in the deep offshore oil blocks where most of Africa’s new oil discoveries lie. What this implies is that for the foreseeable future, African oil states will continue to depend on Western oil companies that still enjoy the monopoly of deep-water offshore oil technology. While the BRIC countries are making a lot of effort to acquire this technology, they lag behind the Western oil giants that still have a substantial influence over the global oil industry.