Oil competition

Big Men: The Story Of Oil In Africa

A new documentary highlighting African oil corruption in the Niger Delta is set to open across the U.S. this week in theaters.  It was filmed by Rachel Boyton in late 2006 as she was trekking through the oil-rich Niger Delta region of southern Nigeria and tells her chronicle of the petroleum-fueled pursuit of wealth and status in Africa. Below is the trailer to the film.

The central narrative of the film is that it takes place in Ghana, some 200 miles to the west. Boynton somehow convinced Dallas oilman James Musselman and his British-born colleague Brian Maxted–the chief executive officer and chief operating officer, respectively, of a privately held exploration company called Kosmos Energy–to let her shadow them with cameras and microphones as they drilled their way through layers of Ghanaian politics and bureaucracy, and the white-hot core of Wall Street, in order to reap the financial rewards of an amazing discovery. Kosmos had raised $825 million in private equity investment from Warburg Pincus and the Blackstone Group and located the country’s first known oil reserves: a multi-billion barrel, deep-sea deposit, 40 miles off the Ghanaian coast in the Atlantic Ocean and dubbed the Jubilee Field.

As to why oil executives would have a documentary film maker follow them around, Musselman explains that “Rachel is very persuasive, She was passionate about the story. I thought it was a good story that just got better, frankly, as time went on. We don’t enjoy great reputations a lot of the time. I thought this was a good story to show how in Ghana, we could transform the lives of a whole lot of people for the better. And I thought her contrast back to Nigeria was really good. I’d seen some of her previous work and I thought she’s gonna do a good job. It wouldn’t be any kind of expose’ or anything bad. I trusted her.”

I look forward to seeing this film myself.

Statoil, Exxon Make Large Gas Discovery Off Tanzanian Coast

Tanzania

A large gas discovery off the coast of Tanzania has been made.

Statoil and ExxonMobil have confirmed they made a large gas discovery in the Zafarani prospect offshore Tanzania in Block 2. Earlier this month, the company reported that Zafarani-1 had encountered gas shows in a good-quality reservoir. Statoil spudded the well in early January 2012 with the Ocean Rig Poseidon (UDW drillship). Logging results reveal that it is a high-impact discovery, far proving that the well holds up to 5 Tcf of gas-in-place. Zafarani-1 has encountered 393 feet (120 meters) of excellent quality reservoir with high porosity and high permeability, reported the operator. The gas-water contact has not been established and drilling operations will continue until total depth is reached. “This discovery is the first Statoil-operated discovery in East Africa and an important event for the future development of the Tanzanian gas industry. It is also a demonstration of how Statoil’s exploration strategy of early access and high impact opportunities strongly supports the company’s ambition for international growth,” said Executive Vice President for Exploration Tim Dodson in a statement Friday. “This discovery could potentially be a catalyst for large scale natural gas developments in Tanzania,” added Tanzania Petroleum Development Corporation Managing Director Yona Killaghane. The International Monetary Fund recently stated in a country report, “Tanzania’s prospects of becoming a major producer of natural gas by the end of the decade appear good. There could be large foreign direct investment inflows over the next five years, and a substantial increase in exports and government revenue beginning around 2020.” So far, roughly 26 licenses have been awarded in the country, making it the highest number in the East Africa region. Zafarani is the first exploration well that has been drilled in the license, which covers approximately 2,120 square miles (5,500 square kilometers). The water depth at the well location is 8,470 feet (2,582 meters). The well will be drilled to reach an expected total depth of around 16,730 feet (5,100 meters). Statoil operates the license on Block 2 on behalf of TPDC and has a 65% working interest while ExxonMobil Exploration and Production Tanzania holds the remaining 35%. In the case of a development phase, TPDC has the right to a 10 percent working interest.

This is huge for Tanzania.  If all works out, the economic benefits are astronomical.  In just a short amount of time, it has become a major player in the African energy market if all the assumptions remain true from the initial discovery. Being strategically located facing Asia, the fastest growing energy consuming region in the world, getting and shipping the gas won’t be that challenging, which only means more money stays in the country for development.

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Unrest in Libya benefiting Russia

The turmoil in Libya continues to wreak havoc across world energy markets.  Oil prices resumed their rise on Wednesday, as the violence edged closer to Libya’s infrastructure. But several countries now look set to benefit from the price inflation, not least Russia.

Apparently Russia isn’t letting the crisis be a wasted opportunity.

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Oil and natural gas discovered in land locked Chad

Taiwanese state-run oil company, CPC, has discovered crude oil and natural gas in Chad.

CPC Corp, Taiwan (CPC, 台灣中油), the state-run oil company, said it discovered crude and natural gas in Chad.

The exploration well Benoy-1 could yield 9,800 barrels of oil and 35,000m3 of natural gas daily, the Taipei-based company said in a statement yesterday. It’s the largest discovery at a single well for CPC, according to the statement.

CPC, which also has energy investments in Southeast Asia, the US, Australia and Latin America, signed an agreement with Chad in January 2006 for rights to explore for oil and gas in the landlocked African nation.

Taiwan imports almost all of its crude needs and is Asia’s fourth-biggest buyer of natural gas in liquid form.

“Chad is only the beginning,” CPC chairman Chu Shao-hua (朱少華) said at a briefing in Taipei.

The company aims to meet 10 percent of its oil needs from fields in which it has stakes, compared with 2 percent currently, Chu said, without elaborating.

The refiner owns 70 percent of the production rights in three areas in the African country, CPC spokeswomen Jessica Tang (唐苑莉) said by telephone in Taipei. The Chad government holds the rest, she said.

Chad’s oil output reached 118,000 barrels a day in 2009, compared with the 2.06 million barrels a day produced by Nigeria, Africa’s biggest producer, according to BP PLC’s Statistical Review of World Energy.

This find can have significant economic benefits for Chad if the process is managed wisely and competently.  Oil Revenues to Be Used to Improve Quality of Life and standard of living.

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Strategic competition between China and India in Africa

Over the last decade or so, China and India have established themselves as increasingly influential players across Africa, which may turn out to be one of the most significant developments for the region in recent years.

Lets looks at the opportunities and the challenges arising from this increased presence of China and India in Africa.
There three things that we should look at:
  1. Nature and scope of China’s recent engagement with Africa.
  2. Brief comparison of China and India in their African engagement.
  3. An overview of the opportunities offered to Africa as well as the challenges posed by these Asian drivers.

Economic transactions provide the most powerful evidence of China’s increasing interaction with the continent.  The impact of China on Africa operates mainly through four main channels: trade; foreign direct investment; foreign aid; and migration.

By 2005, China had overtaken the UK as Africa’s third most important trading partner (after the US and France).  African exports to China are predominantly primary products, mainly oil and metal products.  Africa’s contribution to China’s oil imports is already significant. The majority of China’s oil imports come from Africa, not the Middle East as some would say.   The bulk of China’s oil supplies are from Angola and Sudan.  The Chinese oil imports from Angola have increased by 500% since 2001.   Angola exported 117 million barrels to China in 2004, about 13% of China’s total oil imports.  Sudan  is also a non-negligible provider, and accounts for 10% of China’s total oil imports.  At least eight out of ten of China’s most important African trading partners are resource-rich countries.

There is no doubt that natural resources are the core of China’s economic interest in Africa, or perhaps even its overall interest in the region.  In 2004, China for example was reported to have oil stakes in as many as 11 African countries.

China’s growing influence is also a product of the strategies that Chinese companies pursue in their conquest of African markets.  Chinese firms appear to be significantly less risk averse than their Western counterparts, especially in post-conflict countries such as Angola, DR Congo and Sierra Leone where a ‘first mover advantage’ plays out in favor of risk-taking entrepreneurs.

The FDI is mainly from parastatals that have access to low-cost capital, so that the Chinese investors have long planning horizons.  These firms view the challenging political and economic environment in such African countries as an economic opportunity.  They are able to derive huge profits from rates of return to FDI that are said to be much higher in politically volatile African countries than elsewhere.

Chinese firms also focus on specific sectors.  With government support, Chinese enterprises have become a major player in the field of infrastructure (transportation, telecommunications, water conservancy, electricity and so on).  Many of the projects are not commercial and are financed by ‘tied aid’. Others are not profitable because the Chinese tend to set costs below market rates, although the projects may be profitable in the long run.
Finally, Chinese firms target countries suffering from Western imposed sanctions, making China an alternative partner for countries such as Sudan and Zimbabwe.

There are Some implications of China’s economic interactions with Africa on governance.  According to some analysts (e.g. Tull 2006), China’s increased presence in Africa is a political development that may not contribute to the promotion of peace, prosperity and democracy on the continent.

There are various ways that China’s economic interaction with China with Africa may undermine governance.  First, promotion of democracy, for example, is not an objective of China’s foreign policy.  Second, in the light of its rapidly growing dependence on mineral imports, it is unlikely that China will support recent initiatives (e.g. EITI) to transform mineral wealth from a ‘curse’ to a “blessing”. Last, China’s support for peacekeeping in Africa is a positive development. However, the support may be undermined by the country’s other policies which contribute to the eruption or extension of violent conflicts.

China, has for example provided a large contingent of peacekeeping troops to Liberia, but perpetuated the rule of  Charles Taylor by buying timber from the country for a long time.  China’s increasing involvement as a supplier of arms to Africa is also a source of concern.

While China does have an economic edge compared to India; India in the long run has a better political formula.

India lacks the material capabilities and the profile to emulate or directly compete with China in Africa. At the same time, it cannot ignore Beijing’s formidable influence and areas where both actors’ interests are increasingly clashing. The solution could reside in a long-term exploration of specific sectors in which India’s relatively untapped added value can be transformed into a strategic advantage over China.

Emulationists vs. Singularists

Invite anyone to talk about Africa in New Delhi and you will almost certainly end up discussing China and listening to a lamenting chorus on India’s incapacity to hold on to the “dragon’s safari”. These disillusioned voices represent the hawkishemulationists – those who believe that India should follow and match Chinese moves in Africa step by step, without any delay or hesitation. For these fans ofrealpolitik principles, it is all about competition: Africa is just another strategic context in which India will have to blindly follow and match China’s manoeuvres, if it wants to keep its great power ambition intact.

On the other hand, you have the singularists (including an increasing number of disillusioned emulationists) who, at the other extreme, refuse any possible comparison with China and underline India’s “absolute uniqueness”.  In this perspective, an Africa policy is actually unnecessary. These liberal Indian optimists take particular pleasure from African accusations depicting the Chinese as “mercantilist mandarins”. Overtly confident, singularists therefore refuse the emulationists’ competitive logic and like to believe that Africans will eventually recognize the costs of the Chinese model and opt for India as their privileged partner.

Both approaches have failed to serve Indian interests in Africa and have often led to sub-optimal policy-making. On the one hand, emulationist strategies have paid a high price because they ignore the fact that India simply lacks the financial and political capabilities to compete with the Chinese. For example, India’s public oil, gas, mining and infrastructure companies have a long record of bids and chances lost to the Chinese, starting with the 2006 Angola debacle and, more recently, in a large Ethiopian rail project. On the political front, the 2008 India-Africa summit in Delhi attracted merely 14 African heads of state and senior government leaders, as compared to 48 who had been in Beijing two years earlier.

Nor have singularist strategies proven effective. While encouraging a profound self-confidence in the merits of a supposed “Indian model” (which no one really cares to define) this option has often bred strategic inertia. The result is a general disinterest in looking at India’s presence in Africa in comparative terms and a consequent undervaluation of the continent’s importance to India’s external interests.

How then to overcome this extremist stalemate and optimize India’s presence in Africa? China’s clout in Africa gives it an uncontestable advantage over India: trade volume and preferential tariff lines; quality, speed and effectiveness of aid and credit lines; regularity of bilateral dialogues or strategic partnerships; intensity of defence relations; scope of diplomatic influence… Beijing is ahead of Delhi in most, if not all these indicators. Thus, instead of emulating China or, on the other hand, refusing any comparison with its Northern neighbour, India should identify attributes that distinguish it positively from China and that could therefore be explored as a strategic advantage in the long run.

Business model: “teaching how to fish”

Unlike the state-centric Chinese model largely focused on resource extraction and necessary infrastructure, India’s economic presence in Africa is marked by the predominance of its private sector, including a significant number of small and medium enterprises.   Beyond resources and infrastructure, India has carved out niches such as information and telecommunication technologies, education and health services.

The Indian sponsored Pan-African e-Network (in partnership with the African Union) links 53 countries through tele-medicine, -education and -governance, and plays a crucial role in fostering skills and human resources that are critical for Africa to develop in a sustainable way. These projects require considerable investments but, in the long term, they will pay off as African countries start to recognize India’s added value in contributing not only to the quantity, but also to the quality of their economic growth.

Moving beyond the narrow Chinese economic focus on resources will also protect African countries from the “Dutch disease” – the dependence on the export of natural resources and a high exchange rate that stifles productivity and international competitiveness of the domestic industrial and services sectors. While China’s economic relations with Africa are actually fuelling this perverse effect, India’s business model offers healing instruments by stimulating local productivity, especially in the private sector. New Delhi should not shy away from underlining and publicizing this in bilateral and multilateral settings: instead of just “giving fish” and perpetuating Africa’s dependence on external powers, it is teaching the continent how to fish itself.

African countries are already inclined to recognize Delhi’s added value in fostering sustainable economic growth: India remains the sole Asian member country of the African Union’s Capacity Building Foundation. And India’s Technical and Economic Cooperation programme (ITEC) has seen such success among the thousands of African students and diplomats who have chosen India for training since the 1960s, that it is now undergoing rapid expansion.

Location: proximity and overlapping security interests

There are no direct flights linking Johannesburg with Shanghai or Beijing, but Mumbai is less than nine hours away from this major South African air hub. And the only direct flight connecting Ethiopia to Beijing stops over in New Delhi. Connected by the Western Indian Ocean, India and Africa share a geographical proximity and several contact points that need to be explored.

By 2008, India had emerged as the largest contributor to UN mandated operations in Africa, with a cumulative effort totalling more than 30,000 personnel involved in peacekeeping, humanitarian, and electoral missions. But this commitment does not, per se, offer a direct advantage over the Chinese, who are also building up their military presence across the continent.

Instead, it is on the East African coast that India faces a specific advantage as a potential security provider. The piracy threat along the Somali and East African coast, often stretching wide across the ocean, offers the Indian Navy a superb opportunity to develop its blue water ambitions. By keeping these crucial sea lanes of communication and strategic chokepoints (including the Gulf of Aden and the Mozambique channel) secure, and by developing the naval capabilities of the East African states through increased joint exercises, creation of new listening posts, and the supply of vessels, India will increase its delivery capacity and assume a strategic position, at least in the East African security context.

India’s recent initiative to host the first annual Indian Ocean Naval Symposium in Delhi (from which China was excluded), as well as its commitment to revive the moribund Indian Ocean Rim Association for Regional Cooperation8 are important steps in exploring proximity to and overlapping security interests with Africa as an advantage over China. Occasional tactical triangulations with other security partners, such as the IBSA naval forces, the new AFRICOM, or the EU and NATO naval forces in the Gulf of Aden, could further leverage this advantage.

Democracy: the regime advantage

At the height of the “China in Africa” hype, African governments were often said to be keen to replicate China’s centralized and illiberal political architecture.  Delhi’s emulationists often despise India’s democracy as a central obstacle to their country’s external performance and often envy the Chinese authoritarian capacity in “getting things done” in Africa. However, little suggests that African governments have in practice attempted to replicate the political features that sustain the great Chinese transformation since 1978.

Instead, unprecedented levels of sustained economic growth have actually reinvigorated Africa’s democratic competitiveness and pluralist institutions.  Without falling into the temptation to export or impose its political institutions on Africa, India could perhaps shed its traditional inhibitions and start practicing its moralistic foreign policy discourse on democracy and human rights. As a founding member of the Community of Democracies, Delhi faces the opportunity to explore this “regime advantage” over China in Africa, at least in subtle and indirect ways.

For example, nine African delegations attended the International Conference on Federalism hosted by New Delhi in 2007, including Nigeria’s Vice-President who expressed his country’s interest in learning from India’s successful experience with federal democracy. Several African countries have expressed interest in working with the Election Commission of India to study and replicate India’s unique electronic voting system. India’s vibrant base of local government institutions and its independent judicial system based on the rule of law are two other areas in which India can share its unique expertise through technical cooperation, thus responding to specific African interests and, at the same time, outflank China.

Diplomacy: Southern power

China and India are both situated in the Northern Hemisphere, but paradoxically are also competing ferociously to become leaders of the “Global South”, be it during the trade negotiations at Doha or, more recently, at the climate change summit in Copenhagen. But as a traditional “bridging” or “positive power”, India has a distinct advantage: in stark contrast to the radical ideological and interventionist Chinese moves during the 1950s and 1960s, Delhi played a much more constructive diplomatic role in supporting the African independence movements in the United Nations.

India’s leading role as a “Colombo Power” in creating the Non-Alignment movement at Bandung and its central role within the Afro-Asian UN block of the 1960s has thus earned it a persisting respectability as a “Southern power”. For example, unlike China, it is a founding member of the G-77 of developing nations and held its presidency twice.

India is also a member of the influential Commonwealth organization and at the heart of the impressive Southern trilateral (and tri-continental) India-Brazil-South Africa (IBSA) axis that gives it a strategic advantage to engage with the Southern Africa Development Community (SADC) and Sub-saharan Africa. This profile offers Delhi a distinct advantage that, unfortunately, remains largely unexplored because many of the old time Africanist diplomats who served in the Ministry of External Affairs have retired over the last decade.

Diaspora: the privileged access channel

A final potential advantage resides in the cultural proximity between Africa and India. The large Indian diaspora plays a vital factor in this regard: a 2001 estimate identified close to one hundred thousand Indian citizens residing in Africa, with more than half in Eastern and Southern Africa. On top of this more recent immigrant community, there are more than one million people of Indian origin who have settled in Africa for many generations (close to one million in South Africa; 25,000 in Madagascar; 15,000 in Zimbabwe; and 8,000 in Nigeria).

Unlike the more recent and radically segregated Chinese “labour diaspora” that has often led to frictions and protests in Africa, these communities of Indian origin are fully integrated and often interested in offering their business expertise as consultants to Indian investment projects. Their local contacts also often present Delhi with privileged channels to access key political figures and represent Indian interests in moments of crisis. In Liberia, for example, the local Honorary Indian Consul, a local businessmen of Indian origin, stayed on in Monrovia throughout the various civil wars when most other diplomatic missions had to close down.

At the same time, beyond geographic proximity, India also offers a much more familiar and open society: racism against Africans in India is not uncommon, but well below the levels experienced in China. For the increasing number of African investors and students who seek opportunities abroad, English-speaking India therefore offers a much more attractive destination: an increasing number of African businessmen permanently reside in Delhi and Mumbai, and more than 10,000 African students enroll annually in Indian universities, many of them sponsored by the Indian government.

Exploring the advantage

Shashi Tharoor, the former Indian Minister of State for External Relations, who focused on relations with Africa, underlined that “we have an opportunity to enjoy a privileged position in many African countries that we would be foolish not to develop.” This “opportunity” resides precisely in the five dimensions discussed above, where India offers Africa an added value that, strategically explored, could lend it a long-term advantage over China and other competitors.

Focusing on these specific sectors, beyond the options much in vogue with offensive emulationists or passive singularists, will also help India to clarify its priorities, optimize its policy-making process and infuse its Africa policy with greater strategic depth.

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