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African oil and gas sector sees boom times ahead
The Washington Diplomat / January 2006

By Larry Luxner

By 2020, one out of every four barrels of oil consumed by Americans will come from Africa — and not just from big oil exporters like Angola, Nigeria and Libya.

Smaller countries — including places most Americans have never heard of, such as Equatorial Guinea and Sγo Tomι e Principe — are also cashing in on the coming oil boom.

"The development of an energy sector to drive Africa's growth cannot be limited to one or two countries. It must involve all of Africa, and it has to be an integrated effort," said U.S. Energy Secretary Samuel W. Bodman, speaking on the final day of a three-day conference in Washington on Africa's emerging oil and gas industry.

"All of us here face one overriding energy challenge: energy security," said Bodman. "We all agree that we must have plentiful and affordable, reliable supplies, that those energy sources are produced both at home and abroad, and that they're consumed in an environmentally sound manner."

The 2005 Africa Oil & Gas Forum, co-sponsored by the Corporate Council on Africa (CCA) and the U.S. Department of Energy, attracted 150 executives, academics and diplomats from more than a dozen nations ranging from Algeria to Zambia.

One of them was Tony Chukwueke, director of Nigeria's Department of Petroleum Resources.

"We are committed to making Nigeria a hub for oil and gas development in the Gulf of Guinea," he said during a special panel discussion on Nigeria, with 137 million people Africa's most populous country and its leading oil exporter. "Our government is very serious about providing the required investment climate — including the appropriate fiscal and regulatory framework — to attract qualified investors."

That includes successful Nigerian expatriates living in the United States who until now haven't thought about sinking their money into oil and gas.

"It's not that Nigerians don't have money. They do, but they don't invest in the long term," Chukweke complained. "Usually they start businesses that involve buying and selling, because they want to make profits overnight. This is the first time we are getting Nigerians to invest in the oil business."

He added: "We happen to have a well-educated and well-trained workforce outside Nigeria that can take advantage of the initiatives. If they do not participate, don't see how the program can be successful. We can do a much as we can locally, but we need our people abroad to be part of it. Our people in the diaspora are the ones with the most know-how and access to institutions that can provide financing."

This was the first year CCA's annual Africa Oil & Gas Forum was held in Washington; previous conferences took place in Houston. The move gives CCA the opportunity to work more closely with the Energy Department, said CCA President Stephen Hayes, who noted that although the U.S. government didn't help finance the conference, it did provide "in-kind" support.

U.S. Commerce Department statistics show that petroleum and its byproducts account for 87% of total U.S. imports fom sub-Saharan Africa under the African Growth and Opportunity Act (AGOA).

Bodman told delegates that the Bush administration's National Energy Policy, announced in 2001, specifically recommends that the government "reinvigorate the U.S.-African energy relationship" while promoting geographical diversification of energy supplies and addressing such issues as transparency and the sanctity of contracts.

"We want to see more African countries engaged in programs with the U.S. under AGOA and other trade-enabling mechanisms," he said, stressing that African nations themselves need more energy than ever before.

"In many regions of Africa, environmental improvements to land and air will be quite spectacualr as the switch is made to commercial fuels from the biomass that two-thirds of the continent still relies on for its energy supply."

At the moment, said Hayes, African countries supply about 12% of all oil consumed in the United States, but within 15 years, that'll rise to 25%.

"Such an increase in oil and gas trade with the United States will inevitably spark an increase in a broad array of trade and business opportunities as well," Hayes said. "I think ther are going to be a lot of companies that are not oil companies coming into this. Liquefied natural gas (LNG) is going to be huge as well. Africa has a lot of LNG, but to develop that, more and more countries are insisting on local content."

Additionally, he said, there will be increased opportunities for U.S. non-oil businesses to supply items like food services, laundry services, housing, infrastructure and piping supplies.

One of the biggest success stories to date — if you look at it in strictly numerical terms — has been Equatorial Guinea. Over the past 10 years, this Maryland-sized country has enjoyed average annual GDP growth of 17%, with the economy growing by 34% last year alone.

Yet despite reserves of 1.28 billion barrels of oil equivalent, because of widespread corruption and mismanagement, most of Equatorial Guinea's one million people remained mired in abject poverty.

Steve Guidry has made 23 trips to this former Spanish colony over the last 46 months. As Central African business unit leader at Marathon Oil Co., Guidry is responsible for overseeing the $1.4 billion EG LNG Co. venture that is jointly owned by Marathon (60%), state energy conglomerate Sonagas (25%) and two Japanese firms: Mitsui & Co. Ltd. (8.5%) and Marubeni Corp. (6.5%).

"Equatorial Guinea has undergone one of the world's most extreme economic development booms in modern history. This tiny country has repeatedly enjoyed record GDP growth, with production jumping from 10,000 barrels a day 10 years ago to over 300,000 barrels a day today," said Guidry, with 2005 projections at 420,000 barrels a day.

"However, it will take continued unwavering efforts on the part of U.S. oil companies, the U.S. government, the Equatorial Guinea government and various elements of civil society to insure that the benefits are sustanable and available to all."

Purification Augue Ondo, Equatorial Guinea's ambassador-designate to the United States, promised to make sure she'd do whatever she could to make sure the country's vast energy wealth isn't squandered or stolen by corrupt officials.

"Our government is making effort to improve financial transparency, and in this regard we are cooperating with the World Bank and the IMF," the former teacher and women's rights leader said in Spanish, speaking to her audience through an interpreter. "The government has set up a social development fund in order to help finance social proglrams, epmpahsizing health, education, women potable water and the environment."

She added that despite several years during which the United States and Equatorial Guinea had no diplomatic relations, "the reopening of the U.S. Embassy in Malabo was a step in the right direction."

Steven J. Olerearnshaw, managing director of EG LNG Co., said his venture employs 2,300 people — 850 of them locals — on the project, which is currently 61% complete. The project aims to cool LNG to -160 degrees C., thereby converting the gas to liquid so it takes up 1/600th as much space, and transporting it by ship to Equatorial Guinea's major export market.

Another important endeavor is the $3.7 billion Chad-Cameroon pipeline project, which involves 300 oil wells and has generated more than its share of controversy.

"The U.S. government and the Department of Energy have been actively involved in this project, helping to create conditions in which the project can succeed," said Bodman. "With the completion of the 650-mile pipeline in July 2003, Chad has become a significant energy producer. The pipeline has also created new opportuniies for Cameroon to revive its declining petroleum sector. Clearly, this illustrates the role African nations can play in global energy markets."

Bodman concluded: "With close proximity to various markets, Africa is well-positioned to play a greater role in the energy trade and the investment equation that we are all pursuing. Our department encourages these developments, and we pledge to work with all parities to seek resources and enhance energy security."

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