Oil and the Gulf of Guinea
By
Feb 18, 2003, 11:32

In recent times, there have been series of policy forums, top-level conferences, and government white papers on the subject of expanding West African oil, even as Western political and economic interests appear to be shifting attention to the Gulf of Guinea.

One American-based non-commercial organisation was in Abuja in July 2002 to plead for the setting up of the Gulf of Guinea Commission, in realization of the region’s growing strategic importance. The group, known as African Oil Policy Initiative Group (AOPIG) met with Vice-President Atiku Abubakar to tell him that Africa has been identified as “one of the fastest growing sources of oil and gas for American consumption’’.

Leader of the group, Dr. Paul Michael Wihbey, told the vice-president that Nigeria and the rest of Africa are strategically located and much endowed to play a critical role in both global trade and security, and supported the immediate take-off of the Gulf Commission. He also said that Africa and America have much to offer each other especially in global energy security, and added, perhaps for effect, that debt relief (a critical issue being championed by President Olusegun Obasanjo) would be linked to such regional cooperation.

The Gulf of Guinea is a geographical coastline that stretches from Angola through Gabon, Equatorial Guinea and Cameroon to Nigeria. This zone has not always ranked high either in global energy calculations or in the foreign policy agenda of western countries.

However, the situation appears to be changing, as more oil is discovered in the region, and as tension and political instability grip major world suppliers in the Persian Gulf. Middle East oil producers currently account for about 25 percent of all United States oil imports, while Gulf of Guinea suppliers, mainly Angola and Nigeria, account for about 15 per cent.

With this new economic interest in the Gulf of Guinea, American energy analysts estimate that West Africa's share of the market may reach 25 per cent by 2015 as other countries in the region, including Gabon, Congo, Cameroon, Equatorial Guinea, and Sao Tome & Principe boost their production output as well.

The new interest in the Gulf of Guinea is already bearing foreign investment fruits. European and North American governments as well as private commercial interests have wooed and signed commercial agreements and trade treaties with oil-bearing countries in these areas. American and European multinational oil corporations continue to bid and to be granted concessionary rights for oil prospecting and mining.

At the political level, major oil consuming nations of North America and Europe have formed or strengthened ties and alliances with West African countries. President Bush recently met with leaders of 11 West and Central Africa nations; all either already established producers of crude oil or in the thick of West Africa’s oil exploration and production.

The US, reportedly is proposing the establishment of a navy base in Sao Tome and Principe, even as diplomatic sources confirm that America is "already on ground" in Sao Tome. What is more, influential strategic thinkers have been urging the American government to establish a full-fledged US military sub-command for the Gulf of Guinea.

Equatorial Guinea is one country that vividly portrays the irresistible attraction of oil-bearing countries in West Africa for both America and Europe. The U.S government has significantly intensified its relationship with this country. In October 2000, the U.S. reopened her embassy in Malabo, which had been closed since 1995, and has followed this up with exchange visits by top officials of the two governments.

For instance, Under-Secretary of the US Department of Labour, Mr McArthur Deshaser, visited Equatorial Guinea and was received by President Teodoro Obiang Nguema. Deshaser led a delegation of America’s agency charged with the protection of American investments abroad, the Overseas Private Investment Corporation (OPIC). President Obiang Nguema himself met with Kirk Robertson, the Executive Vice-President of OPIC on 13 September 2000, when he attended the UN Millennium Summit.

While US investors are by no means the only ones acting in Equatorial Guinea's economic theatre, they have proved to be the most important. OPIC plays a key role in facilitating American investments in her fast recovering economy. United States provided the basic infrastructure and capital that facilitated oil boom and rapid growth of GDP in the last six years.

With a population of less than 0.5 million people, Equatorial Guinea has become "the fourth largest destination of American investments in sub-Saharan Africa, behind only South Africa, Nigeria and Angola," according to a recent US government report. In June 2000, OPIC approved the agency's largest-ever project loan in sub-Saharan Africa – a US$173million guaranty for the construction, ownership and operation of a natural-gas-utilisation methanol plant in Equatorial Guinea.

In addition, the Board also approved up to US$200 million in political risk insurance for Atlantic Methanol Production Company, which is to be managed by the Equatorial Guinea government.

The United States is by a wide margin the biggest investor in Equatorial Guinea.

French as well as Norwegian companies have also sealed oil concession contracts with Equatorial Guinea while Spanish political and business leaders have been to Malabo to negotiate and facilitate the entrance of the Spanish oil company, REPSOL into the lucrative oil market.

Traditionally, European countries import agricultural products (mostly cocoa, coffee and timber) and export manufactured goods, both on a small scale due to the small size of the Guinea economy. In the last six years, however, Equatorial Guinea’s exports to European Union increased ten-fold while imports from European Union increased fourfold, as Europe became the main market for her crude oil.

These facts were evident to Vice President Atiku Abubakar when he received Mr. Wihbey and his AOPIG in audience at the State House, Abuja. In answer to his request that Nigeria expedites action on setting up the Gulf of Guinea Commission, the vice-president said that Nigeria is in favour of the commission: "In view of the present global uncertainty in the oil and gas market, the Gulf of Guinea Commission is a welcome development.”

The Commission, he said, was strategic to global economy and energy security and “would serve as a basic linkage between West Africa and America as well as the international community." The vice-president also said that he was confident that the Gulf of Guinea Commission “would foster understanding and guarantee regional and global security” when it comes on stream.

Response from the Gulf

Among the countries along the Gulf of Guinea, there are already organisations and unions formed for sub-regional cooperation and collaboration around issues of oil production and exports. A notable example is the Joint Development Zone Authority (JDZA) established by Nigeria and Sao Tome.

The JDZA recently advertised for bids for the awards of oil blocks in the deep waters of the Gulf of Guinea. A total of nine blocks with an estimated four billion barrels of oil were put on offer. Under the JDZA arrangement, Nigeria’s share of the oil reserves in the region is 60 per cent while Sao Tome has the remainder of 40 per cent. Exxon-Mobil, Chevron Texaco, Phillips as well as local Nigerian oil companies reportedly competed for the blocks.

Officials of Nigeria's Ministry of Petroleum Resources said local firms with experienced foreign technical partner stood a good chance of winning some of the blocks on offer.

The best response to the overtures from Europe and North America has, however, been the Gulf of Guinea Commission. Nigeria, Angola, Gabon, Equatorial Guinea, Congo and Cameroon constitute the foundation members of this recently formed Commission.

The treaty establishing the Commission was signed by the heads of State of Gabon, Nigeria, Congo-Brazzaville, and Sao Tome and Principe; and by the Interior Minister of Angola.

The commission was established with the main goal of strengthening cooperation and preventing conflicts in the Gulf of Guinea. It is to serve as a mechanism for dialogue and consultation to prevent, manage, and resolve conflicts linked to the economic and commercial exploitation of the natural resources within the territorial limits of member states.

The inaugural meeting held in November 1999 that led to the launch of the Commission was convened by President Obasanjo and hosted by President Bongo of Gabon. It was a full-fledged sub-regional summit on peace prospects, stability and the management of key resources, especially oil.

Why the great scramble?

The attempt to gain a strong foothold in the oil-rich West Africa by Europe and North America has been linked to economic and geopolitical considerations. Currently, West Africa supplies about 15 per cent of US oil imports, compared to the Middle East, which supplies 25 per cent. However, with ever-increasing tension and rash of conflicts in the Persia Gulf, American officials are searching for more secure and predictable sources of oil.

California Republican and Chair of the House Sub-Committee on Africa, Mr. Ed Royce, reportedly said: "It is clearly in our national interest to diversify our energy supply, especially in turbulent times."

A key proponent of US strategic interest in African oil, Royce pointed out that "West African oil doesn't have the strategic bottlenecks that other nations have. We generally have good political relations with African oil producers. And if it lessens our dependence on a particular section of the world, that is good." US National Intelligence Council forecasts that US supplies from West Africa's Gulf of Guinea will surge from the current 15 per cent to more than 25 per cent by year 2015, surpassing that from the entire Persian Gulf.

The high quality of the crude (usually very low sulfur content) as well as the absence of religion-based violence in West Africa is said to make the Gulf of Guinea particularly attractive.

This may have accounted for why US interest in West Africa has been soaring since the looming face-off with Iraq and after the September 11 terrorist attacks on the New York World Trade Centre. The threatened conflict (with increasing possibilities of war) with Iraq as well as the exacerbation of the Palestinian-Israeli conflict has heightened fears of insecurity of oil supplies from the Middle East.

Top aides of President Bush make no secret of America's intention to shift US reliance on oil imports from the Middle East to West Africa. "West Africa's oil has become of national strategic interest to us", Assistant Secretary of State for African Affairs, Walter Kansteiner declared at a public forum early in 2002.

An American State Department economist at another forum noted the strategic advantages of West African oil in January 2002. "Political discord or dispute in African oil states is unlikely to take on regional or ideological tone that would result in a joint embargo by suppliers at once", he said.

Consequences of West Africa oil wealth

Analysts have said that the presence of large quantities and high qualities of hydrocarbon deposits in the Gulf of Guinea is both good and bad news. It is good news because it means more foreign direct investments, technology transfers, general higher economic prospects and a higher political profile for the West Africa sub-region.

However, there are fears that this development might breed cutthroat competition for oil fields among West African countries thereby exacerbating the common border disputes and boundary delimitation problems. Artificial boundaries and indeterminate borders between neighbouring countries are legacies of the colonial partitioning of Africa.

The discovery of highly priced and desired minerals in commercial quantities in disputed territories naturally raises the stake and the desperation to exclusively claim and secure these contested border areas.

The positive dimension of the oil boom in Gulf of Guinea is best exemplified with the experience of Equatorial Guinea. Bolstered by recent investments in its oil sector, the country has had an average GDP growth of 22 per cent since 1996 when oil exploration and production commenced. Oil investments made the country the fourth largest recipient of American investment in sub-Saharan Africa.

In the words of the Equatorial Guinea Minister of Mining, Cristobal Manana Ela: "What you are about to see in my country is an economic explosion." His words may not be an exaggeration. Oil industry experts forecast that Western oil companies will invest between $40 billion and $60 billion in the Gulf of Guinea alone over the next 20 years.

On the negative side, other countries of the Gulf region might be tempted to go the way of Nigeria where oil wealth led to neglect of food crops and traditional export commodities. Thus, Nigeria’s broad-based and diversified economy was replaced by a total reliance on the proceeds of hydrocarbon exploitation, thereby creating psychological and physical dependence on petrodollars.

There are also fears that the quickly expanding links between the West and the potential oil-exporting giants of West Africa could have major negative implications for the rest of Sub-Saharan Africa who need foreign assistance. Countries on the other side of the continent, such as Kenya, Tanzania and Uganda are likely to be worse hit.

Salih Booker, head of an Africa-oriented lobby group in Washington put the situation in perspective, predicting: "Those countries that have oil, regardless of their democratic credentials, will get first service over other African countries." Mr. Booker made the comments to the Associated Press early September 2002 as President Bush was meeting with the leaders of 11 African nations, including the main oil-producing states of West Africa.

The Gulf of Guinea oil boom has meant a flurry of consultations between President Bush and oil-producing African countries, especially in the light of possible embargo on Middle East oil in the event of a threatened attack on Iraq. This has certainly increased the political relevance and profile of West African countries, especially the microstates, in the global geopolitical architecture, and would explain the suggestion that America establishes a military high command in Sao Tome and Principe.

Conclusion

Currently, oil exploration and production in most African countries are dominated by foreign capital and expertise. The Gulf of Guinea provides the perfect platform for members to share their resources and expertise. In the spirit of this cooperation, Nigeria in July 2002 granted a loan of US$5 million to Sao Tome to develop her oil and gas sector, the latest agreement between the two countries. There are also on-going talks between Nigeria's President Obasanjo and his Sao Tome counterpart, Fredrique de Menezes, on the possibility of establishing a joint refinery.

The commission also provides the best opportunity to exchange expertise among members. Energy analysts say that Nigeria, for instance, can readily offer assistance in consultancy services and manpower training to other members of the commission.

They point to the country’s seismic facilities which currently serve both the national petroleum company (NNPC) and foreign oil companies operating in Nigeria. There is also the multi-million dollar modern seismic data processing center at Oko in Nigeria’s Midwest area to which African countries have been sending their hydrocarbon data to be processed for far less than the cost of processing them in Europe.

In the area of manpower development, Nigeria's Warri-based Petroleum Training Institute has been adequately serving the needs of African oil producing countries.

There appears to be many external and internal benefits that would accrue to members of the Gulf of Guinea Commission, as they await a shifting pattern in energy resource buy.


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