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International Herald Tribune: Despite troubles in Africa, stampede for oil unabated

By Heidi Vogt
The Associated Press
Sunday, December 31, 2006

DAKAR, Senegal

Angola is joining the Organization of Petroleum Exporting Countries, African oil exploration is booming, and China is investing. The stampede for oil in Africa has continued even as militant attacks in some countries and precarious governments in others make returns uncertain there.

Though much of the continent is just as conflict-ridden as the Middle East, analysts say, Africa is increasingly attractive because it is one of a diminishing number of regions still welcoming foreign corporations.

“It’s one of the few places still where in virtually every country the international oil companies can invest,” said Julian Lee, senior energy industry analyst at the Center for Global Energy Studies in London. “I can’t think of anywhere in Africa that has not let in international companies.”

The Middle East, which has nearly 60 percent of the world’s proven reserves, operates mainly through state-owned companies.

Russia, the world’s second-biggest oil exporter, after Saudi Arabia, took over much of the oil company Yukos this year and has continued to tighten its control over foreign companies.

Meanwhile, South American policies have become increasingly nationalistic: Venezuela forced revised contracts on foreign oil companies, Bolivia nationalized its petroleum industry, and strong leftist parties in Peru and Ecuador have made corporations increasingly wary.

Venezuela’s president, Hugo Chávez, “has basically politicized Latin American oil,” said Mehdi Varzi, who heads an independent oil consultancy in London. But Varzi said nationalization was not an option for African countries with poor infrastructure and little technical expertise to develop an oil sector on their own.

Mauritania, Africa’s newest oil producer, was long only a potential oil exporter until a deal with a team headed by Woodside Petroleum led to offshore finds in 2001.

Though Mauritania’s reserves are small by world standards, about a billion barrels, the government estimates that it will report oil revenue of $350 million in 2006, its first year of production. That is major revenue for one of the world’s poorest nations.

Woodside, which is based in Australia, owns the largest stake of the field, nearly 48 percent, and Mauritania’s government owns 12 percent.

Foreigners also show no signs of leaving Nigeria, even though normal daily production of 2.5 million barrels has been cut by a quarter in attacks by militant groups angling for a greater share of oil wealth.

Nigeria, Africa’s biggest oil producer and the fifth-largest supplier to the United States, is host to multinationals like Royal Dutch/Shell and the Italian oil company Eni in profit-sharing agreements with state-owned companies. In a stark contrast to Russia and Venezuela, the Nigerian government is making efforts to privatize more of its oil operations, according to Shell financial reports. The government has a majority share in Shell partnerships and the petroleum sector accounts for about 80 percent of Nigeria’s revenue.

Still, African oil development has problems that can trump those of the Arab world. Nigeria is often near the top of lists of the world’s most corrupt countries, as is Angola. Much business in both countries takes place in an informal economy. And long histories of coups in many regions mean that new governments cannot always be counted on to keep old promises.

While Africa will probably never compete with the Middle East, there is plenty of oil to be found. The continent’s proven oil reserves more than doubled from 1980 to 2005 to 114.3 billion barrels, according to the BP Statistical Handbook. That is a growth rate comparable to the Middle East and far outpaces a worldwide increase of 84 percent during the same period.

African production rose about 60 percent during the same time and now accounts for about 12 percent of the world’s oil.

There is enough demand that although U.S. and European companies have largely stayed away from Sudan, the country has found foreign investment from Asia.

China is the primary foreign investor in Sudanese oil fields and has not showed any signs of reducing involvement, despite the continuing threat of United Nations sanctions over Sudan’s refusal to allow UN peacekeeping troops into Darfur.

Over the past decade, many poor African countries have moved toward privatization of state-owned enterprises under the advice of the World Bank. In an October report, the World Bank encouraged Angola — Africa’s second- largest producer, after Nigeria, and one of the continent’s fastest growing oil powers — to do more to encourage private investment.

Peter Egom, an economist and research fellow at the Nigerian Institute of International Affairs, argued that Africa had the manpower and ability to aspire to oil nationalism. He argued that the major stumbling block for African oil producers was the lack of financial means because nations with weak currencies have to compete in an industry where the dollar is the currency of trade.

Perhaps to counter this obstacle, Venezuela has worked hard this year to befriend African nations.

Chávez attended an African Union summit meeting in Gambia this summer and pushed for South American- African partnerships. A conference between South American and African countries last month ended with an agreement to explore natural resource collaborations.

Yet even as Africa tries to decide the best way to exploit its resource, some analysts say the continent’s promise of vast oil reserves has been overhyped.

Greg Priddy, an analyst for Eurasia Group, said much of Africa’s oil is more expensive to extract than Middle East oil, so it may be full of opportunity only as long as oil prices stay high.

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