The Rising Profile of West Africaâs Oil Wealth
West Africa is in the midst of an oil frenzy. The frenetic search for hydrocarbons in what has been described as the âoiliest patch in the worldâ (Black 2012; BaumĂźller et al. 2011) has become so intense and wide-ranging that there is planned or ongoing oil exploration in all of the 15 countries that officially make up the regional trade bloc: the Economic Community of West African States, or ECOWAS. Traditional oil exporters such as Nigeria have strengthened their capacity, and new oil economies from all over the region are emerging on the scene. With the fourth-largest proven reserves in the world after the Middle East, North America, and Europe, West Africa accounted for 7% of the worldâs total output in 2007. At the end of 2011 the region had an estimated 132.4 billion barrels, an increase of 154% over the 1980 figure of 53.4 billion barrels (Palazuelos 2012). The region is projected to increase its production from 1935.90 in 2018 to 3006.24 thousand barrels per day in 2024 (Ghazvinian 2007; Mordor Intelligence 2018). More than any other natural resource, oil has thrust the region onto the world stage in unprecedented ways.
The regionâs ongoing economically viable oil finds have been made possible by a host of factors, foremost among which is technological advancement in the petroleum industry. Thanks in part to improved technology, knowledge about the regionâs geology, especially its under-explored maritime and offshore regions, especially its offshore regions, is improving rapidly. Most of the new reserves are deep-sea oil fields that can now be exploited by new technology and drilling techniques including extended reach and complex path drilling, ideal for the regionâs ultra-deep waters. Other relevant factors include the relative stability in the region following the conclusion of its civil wars in the early 2000s. The conclusion of the civil war in Angola in 2002 and the consolidation of democracy in Nigeria, has also helped fuel the oil boom in the region. Externally, the perennial instability in the traditional petroleum regions such as the Persian Gulf, has forced governments and oil companies to look for alternative sources for oil in places like West Africa. Continued high prices on the global market for the âSweet crudeâ variety, which hit a record high of $164.64 in 2008 helped to make West Africa attractive to foreign direct investment.
The intensifying oil activities have been made possible in part by foreign direct investment from some of the largest international oil companies (IOCs) in the world. A combination of what is referred to in oil parlance as supermajors, majors, independents, and state-owned companies are snatching up exploration licenses and establishing exploration agreements with African governments in an unprecedented manner. Since 2009, ExxonMobil, Chevron, and Texaco, three of the largest transnational corporations in the world, have spent about $10 billion (all currency in US dollars except otherwise stated) annually toward West Africaâs oil exploration (Watson 2009; Roberts 2006). According to the World Bank (2012), between 2009 and 2011 foreign direct investment to the region increased by 36% to $16.1 billion. Not surprisingly, a sizeable proportion of this investment has been concentrated in the petroleum industry. The economies of at least half of the 16 countries that make up the region have experienced a 6% annual growth since 2002 (World Bank 2012). Buoyed by production from its enormously wealthy Jubilee Oil Field, Ghanaâs economy expanded by a whopping 13.4% between 2010, when production started on Jubilee Oil Field, and 2011. The country hitherto known as the gold coast, is now the fastest-growing oil economy on the continent.
Of equal importance to the rising profile of West Africa in the global political economy is the entry of China into the regionâs oil sector. The worldâs second-largest net importer of petroleum products has intensified its involvement in Africa in general and West Africa in particular over the last three decades. Through its three state-run companiesâthe China National Petroleum Corporation (CNPC), China Petroleum and Chemical Corporation (Sinopec), and the China National Oil Corporation (CNOOC)âChina has signed a raft of trade deals and bilateral agreements with various governments in the region, including Nigeria, where CNOOC completed a $2.3 billion deal to buy a 45% interest in an offshore oil-mining concession (Frynas and Paulo 2007, p. 231). For example, trade between China and Nigeria, which was a mere $2 billion in 2000, had reached a whopping $18 billion by 2010 (Egbula and Zheng 2011). As China expands into the region, with new deals in Angola and interests in Gabon and Equatorial Guinea, it will create new frontiers, a new wave of ventures and increase demands for West Africaâs oil on the international market (Clarke 2008, p. 75).
The region has several advantages that make it appealing to global oil companies and foreign governments nervous about their energy security. Most of the newest and most profitable finds such as in the Jubilee fields in Ghana are located offshore, and in the deep (5000 feet/1524 meters) and ultra-deep waters (1830â2130 meters/approximately 6000â7000 feet) off the Atlantic Ocean. Offshore oil is of particular interest to external investors and host governments alike largely because it is not yet fully developed and is somewhat insulated from political turmoil on the mainland, something that has plagued the Nigerian oil industry since its first export in 1958.
Geography and access to some of the biggest consumer markets also play a role in enhancing West Africaâs rising profile in the global energy sector. West Africa is the land mass situated just west of the United States; the reserves are just opposite the eastern seaboard of the United States. Being closer to the US eastern seaboard than the Middle East means West African oil can get to one of its most important markets much in a short amount of time with relatively little hassle. For example, the shipping distance from Sekondi/Takoradi in Ghana to Texas is about 5730 nautical miles; from Port Harcourt to Houston, Texas, is 6790 nautical miles. In comparison, the distance between Saudi Arabia, the worldâs most prolific oil producer, and Houston, Texas, is 7912 nautical miles.
In addition to proximity, the offshore oil in the Gulf of Guinea is attractive to American markets and production firms in particular because it does not have to pass through major choke points or high-risk security areas such as the Straits of Hormuz, the Strait of Gibraltar, the Strait of Malacca, or any other narrow canals on its way from the Gulf of Guinea across the Atlantic Ocean to refinement companies on the southern or eastern seaboard of the United State, where majority of US refineries are located near navigable waters to take advantage of economical waterborne transport for both import and export (Servant 2003).
Moreover, securing oil investments in the Gulf of Guinea is politically strategic for the United States, which is very much aware of the competition it faces from the growing energy needs of Asian countries such as India, Malaysia, North Korea, South Korea, and China. Securing oil resources in Africa represents a US response to competition from China, whose trade with the African continent, in general, has been on an upward trajectory (30% a year) topping $50 billion 2006 up from $39.7 billion in 2005 (McDougal 2009). Chinaâs entry into the West African oil market is important for several reasons as will be illustrated throughout this book.
For some years, West Africaâs offshore oil fields have been increasingly attractive, not least because oil companies are often able to make higher profits per barrel than from other parts of the world (Ellis 2003). According to the Platts Oilgram Price Report (2013), the ocean shipping rate from Nigeria is far cheaper, at $1.45 per barrel, than shipments from, say, the US Gulf Coast to the US Northeast refineries, which would cost a shipper between five and six dollars per barrel. This essentially means more profits for the oil companies when shipping crude from West Africa.
It is not just the quantity of oil that is now being drilled in West Africa that has caught the worldâs attention and interest. Its commercial oil is of the highest grade and thus highly desirable. West Africa produces the âSweet crudeâ variety, which is among the most coveted in the world largely because it contains low volumes of sulfur, suitable for processing light refined petroleum products. The quality of Nigerian crude, for example, is especially well adapted for use in US refineries (Ellis 2003, p. 135), and indeed in other refineries around the world.
From the investorâs perspective, the historical circumstances of each country in West Africa also works to the advantage of the international oil companies. At least from the oil companiesâ view the fact that West African oil is divided up among several relatively weak countries, in different phases of their oil development and confronted by cultural and language barriers (French, English, Portuguese and Spanish), they are unlikely to coalesce into a formidable oil block to pose a major threat in the form of an embargo or other forms of punitive measures.
In addition to the economic potential of oil and the foreign direct investment that oil attracts, the subregion is also doing well on the democratic front. The region is experiencing a widening of the democratic space, as evidenced in the frequent holding of national elections, some of which have resulted in the change of unpopular governments. Since the end of the Cold War, West Africaâs political systems have undergone both rapid and momentous changes. A region that once accounted for more than 70% of all military coups in Africa is now on a seemingly unstoppable march toward pluralistic forms of governance. Without a doubt, competitive general electionsâoften conducted under the scrutiny of the international communityâhave played a pivotal role in this seismic political shift. More West African governments today have been chosen through free and fair elections than at any other time in the regionâs history. In the region, as in most parts of sub-Saharan Africa, elections are much more than just a means of choosing public officials and changing governments. Due to the symbiotic relationship between poor governance and instability, elections have also come to be viewed as a means of conflict management (Kanyako 2007). Since 2002 both Sierra Leone and Liberia have consistently conducted free and fair elections. Successive elections in the Gambia, Senegal, Mali, Liberia, Sierra Leone, Ghana, and Nigeria and even a change of regime in Angola have since helped to boost the democratic credentials of the region. There is no military regime in West Africa, a fairly common type of governments in the 1970s and 1980s. Increased democratic space means people have more avenues to express grievances against unpopular policies such as the types often generated by a rapacious and highly profitable business like oil.
By all indications therefore, oil, the worldâs most sought after commodity, with its vast market opportunities and global reach, should be a blessing to West Africa. If managed diligently the regionâs natural resource-driven economies, partly hobbled by the devastating civil wars of the 1990s, should experience a much-needed boost for established as well as prospective first-time oil-producing countries. Even non-producing countries in the region could stand to benefit either directly or indirectly from the foreign investments that are flowing into the region. In April 2019, the Gambia, one of the smallest countries in the subregion with no known natural resources of note, signed a contract with BP to explore for oil and gas in the country. Sierra Leone, Liberia, and Guinea, are all frantically scouring their maritime zones for signs of oil. Like the Gambia, they hope to join the likes of Gabon, Equatorial Guinea, and the regionâs oil powerhouses: Nigeria and Angola in harnessing their oil reserves. It is perhaps not surprising, therefore, that within the...