African oil becomes new FDI magnet: Africa's growing importance as an essential source of oil for Western economies will ensure that FDI into the sector will continue to increase.

The growing importance of the Gulf of Guinea to the US economy has been well trumpeted in recent years. As domestic production has increasingly been unable to keep pace with rising consumption, Washington has long sought to diversify its source of oil imports away from the Middle East on strategic grounds.

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West and Central African oil producers already played a significant role in that approach but one of the key elements in this strategy has been undermined as a result of the Venezuelan government's regular anti-US comments, so Africa is likely to be pushed ever further towards the centre of US foreign policy considerations.

The chairman of the Corporate Council on Africa (CCA), Frank Fountain, underlined the importance of the region to the US at the Africa Oil and Gas Forum at the end of November. He spoke of the "growing trade, development and investment partnership between the US and Africa" and added that "tremendous opportunities exist for emerging market development: technical capacity development, public private partnerships, liquefied natural gas development, as well as essential energy research" in Africa.

Neil Duffin, vice president for Africa at ExxonMobil Production, said that his company now produced more than 700,000 barrels a day (b/d) in Angola, Cameroon, Chad, Equatorial Guinea and Nigeria. He continued: "In terms of our company, this means we are producing more oil in the African region than any other region in the world. Oil and gas from Africa's abundant fields are not just important for the world's economic health and prosperity.

Those resources, when developed, also provide the wherewithal for many African governments to fulfil their responsibilities to provide essential health, education, infrastructure and other needs for their own citizens." That ExxonMobil has invested $12bn in West and Central Africa since 2000 indicates the value of the region to US companies and the US market.

This level of investment is likely to be maintained by ExxonMobil, Shell and the other oil majors that dominate the industry in sub-Saharan Africa.

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A combination of new field development in established areas, expensive although often highly lucrative deepwater development and opening up new prospective areas should ensure steady flows of foreign direct investment (FDI) into the African oil and gas sector.

One area where the majors and other western firms have little influence is Sudan, where Asian oil companies hold the greatest stakes, but even here they may return now that the north-south civil war appears to be over for good.

Provided that it can maintain domestic political and economic security, the government of Sao Tome and Principe should be able to attract large-scale oil sector investment, principally from the joint development (JDZ) with Nigeria. Although discoveries are not guaranteed, it is likely that Sao Tome will join the ranks of new African oil powers. Chadian oil is already being exported via the Chad-Cameroon pipeline, while production in Equatorial Guinea continues to rise.

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Source of concern

Perhaps the biggest source of concern is the three established Central African producers, Gabon, Congo-Brazzaville and Cameroon. Cameroon and Gabon have both experienced declining output and their lack of deepwater acreage makes it less likely that new major discoveries will be made.

The situation in Congo-Brazzaville, however, is somewhat different. Despite a fall in production from 280,000b/d in 2000 to around 230,000b/d last year, interest in the country's remaining acreage remains relatively high. Moreover, the continued depletion of the country's mature fields is likely to be more than offset as new fields, including Libondo, Tchibeli and Yanga Sud are brought on stream.

As the continent's biggest oil producer, most attention has been paid to Nigeria. Output has already hit 2.5m b/d and the government's long-term target of boosting reserves to 40bn barrels and production to 4m b/d does not seem unreasonable. While the Niger Delta remains the centre of the country's oil industry, the new Bonga field is just one in a long line of deepwater fields that will come on stream over the next decade. Production capacity is certain to rise and so Nigeria is likely to retain its position as the most important oil exporter in Africa.

Angolan boom

However, Angola may vie with Nigeria to provide the greatest increase in production capacity over the next 10 years. Production already hovers around the 1m b/d mark and is widely expected to reach 2m b/d by 2008 as the country follows Nigeria into the deepwater age.

Tens of billions of dollars are being invested by the majors into deepwater and ultra deepwater projects. Although national output has changed remarkably little as a result of this financial injection over the past five years, new fields will be brought into production in quick succession over the next three years.

BP Angola alone predicts that it will produce 400,000b/d by 2010 as the result of $8bn investment. The firm already produces oil on blocks 15 and 17, and increases here plus new developments on blocks 18 and 31 should add up to 400,000 b/d.

The president of BP Angola, Jose Patricio, commented: "Up to now, BP Angola has been a company with much success in terms of discoveries, by recording, of late, rates of 90% in terms of exploration."

Block 17, which is operated by Total, was the site of the country's first major deepwater development, the Girassol field, which was brought into production at the end of 2001. Two years later the Jasmin field came on stream and other discoveries have also been deemed to be commercial. The block consortium comprises Total (40%), ExxonMobil (20%), BP (16.67%), Statoil Angola (13.33%) and Norsk Hydro (10%).

ExxonMobil's Kizomba project on Block 15 will make perhaps the biggest contribution to national oil production. It comprises three stages, the first two of which should peak at 250,000b/d, while the third stage could prove almost as lucrative. The US firm estimates that the block contains a massive 4.5bn barrels of recoverable crude oil equivalent. Kizomba A, which was brought into production in mid-2004, contains the Chocalho and Hungo discoveries, while Kizomba B contains the Dikanza, Kissanje and Marimba fields.

Despite such developments, fellow US firm Chevron (formerly ChevronTexaco) remains the biggest oil producer in the country, through its Cabinda Gulf Oil Company (CABGOC) subsidiary.

As its name suggests, CABGOC operates in the northern enclave of Cabinda, where it produces about 550,000b/d on Block 0. The company's operating contract, which was due to run out in 2010, has now been extended until 2030.

Chevron is investing $4bn in Angolan upstream projects over the period, partly in order to develop the Sanha field on Block 0, which will produce 100,000b/d by 2007. In contrast with other Angolan developments, most CABGOC production is located onshore.

Table 1: International oil demand (million barrels a day)

                     2005                    2006
                     1st   2nd   3rd   4th   1st   2nd   3rd   4th

OECD states
U.S. (50 States)     20.6  20.5  20.8  20.7  20.9  20.7  21.2  21.2
U.S. Territories      0.4   0.4   0.3   0.4   0.4   0.4   0.4   0.4
Canada                2.3   2.2   2.2   2.4   2.3   2.3   2.4   2.4
Europe               15.6  15.3  15.7  15.8  15.7  15.5  15.7  15.9
Japan                 6     5     5.1   5.6   6     4.9   5.1   5.6
Other OECD            5.5   5.2   5.1   5.4   5.4   5.3   5.4   5.5
Total OECD           50.4  48.6  49.2  50.2  50.7  49    50.2  51

Non-OECD states
Former Soviet Union   4.4   3.9   4.1   4.7   4.5   4     4.2   4.8
Europe                0.8   0.7   0.7   0.7   0.8   0.7   0.7   0.7
China                 6.7   6.9   7     7.2   7.2   7.4   7.4   7.7
Other Asia            8.1   8.5   8.2   8.8   8.1   8.5   8.3   8.8
Other Non-OECD       13.6  13.7  13.9  13.9  14.1  14.1  14.4  14.4
Total Non-OECD       33.5  33.7  33.9  35.3  34.6  34.7  34.9  36.3
Total World Demand   83.9  82.3  83.1  85.6  85.3  83.6  85.1  87.3

                     2007                    Year
                     1st   2nd   3rd   4th   2005  2006  2007

OECD states
U.S. (50 States)     21.3  21.1  21.5  21.7  20.7  21    21.4
U.S. Territories      0.4   0.4   0.4   0.4   0.4   0.4   0.4
Canada                2.3   2.3   2.5   2.4   2.3   2.4   2.4
Europe               15.8  15.6  15.8  16    15.6  15.7  15.8
Japan                 6     4.9   5.1   5.6   5.4   5.4   5.4
Other OECD            5.5   5.4   5.5   5.6   5.3   5.4   5.5
Total OECD           51.4  49.6  50.8  51.7  49.6  50.2  50.9

Non-OECD states
Former Soviet Union   4.6   4     4.3   4.9   4.3   4.4   4.4
Europe                0.8   0.7   0.7   0.7   0.7   0.7   0.7
China                 7.7   7.9   7.9   8.2   6.9   7.4   7.9
Other Asia            8.3   8.6   8.4   9     8.4   8.4   8.6
Other Non-OECD       14.5  14.6  14.8  14.9  13.8  14.2  14.7
Total Non-OECD       35.8  35.9  36.1  37.6  34.1  35.1  36.3
Total World Demand   87.2  85.5  86.9  89.3  83.7  85.3  87.2

Table 2: International oil supply (million barrels a day)

                     2005                    2006
                     1st   2nd   3rd   4th   1st   2nd   3rd   4th

OECD states
U.S. (50 States)      8.7   8.8   7.9   7.5   8.2   8.5   8.7   8.8
Canada                3.2   3.1   3.1   3.2   3.3   3.2   3.3   3.4
Mexico                3.8   3.9   3.7   3.7   3.8   3.8   3.8   3.7
North Sea c           5.5   5.2   5     5.2   5.2   5     4.7   4.9
Other OECD            1.5   1.5   1.5   1.5   1.6   1.6   1.6   1.6
Total OECD           22.6  22.5  21.2  21    22.1  22.1  22.1  22.5

Non-OECD states
OPEC                 33.6  33.9  34.2  34    34    34    34.6  34.7
(Crude Oil Portion)  29.6  30    30.3  30.1  29.8  29.9  30.2  30.2
Former Soviet Union  11.5  11.6  11.7  11.9  11.9  11.9  12.1  12.2
China                 3.7   3.8   3.8   3.8   3.7   3.7   3.7   3.7
Other Non-OECD       12.6  12.7  13    13.1  13    13    13.3  13.4
Total Non-OECD       61.4  62    62.7  62.9  62.6  62.6  63.6  64
Total World Supply   84    84.6  83.8  83.9  84.7  84.7  85.8  86.5

                     2007                    Year
                     1st   2nd   3rd   4th   2005  2006  2007

OECD states
U.S. (50 States)      8.8   8.9   8.8   8.9   8.2   8.5   8.8
Canada                3.5   3.5   3.5   3.6   3.2   3.3   3.5
Mexico                3.7   3.7   3.8   3.7   3.8   3.8   3.7
North Sea c           5.1   4.9   4.7   4.9   5.2   4.9   4.9
Other OECD            1.6   1.6   1.7   1.6   1.5   1.6   1.6
Total OECD           22.8  22.6  22.3  22.7  21.8  22.2  22.6

Non-OECD states
OPEC                 34.3  34.4  34.9  34.9  33.9  34.3  34.6
(Crude Oil Portion)  29.8  29.9  30.3  30.3  30    30    30.1
Former Soviet Union  12.4  12.4  12.6  12.7  11.7  12    12.5
China                 3.7   3.7   3.7   3.7   3.8   3.7   3.7
Other Non-OECD       13.8  13.8  14.1  14.2  12.9  13.2  14
Total Non-OECD       64.2  64.3  65.2  65.5  62.2  63.2  64.8
Total World Supply   87    86.9  87.5  88.2  84.1  85.4  87.4

Source: Adapted from Energy Information Administration Short Term
Outlook, January 2006
Notes: All figures for 2005 are official; those for 2006 and 2007 are
EIA predictions. Table excludes OECD commercial stocks.