Can Africa calm market fears? African oil is assuming greater global strategic influence almost by the week. It is cheaper to extract, better in quality, nearer to its markets and there is more of it than oil from other regions. Can Africa bring some stability to a volatile global market?

Oil appears to have reached an endgame of sorts with prices remaining high, despite one or two false dips in July. It is certain that demand will remain unabated, but can Africa increase its output to shore up an increasingly meagre world oil supply? If so, what is Africa's potential to quell this valid market anxiety-both in the short term and long term?

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There is no doubt about the energy potential of the sub-Saharan African region in terms of volume and quality as well as its geographic advantage in terms of proximity to the mainstream market and the world's wealthiest energy consumers. However, the question remains-just how much oil is there in Africa?

Since 2000, one-third of the world's new oil discoveries have taken place in Africa. Of the 8bn barrels of new oil reserves discovered in 2001, 7bn were found in the continent. From 2005 to 2010, 20% of the world's new production capacity is expected to come from Africa. These statistics set the stage for a competition between major powers that is reminiscent of the 19th-century scramble for colonisation.

Despite this, Africa has only 10% of global oil reserves and it is unlikely to replace the Middle Eastern oil supply. Therefore, what lies behind the hype about Africa in the corridors of Washington, Beijing and Brussels?

Africa's significance as an oil player goes beyond the sheer number of barrels available. Most African oil is high quality but contains a low sulphur content, which is environmentally friendly and more easily refined, unlike the Middle Eastern crude which tends to be lacking in lower hydrocarbons and is therefore very sticky. Deepwater exploration has been quite prevalent in other regions like the North Sea, US, China and Russia but it is costly and requires sophisticated technology whereas in Africa most exploration has been traditional--that is, in shallow waters. That has made African finds significantly cheaper to explore and easier to refine. These are some of the characteristics that attract substantial investment from international companies, especially from the US which already imports more of its oil from Africa than from Saudi Arabia. These massive investments allow for more exploration (which enhances the level of proven reserves) and more production, as can be seen in the chart.

A substantial surge in demand has been the main factor in pushing the oil price over $140/barrel making an increase in production imperative. There is an attempt to capture the nexus between an increasing energy dependency in the advanced market economies and emerging industrial powers; a tight global oil market; and the representation of West Africa as an 'oil gulf' (as well as a viable alternative to the volatile Middle East), critical to global energy security. These geo-political developments, when combined with the fact that Africa is one of the world's least-explored regions, makes the sheer speed of growth in African oil production unsurprising. The surge in oil production can be seen mainly in three countries--Nigeria, Sudan and Angola. Over the 1995-2005 period, reserves have doubled. The Gulf of Guinea's potential for new production is also encouraging.

Africa's share of oil production is expected to grow to up to 30% of the world total, from roughly 12% in 2006. By 2012, energy consultants IHS expects oil production to have reached a plateau of about 16m b/d. In the next few years the Cambridge Energy Research Associates (CERA) projection shows that one in every five barrels of new oil supplied to the global market will be produced in Africa.

It is however appropriate to note that the 'scramble' for finite hydro-carbon resources is not limited to West Africa, but rather spans the whole of Africa. In Uganda, for example, Eire-based Tullow struck oil in all eight of its wells drilled, an unheard of strike rate, and has discovered 250m barrels of recoverable reserves with ambitions to add on hundreds more in new drilling campaigns. Last year's discovery of a large field off the coast of Ghana, in which Tullow holds a 37% interest, could hold anywhere between 480m and over 1.3bn barrels of oil, the company says, although only two wells have been drilled there so far.

Political initiatives

Africa's strategic importance consistently and increasingly manifests itself as a focus of both Chinese and US energy interests. The principal catalyst of the decade's bull market in crude is little different from previous oil shocks: a change in expectations about foreseeable future supplies. The unprecedented need for resources, especially in the energy industry, is driving major superpower foreign policy. China is the second largest consuming country behind the US and it has secured over 30% of this need from Africa, most notably Angola, Sudan and Congo. Other nations are following suit. Washington's interest in West African oil will also grow, but its influence on what actually happens in terms of deals and developments will be limited as China has already altered the strategic and investment context in Africa.

In 2006, US President George W Bush laid out a policy of reducing oil imports from the Middle East which is likely to result in an even greater strategic importance for Africa. Bush, in his 2006 State of the Union address, said he wanted to reduce America's dependence on Middle East crude by 75% by 2025.

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US supply of oil from Africa will increase from the present 15% to 25% in the next few years. "The rise of Africa as an energy region is not a short-term trend," says Robert Gillon of John S Herold, the industry consultancy firm. The 9/11 terrorist attack on the US has been but one of the catalysts for the new urgency of the US's effort to distribute its energy-security portfolio across multiple nodes, reducing its dependency on any given nation or geographic area.

Nevertheless, US policymakers remain deeply concerned about stability in oil-producing zones. In response to this concern, Bush last year ordered the creation of Africom, a dedicated US military command centre for Africa, originally envisaged to be situated in an as yet undecided country on the continent. Indeed, there are legitimate concerns being expressed by consumer countries and companies whose stakes are increasing in Africa that there are potential risks to production growth linked to political instability, civil strife and production restraint.

For instance, in June, Royal Dutch Shell halted production of its Bonga field off the coast of Nigeria's volatile Niger Delta region after an attack by militants on an enormous rig located far offshore. This clearly epitomises how this sort of political instability could negatively affect oil production and investment in the region.

It is undeniable that every last drop of oil, whether under land or ocean around the world, is being sought to power the engines of global production. World demand for oil will outstrip supply within a few years, and this is being exacerbated by consumption triggered by strong economic and population growth in emerging countries.

Jeroen van der Veer of the Royal Dutch Shell forecasts that "regardless of government policy initiatives and investment in renewable energy, the world will need more nuclear power and unconventional fossil fuels, such as oil sands."

In a stark warning, the IEA says that the problem is exacerbated by the fact that supply from non-OPEC members, many of them African, will increase at an annual pace of 1%, or less than half the rate of the demand rise. Nevertheless, African oil is cheaper to explore, safer to transport, more accessible than its competitors and there seems to be more of it every day. As industry observer John Ghazvinian eloquently sums it up "Africa has just enough [oil] up its sleeve to make it a potential 'swing' region--an oil province that can kick in just enough production to keep markets calm when supplies elsewhere in the world are unpredictable." This adds up to a strong value proposition for Africa as a key player in mitigating the potential supply crises in the foreseeable future.