The power balance in Africa's crude oil production landscape is set to shift in the near future as a number of new oilfields come online. Crude oil has in recent years been discovered in countries such as Sierra Leone and Ethiopia but it is currently the nations of Ghana and Uganda that are attracting the most attention.
Ghana
Ghana's offshore Jubilee Field, situated approximately 60 kilometres from the mainland, is thought to have oil reserves of 1.8 billion barrels as well as significant gas deposits. Production is expected to start in the fourth quarter of 2010.
'The big story for Ghana is that oil production will start [soon], and that will lead to quite a substantial increase in output,' says Peter Allum, the International Monetary Fund's mission chief to the country. 'Now that won't create many jobs in and of itself – it is a very capital-intensive industry and the oil is based offshore so a lot of those jobs will be expatriate jobs. But it will generate a substantial boost in revenues for the government – we estimate in the range of 6% to 7% of gross domestic product (GDP). If that money is used wisely, it could lead to a substantial improvement in Ghana's infrastructure and its competitiveness, and that could lead to further growth and job creation.'
The Jubilee Field is set to be developed by a joint venture comprising Tullow Ghana Limited, Kosmos Ghana HC, Anadarko WCTP Company, Sabre Oil and Gas, the EO Group, and the state-owned Ghana National Petroleum Corporation (GNPC).
The Ghanaian government, traditionally seen as one of the better administrations in Africa, recently, however, attracted criticism when it interfered with Kosmos’ proposed sale of its stake in the project to Exxon Mobil. The Wall Street Journal (WSJ) reported that energy minister, Joe Oteng-Adjei, sent a letter to Exxon Mobil informing the company that a deal with Kosmos wouldn't receive government approval. Oteng-Adjei allegedly said the GNPC would be the only entity allowed to buy the Kosmos stake.
Ghana's crude oil is of a highly desired grade. 'The variety of crude found in the Gulf of Guinea is known in industry parlance as light and sweet, meaning it is viscous and low in sulphur, and therefore easier and cheaper to refine than, say, Middle Eastern crude, which tends to be lacking in lower hydrocarbons and is therefore very sticky,' writes John Ghazvinian in his book Untapped: The Scramble for Africa's Oil. 'This is particularly appealing to American and European refineries, which have to contend with strict environmental regulations that make it difficult to refine heavier and sourer varieties of crude without running up costs that make the entire proposition worthless.'
Uganda
Another African country that is set to attain oil producer status in the near future is the East African nation of Uganda. Uganda's oil assets are situated in the Lake Albert basin, in the west of the country. The country has proven reserves of 700 million barrels of oil although this figure has serious upside. According to the WSJ, Uganda has even established an elite army unit to protect its oil fields.
Nearly 30 years ago Shell started exploration activities in Uganda's Lake Albert region but pulled out because of falling oil prices and political uncertainty. Five years ago, United Kingdom-based Tullow Oil Plc returned to Lake Albert and found large crude deposits. The firm is currently the largest operator in the country.
Tullow and Heritage Oil Plc were originally equal partners in two Ugandan oil blocks but Heritage decided to dispose of its assets. Tullow is currently awaiting final Ugandan government approval for its purchase of Heritage Oil's 50% stake in the two blocks. It is also in discussion with Total and the China National Offshore Oil Company (Cnooc) to each take over a part of its assets.
In an effort to decrease reliance on fuel imports, the Ugandan government has contracted an engineering company to undertake a feasibility study into the development of an oil refinery. Such a refinery has the potential to be very profitable for Uganda as it can sell fuel to its neighbouring countries.
As with Ghana, Uganda's government has also attracted some negative publicity around the handling of the country's oil assets. Uganda's parliament is currently pushing for details of oil production sharing agreements government signed with international oil companies to be made public.
Avoiding the 'resource curse'
Africa's new oil producers are under pressure to effectively manage oil production and ensure that it benefits the population. The problems experienced in Nigeria are a good example of oil production gone wrong. The Nigerian federal government has done little to improve the lives of the people living in the Niger Delta area and oil companies have polluted the environment. This led to militants bombing oil facilities and kidnapping government and oil company officials. The discovery of oil also led to government paying little attention to developing the other sectors of the economy.
'There is a need to institutionalise structures and authorities governing the sector and ensure transparency in managing potential revenue accumulations,' says Catherine Hunter, research manager at IHS Global Insight. 'A close but secondary priority is often to ensure that other parts of the economy benefit as much as possible from oil investment by increasing local content and local employment requirements on the oil sector.
'Ghana is trying to do this in terms of its new oil revenue management law - which is also expected to see enhanced local content obligations. Uganda is looking at this with the stipulation for a domestic refinery (size unknown as yet) in order to create added value and employment from crude oil production,' says Hunter.
She also says that oil companies in general are becoming better corporate citizens. 'I think shareholders are demanding a greater level of transparency over supermajor and large company operations in more remote parts of the globe (emerging markets) - and oil companies are reacting to that by improving disclosure on operations and ensuring that corporate social responsibility activities take place generally. Smaller unlisted companies, however, remain somewhat free of these restrictions. Meanwhile, the advent of more activist national oil companies from countries with limited disclosure obligations is not generally conducive to oil sector transparency.'
According to Allum it is possible to avoid the so-called resource curse. 'The perceived wisdom is that resources can be a curse for economies. When you look at oil exporters, they have not always seen the benefits in terms of stronger growth and improved living standards. But when you look closely at resource exporters, there are some that have done very well. For example, Botswana has moved into middle-income country status on the back of diamond exports even though it is a landlocked country,' he says.
Increased oil production has the potential to greatly transform the fortunes of African countries but this hinges on ensuring that oil brings properity to the entire population and does not only line the pockets of corrupt government officials.
Sources:
Oil Offers Hope of Middle-Income Status for Ghana. IMF. http://www.imf.org/external/pubs/ft/survey/so/2010/int021710a.htm
Tullow Oil Plc. http://www.tullowoil.com/our-business/major-projects/ghana/eis-jubilee-field.html
Ghana Blocks Exxon Oil-Field Deal. The Wall Street Journal. http://online.wsj.com/article/SB10001424052748703615904575053591032562812.html?KEYWORDS=ghana+oil
Untapped: The Scramble for Africa's Oil. Slate. http://www.slate.com/id/2163389/entry/2163395/
Uganda Creates Elite Army Unit To Protect Oil Fields. The Wall Street Journal. http://online.wsj.com/article/BT-CO-20100228-701702.html?mod=WSJ_World_MIDDLEHeadlinesEurope
Tullow Says Total, Cnooc to Help Ramp Up Ugandan Oil Production. Business Week. http://www.businessweek.com/news/2010-03-10/tullow-says-total-cnooc-to-help-ramp-up-ugandan-oil-production.html
