Untapped: The scramble for Africa's oil

With the price of Middle Eastern crude skyrocketing, and advancing technology making reserves easier to tap, Africa has become the scene of a competition between major powers that recalls the 19th-century scramble for colonization. Already, the United States imports more of its oil from Africa than from Saudi Arabia, and China, too, looks to the continent for its energy security. But the entire continent is believed to contain, at best, 10% of the world's proven oil reserves. Africa is unlikely ever to "replace" the Middle East or any other major oil-producing region. So why the song and dance?

To begin with, one of the more attractive attributes of Africa's oil boom is the quality of the oil itself. The variety of crude found in the Gulf of Guinea is known as "light" and "sweet," meaning it is viscous and low in sulfur, and therefore easier and cheaper to refine than, say, Middle Eastern crude. 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. Then there is the geographic accident of Africa's being almost entirely surrounded by water. The Gulf of Guinea is well positioned to allow speedy transport to the major trading ports of Europe and North America. There is no need to worry about the Suez Canal, or to build expensive pipelines through unpredictable countries.

A third advantage is that Africa offers a tremendously favorable contractual environment. Most sub-Saharan African countries operate on the basis of so-called production-sharing agreements, or PSAs. For the oil company, a relatively small up-front investment can quickly turn into untold billions in profits. Yet another strategic benefit is that, with the exception of Nigeria, none of the oil-producing countries of sub-Saharan Africa had belonged to the Organization of Petroleum Exporting Countries (OPEC). Thus they have not been subject to the strict limits on output OPEC imposes on its members to keep the price of oil artificially high.

But probably the most attractive of all the attributes of Africa's oil boom, for Western governments and oil companies alike, is that virtually all the big discoveries of recent years have been made offshore, in deepwater reserves that are often many miles from populated land. This means that even if a civil war or violent insurrection breaks out onshore (always a concern in Africa), the oil companies can continue to pump out oil with little likelihood of sabotage, banditry, or nationalist fervor getting in the way.

Finally, there is the sheer speed of growth in African oil production, and the fact that Africa is one of the world's last underexplored regions. One-third of the world's new oil discoveries since the year 2000 have taken place in Africa. Of the 8 billion barrels of new oil reserves discovered in 2001, 7 billion were found there. In the years between 2005 and 2010, 20% of the world's new production capacity is expected to come from Africa. And there is now an almost contagious feeling in the oil industry that no one really knows just how much oil might be there, since no one's ever really bothered to check. Though Africa may not be able to compete with the Persian Gulf at the level of proven reserves, it has just enough 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.

- re: "Untapped: The Scramble for Africa's Oil", a book by John Ghazvinian.

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