Lifeline oil is not cheap oil
<a href=www.vheadline.com>Venezuela's Electronic News Posted: Wednesday, June 04, 2003 By: Andrew McKillop
WASHINGTON, Sept., 2002 - Africa, the neglected stepchild of American diplomacy, is rising in strategic importance to Washington policy makers, and one word sums up the reason: oil. Within the next decade, recently discovered offshore reserves are expected to enable West Africa to outproduce the North Sea's oil rigs and capture as much as 25 percent of America's oil-import market. Source/ New York Times, 19 Sept 2002 « In Quietly Courting Africa, U.S. Likes the Dowry: Oil » By James Dao
VHeadline.com petroleum industry commentarist Andrew McKillop writes: Through 2001 and 2002 a flurry of initiatives, state visits, studies, projects and actions have underlined the growing importance of Africa especially for the US, but also for European and Asian oil and gas importers. Now that Baghdad is occupied by US troops, and with luck Iraqi oil production may be able to satisfy domestic needs of the country (about 0.7 Mbd) within a few months, it is possible that US interest in Africa, and concern for its plight can be ‘back-burnered’ again, as it was right through the Cheap Oil interval of 1986-99. But this is unlikely ... if only to assure some distribution of risk away from rising risk of supply interruptions from the Middle East all of the major powers have a new found interest in and concern for Africa. Or at least for its oil.
A slim resource base
The above extract from the NY Times is a typical, upbeat, distorted and exaggerated report boldly advancing the American ‘expectation’ of West Africa rapidly becoming a major oil exporter region, producing more oil than is currently produced by the North Sea province, which is now falling like a stone and likely to average about 5.8 - 5.9 Mbd in 2003. These and similar articles typically forget to note that only fast depletion of North Sea oil production makes for any possibility of West Africa, with about 2% of the world’s proven reserves of oil, being able to ‘outproduce’ the North Sea province. That is, West Africa has a tiny resource base and restricted geological potentials for oil and gas, and it is only the minuscule oil consumption of West Africa, and the rest of the continent that enables any export surplus to be obtained.
Any additional production from the region in the 2003-2010 period is therefore very unlikely to exceed about 2.5 - 3 Mbd or around 50% of current output from the North Sea.
Further as the above, typically exaggerated article also forgot to mention total African oil production, continent-wide and including established producers such as Algeria, Egypt and Sudan, in North and East Africa, together with Angola, Chad, Equatorial Guinea, Nigeria and Gabon, is only about 7.7 Mbd. This total production, continent wide, was only equivalent to North Sea output in 1999-2000, the peak year of North Sea production. Because oil consumption by all nations of the Dark Continent is so low, increased local consumption is the real short-term priority for African countries: any serious attempt at conventional economic development in Africa will likely lead to reduced oil export surpluses.
Only poverty permits any export surplus
Such facts of course do not worry sensation-seeking editors, and import hungry OECD national leaders will maintain their eyes riveted on the Dark Continent for one reason because it is so dark.
NASA's "earthlights" illustrate power consumption worldwide
As the Light Pollution Institute and International Dark Sky Association web sites at www.darksky.org and www.lightpollution.it graphically show, so low are the levels of night-time, electricity based artificial lighting in Africa relative to Europe, or N America, or Asia that the continent appears like an inky black hole. A few figures show why this is so: for countries in the Ecowas (West African) group, including Black Africa’s second biggest economy – oil exporting Nigeria ... average electricity consumption per capita is around 35 kWh to 75 kWh per year, compared to annual average European, Japanese or US consumption rates of around 3500 to 5000 kWh/capita. The entire oil consumption of the continent’s 50-plus countries and estimated 900 Million inhabitants was around 2.6 Mbd in 1999, less than is imported and mostly burnt by for example Germany’s 83 Million inhabitants, and well below a third of what either the US, or the EU-15 countries import each day.
With such magnificent economy of consumption ... quite easy to achieve with typical GNP/capita figures around 150 to 250 Euro/year ... Africa can export a large proportion of its small production. This situation could maintain itself, or it may not. As many upbeat articles cheering on new production opportunities from non-OPEC countries will add, much or most of any projected, and very unlikely ‘explosion’ in African oil and gas production, almost exclusively on the western side of the continent, will be heavily oriented to offshore production.
While ignoring the very high costs of this continent-edge exploration, discovery and then production in water depths already attaining 5000 feet (e.g. in the Xikomba field off Angola), these upbeat articles will sometimes note, discreetly, that being offshore these vital installations will or can shelter this lifeline oil supply from the many civil wars that have ravaged Black Africa since the 1980s.
Quite simply, and this is shown in the shallower waters of Nigeria’s delta region, oil installations and output can often feature in civil unrest, simply because they are given prominence by world media and represent small poles of wealth among huge and increasing poverty.
Continental economic meltdown
It would be no exaggeration to state that Africa is more wracked, exploited, and oppressed in the period from around 1985 to now, than it ever was in any heroic time of White slavery or colonial war, either before or after the « Carve up of Africa » through the 1850-1900 period, or in any liberation war that followed.
Yet this onslaught is by free market forces, and tied loans supplied under strict conditions, by the World Bank and International Monetary Fund, following Africa’s brief day in the sun, during the hike in primary product prices that was triggered by the first Oil Shock, and lasting through about 1975-83. During this period international lenders fell over themselves to finance huge projects for minerals, metals and agrocommodity development, throughout Africa.
When the Reagan-Thatcher recession and slump of 1980-83 ‘brought the world back to its senses,’ these loans became close-to impossible to repay because African commodity export prices fell through the floor. Africa’s debts then only grew, much like ... for example ... the US National Debt which just in the time you take to read this article (or 30 minutes if that is longer) will rise by several dozens of millions of dollars.
The US trade deficit, running at about $50 million per hour as you read this article, is however in sharp contrast to harsh ‘structural adjustment’ conditions for their trade accounts that are imposed on African debtors. Squeaky clean balanced budgets are policed to the last dollar, to the last kilo of food not imported, and not fed to tens of thousands of undernourished children, when it concerns conditions for new loans to African countries to pay interest due on existing loans.
Black Africa’s outstanding loans continue to this day to be topped-up with interests amounts arising from variable rate loan schedules, set during the long years of extreme real interest rates through the 1980s. At the same time, some principal, the original loan amount, is occasionally ‘forgiven’ in well-publicized acts of generosity by Club of Paris lenders ... that is the main G-8 powers and a few others.
By 1985 Africa counted a string of countries where more than 25% of total export receipts for their agricultural and mineral or primary product exports, whose price levels had fallen far and fast from their 1975-82 highs, were needed simply to pay interest due on ‘sovereign’ or State-guaranteed loans.
This situation has continued and the crisis has deepened, to the point where ‘reverse development’, that is snowballing poverty in Africa is now at last recognized as a danger to any kind of foreign investment ... even in oil prospecting and development ... because of the raging, coalescing civil and international wars that have been generated by ‘benign’ neglect to ever rising poverty.
Yet still today the price for bailing out poverty-wracked African borrowers whose Sunset Commodity exports command such low prices they are unable to pay back their loans, called ‘structural adjustment,’ first demands huge cuts in the number of public sector jobs to bring unemployment levels to at least 30%-40%. National assets, in the form of state companies, are immediately privatized.
More often than not, these privatized companies are asset stripped by US, European, Japanese, Chinese or Indian companies, and are often simply abandoned, like tuna fishing canneries and equipment of some West African countries ... now that fish stocks have been decimated.
- Huge rises in the price of food, fuel, medicines and schooling are always featured in ‘structural adjustment.’
This general impoverishment of already poor countries is always nicely defended by various aseptic policy speeches and documents, but the applicability of or reason for free market pricing in countries where often 50%-75% of the population, still today, is outside the cash economy is hard to fathom.
This reverse development policy is laughably described as making its victims ‘lean, mean and competitive’, but starving children, with unemployed and undernourished adults deprived of public services are hard to see as complying with this Neoliberal fantasy, or nightmare for its victims.
‘Blood oil and gas’ or international cooperation?
Unsurprisingly, the forced and additional impoverishment of countries and communities already among the poorest in the world not only transformed Black Africa’s few oil and gas exporting countries into the most pliable price takers any yuppie economics guru will wax eloquent about, but it also prepared conditions for large-area, multi-country rebellions, massacres and wars. These last, when they concern oil current or emerging exporters such as Angola, Chad or Sudan, are receiving some determined attention to stop the killing, if only in the interest of cheap oil supplies, but continuing, generalized, mass poverty in Africa is unlikely to rapidly lever more oil supplies, even outside the free-fire zones of these long-running mass killing sprees.
After ‘blood diamonds’ we are unlikely to see any large increments to current supplies of ‘blood oil and gas’ ... a change of tactic and strategy is very much needed.
In the period 2000-2002, policy and attitudes of the so-called International Community towards Black Africa has rapidly changed, and because of oil and gas. Black Gold from the Dark Continent is a hope, or chimera reinforced by military adventure in the Middle East, with locally-decided regime change through popular action in the region, and fast rising resistance to military occupation of Iraq no longer being far-out and worst case scenarios.
Exactly as with the Caspian region, US and European media and governments feel it is necessary to wantonly exaggerate oil reserve and production potentials for Africa, but this mix of greed for Cheap Oil and fear of supply loss, if accompanied by ‘benign neglect’ to snowballing poverty, will be a straight loser.
Cheap Oil and terms of trade
Black African economies are heavily dominated by primary product exports, ranging through plantation agriculture, specialty and exotic (to temperate climate countries) crops, metals and energy minerals, and the relative price of these exports to prices for imported food, manufactured goods and services sets GNP numbers and human wellbeing, or the lack of it. Benign neglect to coffee prices, for example, that are now at all time lows, spells ruin to many African communities. Yet even a doubling or tripling of the price for bulk coffee would add scarcely 1 or 2 Euro or US cents to prices for a cup of coffee in Europe or the US retailing at around 100-200 Euro or US cents-per-cup.
Just the same applies to oil. Most European consumers happily pay 150-175 Euro/barrel at the retail level. At $30/bbl (around Euro 25.25/bbl) the commodity price is below 16 Euro cents-per-liter.
Economists can wax long on the question of rent split but more wealth for producers of real resources, certainly for African producers, is a dire necessity ... the so-called alternative of benign neglect, and deliberate intensification of poverty through ‘structural adjustment’ are losing strategies ... if more oil is wanted, a higher price should be paid for it.
The richworld may believe it is wise ... or blessed by geology ... through focusing offshore oil and gas development in Africa, far from the land and danger of damage to installations. Africa’s entire existence and survival is in fact threatened by the AIDS epidemic, the certainty of increasing war and civil strife, and crushing poverty itself increased by ‘structural adjustment,’ sometimes known as Belsen Economics.
Imagining that that this « strategy » will enable the richworld to suck out cheap oil and gas supplies, to slow or stall the arrival of Peak Oil, is likely unsure to perform, as well as starkly showing the morality and humanity we can expect from the ‘inspired’ creators of the so-called New World Order.
Andrew McKillop is a former expert, policy and programming, Divn A - Policy, DG XVII-Energy, European Commission, founder member, Asian Chapter, Intl Assocn of Energy Economists. You may contact Mr. McKillop by email at andrewmckillop@onetel.net.uk