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Washington’s recent efforts towards Africa: are the US late in the African energy race?

The U.S-Africa Business Forum held in Washington last week gathered 50 African leaders as well as US representatives. Heralding Africa as a continent on the rise and a growth market for U.S. businesses, President Obama intended a decisive shift in approach. Behind other world players in engaging with the continent, the latest efforts by the US could still influence the African energy market.

The 3 day summit is the largest event any U.S. president has ever organised with African heads of states and governments. However, it follows similar initiatives by China, Europe and Japan. If engaging with Africa was not a priority of Obama’s first mandate, it now looks more like a concern. As president Obama stated to The Economist: “I think America can be central in moving Africa into the next stage of growth and integrating it into the world economy in a way in which it’s benefiting the people of Africa and it’s not just a source of natural resources”.

AFRICA, CONTINENT OF OIL AND MONEY

Long time considered as a continent mired in conflicts and corruption, Africa’s energetic potential has been relatively neglected by American investors. This may turn out to have been a misjudgement, as the continent is expected to supply 13% of the oil world production by 2015, against 9% in 2009. At 126 billions barrels – as estimated by the US Energy Information Administration – oil reserves today constitute 8% of the global output.

The continent is also a meaningful provider of natural gas, with reserves of 513 bcf, representing 7% of the global supply. The largest African producers of oil are Nigeria, Angola, Libya, Algeria, Egypt, Sudan, Congo, Equatorial Guinea, and Gabon. The top gas producers are Algeria, Egypt, Nigeria, Libya, Equatorial Guinea, Mozambique, Tunisia, South Africa and Cote d’Ivoire.

Aside from the established exploration, new oil deposits have been discovered in countries such as Ghana, Tanzania and Uganda, with prospected fields in other countries including Sierra Leone, Mali and Kenya.The four African members of the Organization of Petroleum Exporting Countries (OPEC) produce around a quarter of the total production of the 12 OPEC members.

Projections show African oil supply growth continuing over the next 25 years, albeit more slowly than it had recently – with forecasted ranges of growth over the period between 0.5 million and 2.0 million b/d. In the recent decade, a similar growth has been observed from the African natural gas supply. Forecasts of gas supply growth are markedly stronger than for oil, with supply possibly doubling to about 15 tcf by 2035.

This potential opportunity has not escaped China, second largest consumer of oil in the world, after the United States. China uses around 7 million barrels of oil a day where the U.S. consumes 20 million barrels. Last year, its imports of petroleum exceeded those of the U.S.

China’s share is increasing with the rise of its middle class. Today only 2% of Chinese people have a car, with foreign automakers stepping up their investments to win market share in the world’s second largest economy. Actual and expected demands drive Chinese government to secure energy supplies.

In 2013, Chinese-African trade surpassed $200 billion for the first time, making China Africa’s biggest trading partner. China is today receiving 28% of its oil imports from Africa, a figure due to grow in the future. For instance, 65% of the Sudanese oil production goes to China and provides for 7% of its total oil importation.

Sudan is not the only African energy exporter where China is willing to secure an influence, as proved by the $2 billion Chinese long term loan signed with Angola, second largest African oil producer. Similar agreements are being signed or discussed in Chad, Nigeria, Sudan, Ethiopia and Uganda, all oil or gas suppliers.

A RISKY INVESTMENT

Despite the attractive prospects, these investments are not without risks. A large number of African conflicts are over natural resources and have caused major loss to big companies. There have been setbacks, most notably in Libya and Sudan. According to information provided by the Chinese Ministry of Trade earlier in the year, $18 billion investments in Libya disappeared following the military intervention.

Last year, the Far Eastern Economic Review highlighted the increasingly important role of energy security in the Sino-U.S. relations, causing friction on regional issues. In a Wikileaks cable, State Department’s Johnnie Carson provided an unvarnished U.S. perspective: “China is a very aggressive and pernicious economic competitor with no morals”. Perhaps it is no surprise that human rights were at the heart of the African American Summit speeches. 

Although the U.S. is late in engaging with Africa, its effort at improving local life conditions may also facilitate and secure energy trades. America, who is expected to be the top oil producer ahead of Russia and Saudi Arabia by 2015, is heavily relying on shale gas to maintain its leading position. U.S. energy self-sufficiency is however not a reason to neglect Africa, a view seemingly shared by Obama’s administration.

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