Recent data on the oil&gas sector in sub-Saharan Africa indicates that Angola is overtaking Nigeria as Africa’s biggest oil producer.
Widespread insecurity in the Niger Delta – such as militant attacks on oil facilities, a rise in pirate activity and frequent kidnappings of oil workers – has contributed to a reduction in Nigeria’s oil output by more than 40%, as reported in Energy in August.
In 2005, before the militant group, MEND (Movement for the Emancipation of the Niger Delta), came on the scene, Nigeria still produced 2.6million barrels per day, compared with about 1.7million barrels per day today (according to EIA).
Increasing operational risks in Nigeria have prompted many foreign investors to look elsewhere for a more stable and reliable business environment. US Secretary of State Hillary Clinton remarked recently that Angola was, from the US perspective, “a formidable alternative to replenish the oil shortfall which it has been having from Nigeria”.
Washington is in talks with Angola – a serious blow for Nigeria, which has been the biggest African oil supplier to the US for many years.
Angola’s oil has continued to flow uninterrupted since the end of its 27-year civil war in 2002, with output reaching 1.2million bpd in 2005 and some 1.9million bpd today.
In addition, Angola has offered greater political stability and certainty to its foreign investors due to the fact that President Jose Eduardo dos Santos has been in power for the past 30 years. Over the same period in Nigeria, there have been eight different leaders and frequent switches between civilian and military rule.
Increasing confusion and uncertainty among foreign investors in Nigeria is compounded by the country’s highly dysfunctional national oil company, the Nigerian National Petroleum Corporation (NNPC), plus delays to badly needed oil&gas reform projects.
Laudable attempts by Nigeria’s President Yar’Adua to reform the sector and reduce corruption are likely to be stymied by the powerful elite that helped him to power and continue to profit from the maintenance of the status quo.
Angola, on the other hand, is generally less dysfunctional vis-a-vis its oil&gas sector, has a less burdensome regulatory framework and created a functioning state-owned oil company, Sonagol.
The state has the fourth-largest proven reserves in Africa behind Libya, Algeria and Nigeria (BP Statistical Review of World Energy, June 2008) and the Angolan oil sector produces more than half of the country’s GDP and 95% of its exports. A string of major discoveries has been made, with a significant number now developed.
Because most are deepwater, they are less susceptible to armed attacks. Total is the largest player in the country, though BP, ExxonMobil, and ChevronTexaco, as well as major Asian oil companies, have invested billions into the country.
Also, while Angola is profiting from major business deals with China, Nigeria missed out on that opportunity due to corruption, mismanagement and non-execution of projects. However, despite Angola’s current advantage in relation to Nigeria, operational challenges remain. The 27-year civil war only ended in 2002 and, unsurprisingly, it suffers many of the shortcomings typical of a post-conflict state.
In spite of relative political stability, there is increasing pressure on the ruling regime of dos Santos to hold long-awaited presidential elections. Such polls have not been held since 1992 and, although dos Santos has said he will not stand for election, he has no apparent successor and has sidelined potential rivals – a move that does not bode well for democracy in Angola and could lead to considerable political instability in the future.
Currently, the government dominates the economy; oil revenues go overwhelmingly to the state. Corruption remains rampant, particularly in the oil&gas sector, where the political and military elite exercise enormous control and influence. The high level of corruption is also fuelling underlying popular dissent, which could ultimately spark outbreaks of violence and even a political uprising – if the vast majority of the population continues to reap little or no benefit from the country’s oil wealth.
Growing interest among investors in the contentious Cabinda area, with its potentially vast oilfields, also raises the possibility of greater security risks of the kind generally not experienced in the rest of Angola.
Despite a peace accord between the leading separatist movement active in Cabinda and the central government in 2006, the region has continued to experience violence, often targeted at foreigners. The fact that Cabinda receives less than 1% of the oil revenue it generates is only likely to fuel greater discontent in the local population and increase the risks to foreign workers. As awareness of the situation in Nigeria spreads, there is a long-term risk that Cabindan rebels could emulate attacks similar to those in the Niger Delta.
The cases of Nigeria and Angola illustrate that oil companies operating in sub-Saharan Africa will always face obstacles. Efforts to exploit the region’s considerable natural resources are hindered by unstable governments and rebel factions.
Angola currently has a better grip on the numerous challenges affecting its oil&gas industries, yet Nigeria, with 36billion barrels of proven oil reserves – about four times as large as Angola’s known reserves – continues to be one of the world’s most promising energy markets.
In order to fend off Angola’s challenge for the leading position in sub-Saharan African oil production, Nigeria needs to restore much greater stability and security to the Niger Delta. But this will be a formidable task. Despite MEND’s announcement of a 60-day ceasefire, the security situation remains fragile.
MEND is a loose union of militant groups and it is uncertain whether all factions will accept the government’s amnesty offer and maintain the ceasefire. In the past, such agreements have frequently collapsed after militant demands were not met by the government.
A key pre-condition for negotiations by MEND includes the partial withdrawal of the military joint task force from the delta, a move which the government might not accept. Should the amnesty offer fail, it is almost certain that, in the short term, Angola’s oil production will remain above Nigeria’s output.
Hanna-Caroline Imig focuses on sub-Saharan Africa affairs at security specialist AKE
