New Kids on the Block By Tom Nicholls Africa is becoming a strategic battleground for energy resources, with Asian state-owned companies challenging the traditionally dominant Western majors IT’S OFFICIAL: Asian investment in Africa has reached record levels. It set a 12-month high of $90 billion last year, according to a United Nations report. Not surprisingly, that investment was concentrated in the energy sector, with Chinese and Indian companies fighting it out to secure oil supplies for their high-demand, energy-deficient home markets. And UN officials have predicted continued strong growth in the flow of capital from Asia to Africa.
China’s President Hu Jintao and outgoing Nigerian President Olusegun Obasanjo last year in Abuja. They seem to get on
Spearheading the investment wave is China. Equity ownership of foreign energy resources has become Beijing’s preferred method for securing supplies for its booming domestic market. Steady oil and gas supplies mean continued economic growth, the creation of jobs of wealth and – in turn – social stability. The political value of all that to Beijing means that Chinese companies are generally prepared to pay more for oil and gas assets than Western companies, which are focused on financial, not strategic, returns. Nigerian licensing round A forthcoming licensing in Nigeria is likely to reflect the gradual transfer of influence from West to East. Asian companies are expected to bid hard for oil and gas assets. The timing and contents of this licensing round keep changing. However, the latest indications are that around 30 onshore and offshore oil and gas blocks – significantly down on the originally planned 65 – will be up for grabs. Winners will probably be announced after April’s general election. Chinese and Indian companies, in particular, are expected to emerge triumphant – certainly if recent experience is anything to go by. In May 2006, 15 blocks were awarded in a so-called mini bid round – a scaled-down version of the full-scale round planned for this year. In that round, the government linked the right to develop upstream projects with commitments to invest in domestic infrastructure. Indian and Chinese energy companies were the most successful participants, with China National Petroleum Corporation (CNPC) picking up four licences, for instance. The quid pro quo involves spending $4 billion on local infrastructure – revamping a refinery, building a hydropower plant and installing a fast-rail system from Abuja to Lagos. It’s not just about Nigeria Asian influence is not, of course, restricted to Nigeria. Earlier this year, EnCana sold its Chad exploration assets to CNPC for around $200 million. As in deals that Chinese companies have secured elsewhere in Africa, the path of that transaction looks to have been smoothed by diplomatic manoeuvring. It was sealed shortly after a visit by Chinese foreign minister Li Zhaoxing to Chad. Until now, Chad’s oil developments have been run largely by ExxonMobil and Chevron. With expectations of significant Chinese investment in the country, that looks set to change. Angola has also benefited from Asian investment. It is China’s largest single source of crude, shipping some 500,000 barrels a day to the country – roughly a quarter of its output. China’s state-owned energy companies are also benefiting from the political and diplomatic connections that have eased their way into oil and gas projects in other countries. China is also big in Sudan, buying half of the country’s oil exports last year. Chinese companies are drilling in Niger. CNPC has investments in Mauritania and Algeria. India too is prepared to pay a strategic premium for assets. In last year’s mini licensing round in Nigeria, a grouping of India’s Oil and Natural Gas Corporation and Mittal Steel won licences for two blocks, paying signature bonuses of $50m and $75m; in exchange, they will spend $6 billion on a refinery, a power station and a railway. Malaysia is in the picture too, through its highly influential state-owned oil company, Petronas. And South Korean companies are catching up. In November, South Korea signed a $10bn railway construction deal with the Nigerian government under an infrastructure-for-oil deal. Western governments, which, just like Bejiing and New Delhi are concerned about energy-supply security, are watching with concern as Asian firms buy up African energy assets. And, in many cases, there is little that Western-based companies are able to do to defend what has traditionally been their patch because NOCs are not generally subject to the same investment rules. Yes, the Western majors still have a significant edge in terms of technology and expertise in managing big projects. And this makes them valuable partners, especially in complex offshore projects. But that advantage will be gradually eroded.