Peak Oil News

In its need for more fuel to supply an expanding economy, China is pursuing a dynamic “holistic” approach to energy partnerships in Africa that has surprised many Western competitors, says South African Warrick Davies-Webb.

Davies-Webb, political analyst at Executive Research Associates, a risk-management consulting firm headquartered in Pretoria, South Africa, spoke at a September 13 briefing sponsored by the African Center for Strategic Studies (ACSS), a U.S. government agency located at Fort McNair near downtown Washington.

Established in 1999, ACSS sponsors seminars and training sessions for African midlevel military officers and defense officials. It recently opened an office in Addis Ababa, Ethiopia, to oversee programs on the continent aimed at increasing the professional skill of African militaries while building closer ties with U.S. counterparts in the defense community.

» Source: US INFO

With oil, gas and coal use far outstripping its productive capacity, “China faces a growing energy deficit that has great implications for Africa,” Davies-Webb told his ACSS audience. Africa has become a “new terrain for energy battles” in which Chinese state oil companies seek “to lock in energy supplies throughout the continent.”

Their approach has become surprisingly sophisticated over the past 10 years, leading to partnerships with African state oil companies that now account for more than 10 percent of China’s total oil imports, Davies-Webb said. During that period, China invested more than $4 billion in Sudan alone, he said.

As late as 2000, China’s only energy presence was in Sudan, but today its involvement on the continent includes refineries in Algeria and Libya, pipeline construction in Sudan and Nigeria, oil production in Angola and exploration rights in Guinea-Bissau, as well as a number of other sub-Saharan African nations, Davies-Webb said.

In 2006 alone, China paid $2.2 billion for exploration rights in a field off Nigeria’s coast, and is “aggressively” expanding exploration of offshore fields in Angola, he added.

China’s new “holistic approach” — offering exploration, development and financing packages to its African partners — is an “attractive competitive alternative to traditional Western companies” who do not have a similar “integrated package of carrots to offer,” the analyst said.

For African nations in financial trouble or unwilling to meet the transparency and accountability requirements of the World Bank and other international lenders, a Chinese deal literally can mean an “alternative economic lifeline.”

In 2003, when Angola “found itself facing a severe cash crisis, China stepped in with a $2 billion loan the next year that bailed that country out.” In Chad, where international lenders threatened to withdraw support from its new pipeline, “the Chinese were willing to offer an alternative package of technical assistance, if World Bank discussions broke off,” Davies-Webb added.

Unlike U.S. government development agencies like the Millennium Challenge Corporation (MCC), the Chinese do not focus on human rights, anti-corruption or economic reform as requirements for their support, the analyst explained. This is a distinct draw to nations like Zimbabwe and Sudan, against whom the U.S. government, the European Union and the United Nations have imposed sanctions because of human rights violations.

At the same time, U.S. law has tightened up rules against corruption for American businesses operating overseas. The day Davies-Webb spoke, a former executive for the Houston-based energy company, Willbros Group Incorporated, pleaded guilty to violating the U.S. Foreign Corrupt Practices Act by conspiring to bribe officials in Nigeria and Ecuador and might face prison time.

On the macroeconomic level, “since all major economic decisions in China are made on a political level by the government and Communist Party, all deals are backed by them. Therefore, Chinese companies enjoy risk-free access to African markets; an advantage Western companies just don’t have,” the analyst added.

Entry into Chad’s fledgling oil sector is a good example of the overall Chinese approach, where “you have had massive [Chinese] institutional support that includes trade, foreign aid packages,” Davies-Webb said.

In addition, the Chinese also have fostered “strategic linkages” with small African oil companies that have political influence in places like Nigeria, for example, and with companies and banks in Portugal that have connections in countries like Angola.

Davies-Webb said the Chinese also have “piggybacked” on Nigerian oil companies going into Sao Tome and Principe offshore oil fields, while they have employed South African businessmen with influence in Angola “as useful Trojan horses to gain access to key political players” in that oil-rich country.

Portugal has played a “critical but very underestimated role” in facilitating oil deals for the Chinese, who regard the European nation as “their back door into the African oil sector,” the analyst remarked.

China also has gone out of its way to cultivate relations with France, Davies-Webb said, because of that nation’s traditional business relationship with many African nations and the belief that the French pose “a counterweight to U.S. influence” on the continent.