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 You are in: Under Secretary for Economic, Energy and Agricultural Affairs > Bureau of Economic, Energy and Business Affairs > All Remarks and Releases > Remarks > 2004

Role of West Africa in our Energy Security

Paul Simons, Deputy Assistant Secretary for Energy, Sanctions and Commodity Policy
Economic and Business Affairs Bureau
Testimony Before the Senate Foreign Relations Committee Subcommittee on International Economic Policy, Export and Trade Promotion
Washington, DC
July 15, 2004

Mr. Chairman, distinguished Committee members, I am pleased to be here today with the Department of Energy to discuss the important role of West Africa in our energy security. The region is important both in an energy security sense and for the commercial opportunities in the region for U.S. firms. As I will outline in my testimony, West Africa will continue to play an important role as a significant contributor to the diversity of supply called for in our energy policy.

The President’s National Energy Policy issued in May 2001 noted the importance of Africa to global energy production. As Under Secretary Larson testified in April 2003 and Acting Energy Office Director McManus testified in October 2003, we approach international energy policy recognizing that imports supply of roughly half of our energy needs. Some of our trading partners are even more dependent on oil imports. The reality is that a disruption anywhere affects all market participants.

Energy investments are costly, risky and require long term commitments. For that reason, neither companies nor importing countries can afford to have all of their eggs in one basket. Recognizing this reality, our energy policy seeks to encourage in countries around the world like-minded free market policies toward energy and investment, emphasizing the expansion and diversification of energy supplies.

A key component of our effort to diversify energy supplies is to support greater stability and security among existing suppliers. West African energy suppliers have traditionally been quite reliable resources for the world market. Recent trends, however, have threatened the international reputation of some West African countries as reliable suppliers. When one-third of Nigeria's oil production was shut-in during March and April of 2003 because of violence in the Niger Delta, oil markets were faced with an additional, unanticipated supply disruption in the wake of the Venezuela oil strike and activities in Iraq.

In response to these concerns we have increased on-going efforts to foster transparent, accountable governance in the political and economic systems of the region. These efforts are focused on increasing political support for democratic principles and institutions. At the Group of Eight Summit at Sea Island, President Bush brought together G8 leaders with the heads of four countries to announce wide ranging compacts to support transparency and good governance. The transparency compacts announced at Sea Island demonstrate the tremendous progress in this area since the G8 announced the action plan on “Fighting Corruption and Improving Transparency” at the 2003 G8 Summit in Evian, France. I will return to discuss these efforts in greater detail later in my testimony. First, I will outline briefly the energy picture in the Gulf of Guinea region.

Nigeria

The Administration recognizes Nigeria's role as a major energy supplier and the anchor of West Africa. Nigeria has been the fifth largest supplier of crude oil to the U.S., contributing more than one million barrels per day (b/d) so far this year, some 10 percent of U.S. crude oil imports. Approximately 65 percent of Nigerian crude oil production is light and sweet, making it particularly suited for U.S. refineries since it yields high volumes of gasoline. Nigeria has the potential to increase its crude oil production significantly in the next few years as recent deep-water discoveries come on stream.

Nigeria is an increasingly important supplier in the global Liquefied Natural Gas (LNG) market with an estimated 124 trillion cubic feet (Tcf) of proven natural gas reserves (9th largest in the world). However, due to a lack of infrastructure, Nigeria currently flares much of the natural gas it produces and re-injects some to enhance oil recovery. Nigeria really began to develop its gas resources with the September 1999 inauguration of the $3.8 billion LNG facility on Bonny Island. This facility is slated to expand to more than double its current capacity in the near future. Plans for additional LNG facilities are being developed, including several projects that will involve U.S.-based firms.

Nigeria’s oil producing Niger Delta remains politically volatile, with intermittent communal violence and labor disputes disrupting production in some areas. Ethnic violence involving well-armed militants, and the Nigerian military, forced oil companies to shut-in some 800,000 b/d during parts of March and April of 2003. Although overall production has returned to previous levels, we remain in close contact with the Nigerian government, the local communities, and the firms operating in the Niger Delta region as they work to address recurring problems.

"Bunkering," or stealing, crude oil from pipelines in the Niger Delta remains a critical concern. While it is difficult to accurately determine the extent of bunkering, estimates are that between 75,000 and 150,000 b/d of crude oil are stolen daily. This oil makes its way through illicit channels to markets with the substantial earnings funding various illicit activities in the Delta, including the introduction by local militias of increasingly sophisticated weapons into the region. The Nigerian government recognizes the critical nature of this problem, especially the effect it has had on the level of violence. The government is working to reduce bunkering, but more must be done.

An important incident in April exemplified the continuing violence that plagues the Delta region. Armed bandits attacked a boat carrying a team to inspect a ChevronTexaco facility shut in by the violence over a year ago. Two American citizen contractors and five Nigerians were killed in the attack. While we do not believe that the attackers specifically targeted Americans or ChevronTexaco contractors, the attack demonstrated the unresolved security issues that remain in the Delta.

The Nigerian government is working to address the security issues in the Niger Delta. In August of 2003 approximately 4000 military personnel deployed to the region, upgrading security around some oil facilities. These forces have not, however, actively engaged the well-armed militant groups remaining in the region. Our Mission in Nigeria remains committed to supporting democracy, economic reform, and poverty alleviation. The government of Nigeria has shown recently that it is willing to take an active role in rooting out corruption and enhancing transparency. Below, I will describe its recent actions to achieve a transparency compact with the G8 at Sea Island.

Angola

The Angolan petroleum industry now produces around one million b/d, a figure that will increase substantially in the coming years as new fields are brought on-line. During 2003 more than 350,000 b/d of Angola's production came to the U.S. Currently production off-shore of the northern province of Cabinda accounts for most of Angola's oil exports. ChevronTexaco is the largest operator in Angola. We continue to engage the Angolan government on the humanitarian situation in Cabinda province, which remains plagued by a separatist insurgency. Although we consider Cabinda an integral part of Angolan territory, we have urged the Angolan military and rebel groups to take necessary steps to protect internationally recognized human rights in the Cabinda region and seek a peaceful solution to their disputes.

Production from the Cabinda fields will be eclipsed by deepwater production further south in the Kwanza Basin scheduled to come on-line in the coming years. ExxonMobil, BP, Total, Norsk Hydro, and Agip have all made significant discoveries in this area that are under development.

Angolan President dos Santos visited the U.S. in May of this year. In his meetings with the President and with Secretary Powell, we reaffirmed our message of the importance of transparency and accountability. We encouraged Angola to adopt and implement a new staff-monitored IMF program as a fundamental step to build confidence in Angola's commitment to reform. President dos Santos expressed his personal interest in developing a transparency compact with the G8. Such a compact would require Angola to meet the high standards already set by the current four compact countries, including outlining in detail the steps to be taken to realize a government-wide commitment to transparent budget, procurement and concession-letting processes. This would be a challenging but critical step to enhance the impact of developing Angola's own available resources.

Democratic consolidation is a critical step to national reconciliation and long-term domestic stability in Angola. We were pleased by President dos Santos' commitment during his Washington trip to hold parliamentary and presidential elections not later than 2006. The United States is prepared to provide necessary assistance to ensure that these first post-war elections are free, fair, and credible.

During President Dos Santos' visit the Government of Angola announced that ChevronTexaco's concession to operate block 0 has been extended from 2010 to 2030. Block 0 currently produces about 400,000 b/d and is currently the most productive concession block in Angola. As part of the extension announcement the Angolan government took the positive first step in publicly announcing terms of the agreement, which included a $210 million signature bonus, and an $80 million social bonus. Public announcement of the bonuses signaled a new attitude toward disclosure, and we are working to reinforce these positive trends.

Our Embassy is actively working with the Angolan government to support the development of a comprehensive domestic energy strategy. The State Department is following on this effort by providing $200,000 in Economic Support Funding to the Department of Energy to support the energy strategy effort with Angola. As part of our efforts we are working with the U.K. to offer the energy expertise and analysis of the International Energy Agency to the Government of Angola to aid it in developing alternatives.

Other Gulf of Guinea Energy Producers

Equatorial Guinea is emerging as a major oil producer in the Gulf of Guinea.
ChevronTexaco, ExxonMobil, Marathon Oil, Amerada Hess and Devon Energy are some of the U.S. firms with investments in exploration, production, and service activities in Equatorial Guinea. Equatorial Guinea already produces more than 300,000 b/d and has the potential to reach levels of more than 450,000 b/d in the coming years. We re-opened the U.S. Embassy in Malabo in October of 2003 to enhance our dialogue with the government and signal our commitment to broad engagement with Equatorial Guinea. During a recent meeting with President Obiang, Secretary Powell reiterated the need for Equatorial Guinea to harness the revenues from energy production for the benefit of its entire population. Despite growing oil wealth, Equatorial Guinea suffers from widespread poverty, which will require substantial improvements in governance. We are now working to promote and assist this needed change with the government of Equatorial Guinea, NGOs and U.S. firms.

In 2003 oil began flowing in 2003 through the $3.7 billion Chad-Cameroon Pipeline, the largest single private U.S. investment in Africa, led by ExxonMobil, with the participation of ChevronTexaco. By the end of this year Chad is expected to be producing approximately 225,000 b/d. The pipeline is a good example of sustained cooperative efforts among various entities -- governments, international financial institutions, the oil consortium developing the project, NGOs and civil society -- to balance economic benefits, transparency, and humanitarian and environmental concerns. Our Ambassador in Chad is deeply engaged with the government to ensure that the unique capacity building and transparency measures incorporated into this project are implemented fully.

While these unique circumstances mean that some aspects of the Chad-Cameroon project may not translate directly to other projects, many invaluable lessons are being learned. Chad’s Revenue Management College, an independent body that assures that oil wealth is used to benefit the citizens of Chad, is now operating and will soon begin the process of disbursing the initial revenues from oil production. The College is a unique feature of this project that we worked closely with the World Bank to see put in place. Its aim is to ensure transparent use of Chad’s oil revenues to alleviate poverty and to enhance its economic development.

Some concerns remain regarding adequate administrative capacity and oversight of the use of pipeline revenues in Chad, but the project has established channels for discussion and resolution of problems that are inclusive and sensitive to impacts on local populations. We continue to work actively to support the Revenue College process to ensure that Chad's oil revenues are handled in accordance with the country's commitments.

Sao Tome and Principe, though it currently has no oil and gas production, has great promise as a producer in the Gulf of Guinea. Sao Tome's petroleum reserves span both its own Exclusive Economic Zone (EEZ) and a Joint Development Zone (JDZ) with Nigeria. ChevronTexaco and ExxonMobil will lead the exploration and development of the most sought after concession in the JDZ. We are reassured by the continued public commitment of officials at the highest levels in Sao Tome and Nigeria to maintain a high standard of transparency in the oversight of the JDZ. This commitment was demonstrated by the Abuja Joint Declaration, signed on June 26 by Presidents Menezes and Obasanjo, which deals with their Joint Development Zone. In this Declaration, they pledged that "(a)ll payments to the Joint Development Authority by oil companies shall be made public on an individual company basis, quarterly and annually, by the Joint Development Zone and by the companies." Among additional commitments, they agreed that "(t)he use of funds received by our respective governments from activities within the Joint Development Zone shall be monitored and audited, with such audits being made public in accordance with the laws of our respective states."

Voluntary Principles on Security and Human Rights

Security issues are a concern in several of the countries in the Gulf of Guinea region. The U.S. Government is active as a convener in a process to improve policies and procedures to ensure security while at the same time incorporating proper protections for human rights. In cooperation with the UK, Norwegian and Dutch governments, the Voluntary Principles on Security and Human Rights brings together oil and mining companies from the U.S. and Europe, with leading human rights NGOs and corporate social responsibility organizations. Not only in Africa, but across the world, we are using our good offices to support this effort as companies continue to integrate these principles into their operations and security agreements with host governments on the ground.

The Voluntary Principles process fosters dialogue among governments, companies and NGOs, encouraging all partners to improve the implementation of the very best human rights practices as employees and equipment are protected in difficult operating environments. Our goal is for NGOs to share their expertise in these fields and to give honest feedback to the companies so as to foster a real commitment by all concerned to the best possible human rights standards. The process is designed to provide practical guidance to strengthen human rights safeguards in company security arrangements in the extractive sector. We encourage companies to improve relations with local communities through dialogue and to uphold the rule of law.

Transparency and Governance

As has been noted before in hearings before this sub-committee, the U.S. has a strong interest in supporting oil-producing countries that channel receipts from energy development into poverty reduction and solid and sustainable economic development that benefits their populations. Democratization and the development of accountable governing institutions are particularly important in reducing corruption and oil-related conflicts and promoting supply stability from oil and gas producers around the world, especially in Africa.

Many African energy resources are located offshore in deep and ultra-deep water locations that require tremendous capital resources to produce. As a result, foreign investment and technology are crucial to continued expansion of energy production across the Gulf of Guinea. Those countries that can demonstrate a stable rule of law and predictable investment climate will have the best opportunity to attract the investments needed to develop their petroleum resources.

This past February, the IMF and World Bank hosted a conference in Libreville, Gabon, on transparency in the oil sector. The conference brought together government and private sector participants from across West Africa to discuss governance in extractive industries. Our Economic Counselor from Lagos participated in the conference to highlight the U.S. commitment to support African countries working to fight corruption and enhance transparency.

Commitments and Announcements at Sea Island

The Administration has demonstrated a clear commitment to encouraging the reforms needed to improve investment climates. As President Bush highlighted at the Sea Island Summit, we are committed both to taking our own important steps to help fight corruption worldwide, as well as to supporting the efforts of developing countries. Specifically this year, G8 leaders launched transparency compacts with four countries to promote transparent budget, procurement and concession-letting policies. These compacts will help to open up government processes and reveal to citizens and others the source and uses of public resources, while helping to establish a cleaner and more level playing field for business. Countries with these attributes make better hosts to the very large investments needed to develop energy resources, they make more reliable contributors to our own energy security, and they are more able to promote broad-based lasting development progress as a foundation for political stability.

The G8 initiative focuses on host government commitments and leadership to fight corruption, and to enhance transparency, on both the revenue and expenditure sides. The initiative covers procurement processes and concession letting because these are also important channels through which resources are used and controlled. Our approach recognizes that government commitment to transparency and good governance is central to ensuring sound and accountable use of energy sector resources.

The governments of Nigeria, Peru, Nicaragua, and Georgia were the first to make the political commitment, in the form of a compact agreement between the G-8 and each of these pilot countries. These compacts were announced at Sea Island along with the Sea Island Declaration on transparency and anti-corruption.

Pilot governments have specified, in concrete terms, what they intend to do to bring greater transparency and accountability to the management of public resources. Participating G-8 countries will support them by providing bilateral technical assistance resources and political support. With each compact partner, participants will develop an action plan tailored to the country’s specific circumstances and priorities and that sets forth our joint efforts to achieve measurable improvements. Participating G-8 governments will work with partner countries to enlist the support and engagement of private companies, organizations and civil society, as well as the international financial institutions.

For pilot countries rich in oil, natural gas, and mineral resources like Nigeria, the compacts will pay particular attention to the transparency of revenue flows and payments originating in these sectors, while protecting the necessary confidentiality of business operations. Our philosophy is that, to be effective, this approach must focus primarily on how governments allocate and use the resources associated with these key sectors. In most cases, their own state-owned enterprises have active control over much of the activity in these sectors. We hope that more countries will follow the leadership and commitment of the first four pilots, and that these pilots will provide models and a demonstration effect for the countries to follow.

Nigeria's Transparency Compact

In Nigeria, President Obasanjo and members of his cabinet are moving forward with important actions to advance transparency and anticorruption efforts. Nigeria's commitment at the Sea Island Summit demonstrates the government's full ownership over its reform program; it is neither imposed by the international community nor dependant on external actors for its success. The U.S. is already deeply engaged in transparency and good governance activities in Nigeria. USAID is providing technical assistance to Nigeria’s Federal Budget Office, as well as working with key civil society and private sector organizations to build their capacity to participate in the development and review of Nigeria’s budget. USAID is also funding an exchange program among oil-affected communities in Angola, Nigeria, and Sao Tome to assist them in developing strategies for positive transformation by using concrete examples of good practice.  We are supporting World Bank and IMF efforts to help build capacity and provide technical assistance on governance, transparency and budgeting. Improving transparency in the oil and gas sectors of major African producers is very much a win-win situation and a crucial element in our drive to ensure our energy security. President Bush personally welcomed Nigeria's leadership in this area last month at Sea Island.


The Gulf of Guinea Region of Africa

The Gulf of Guinea Region of Africa


Released on August 26, 2004

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