[Senate Hearing 108-713]
[From the U.S. Government Publishing Office]
S. Hrg. 108-713
THE GULF OF GUINEA AND U.S. STRATEGIC ENERGY POLICY
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HEARING
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL ECONOMIC
POLICY, EXPORT AND TRADE PROMOTION
OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
JULY 15, 2004
__________
Printed for the use of the Committee on Foreign Relations
Available via the World Wide Web: http://www.access.gpo.gov/congress/
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COMMITTEE ON FOREIGN RELATIONS
RICHARD G. LUGAR, Indiana, Chairman
CHUCK HAGEL, Nebraska JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia CHRISTOPHER J. DODD, Connecticut
SAM BROWNBACK, Kansas JOHN F. KERRY, Massachusetts
MICHAEL B. ENZI, Wyoming RUSSELL D. FEINGOLD, Wisconsin
GEORGE V. VOINOVICH, Ohio BARBARA BOXER, California
LAMAR ALEXANDER, Tennessee BILL NELSON, Florida
NORM COLEMAN, Minnesota JOHN D. ROCKEFELLER IV, West
JOHN E. SUNUNU, New Hampshire Virginia
JON S. CORZINE, New Jersey
Kenneth A. Myers, Jr., Staff Director
Antony J. Blinken, Democratic Staff Director
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SUBCOMMITTEE ON INTERNATIONAL ECONOMIC
POLICY, EXPORT AND TRADE PROMOTION
CHUCK HAGEL, Nebraska, Chairman
LINCOLN CHAFEE, Rhode Island PAUL S. SARBANES, Maryland
MICHAEL B. ENZI, Wyoming JOHN D. ROCKEFELLER IV, West
LAMAR ALEXANDER, Tennessee Virginia
NORM COLEMAN, Minnesota JON S. CORZINE, New Jersey
CHRISTOPHER J. DODD, Connecticut
(ii)
?
C O N T E N T S
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Page
Brodman, Mr. John R., Deputy Assistant Secretary of Energy for
International Energy Policy, Office of Policy and International
Affairs, U.S. Department of Energy, Washington, DC............. 9
Prepared statement........................................... 13
Goldwyn, Mr. David L., Founder, Goldwyn International Strategies,
LLC, Washington, DC............................................ 28
Prepared statement........................................... 33
Hagel, Hon. Chuck, U.S. Senator from Nebraska, opening statement. 1
Morrison, J. Stephen, Ph.D., Director of Africa Programs, Center
for Strategic and International Studies, Washington, DC........ 37
Prepared statement........................................... 39
Simon, Mr. Paul, Deputy Assistant Secretary of State for Energy,
Sanctions and Commodity Policy, Economic and Business Affairs
Bureau, U.S. Department of State, Washington, DC............... 2
Prepared statement........................................... 4
(iii)
THE GULF OF GUINEA AND U.S. STRATEGIC ENERGY POLICY
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THURSDAY, JULY 15, 2004
U.S. Senate,
Subcommittee on International Economic
Policy, Export and Trade Promotion,
Committee on Foreign Relations,
Washington, DC.
The subcommittee met, pursuant to notice, at 1:04 p.m. in
room SD-419, Dirksen Senate Office Building, Hon. Chuck Hagel
(chairman of the subcommittee), presiding.
Present: Senator Hagel.
opening statement of senator chuck hagel
Senator Hagel. The committee will come to order. Good
afternoon. Today's hearing is the fourth in a series this
subcommittee has held to examine United States strategic energy
policy. Previous hearings have examined U.S. energy security
policy in Central Asia, Latin America, and the Middle East.
Energy security is vital to the United States economy.
Economic growth depends upon stable, reliable sources of energy
at reasonable prices. In the near term, U.S. energy
independence is not a reality. Currently the United States
imports almost 60 percent of its oil. This reliance on foreign
oil will continue well into the 21st century.
The U.S. must have a comprehensive strategic energy policy
that seeks to diversify our foreign sources of oil and natural
gas while at the same time strengthening our relationships in
these energy-producing regions. U.S. strategic energy policy
must be linked to our overall foreign policy initiatives.
Economic development, trade and investment and the stability
and security of energy-producing regions are all
interconnected.
The focus of today's hearing is on West Africa and the Gulf
of Guinea. Today the U.S. imports 12 to 15 percent of its oil
from West and Central Africa. This region will grow in
strategic importance for U.S. energy security interests. The
Gulf of Guinea has several strategic advantages for the United
States in terms of geography, market access, conditions, and
the quality of its crude oil. By 2020 the United States is
expected to import almost 25 percent of its crude oil needs
from this region.
As the Gulf of Guinea grows in strategic importance, it
will require even greater attention by the U.S. and its allies.
Nigeria, Angola, Equatorial Guinea, Sao Tome, Chad, and
Cameroon are among the countries in the region with significant
oil and natural gas stakes and will require an intensified
focus by U.S. policymakers to ensure that our national security
interests are met. This policy must seek to maintain reliable
access to energy sources while working to create conditions
that bring political and economic stability to the region.
Although possessing significant oil and natural gas
reserves, West African nations continue to struggle with
endemic poverty, corruption, and ethnic strife. Some of the
conflict in the region is due to disputes surrounding the
distribution of oil revenues. Nigeria, the largest oil producer
in the region, with significant offshore reserves, endured 16
years of military rule under a democratic government--until a
democratic government came to power in 1999. Angola, the
region's second largest oil producer, has only recently begun
to recover from 28 years of civil war.
The countries in the Gulf of Guinea region must move more
aggressively to address corruption, rule of law, and good
governance to ensure long-term political and economic
stability. U.S. programs, such as the African Growth and
Opportunity Act, as well as the Millennium Challenge Account,
are two important new initiatives that will help improve
economic and political conditions in Africa.
Today we will examine the current conditions in the Gulf of
Guinea and how U.S. foreign policy and energy policy is
responding to those conditions. Does the United States have a
comprehensive strategic policy for West Africa? Is energy
security being adequate addressed in our foreign policy
objectives? Are we allocating the necessary resources to deal
with regional stability and security issues in the Gulf of
Guinea? These are just some of the questions we seek to answer
today.
The witnesses for our first panel are: Deputy Assistant
Secretary of State Paul Simons and Deputy Assistant Secretary
of Energy John Brodman. On our second panel we will hear from
David Goldwyn, founder of Goldwyn International Strategies, and
Mr. Stephen Morrison, Director for Africa for the Center for
Strategic and International Studies.
Gentlemen, we welcome you. We are grateful for your time,
both panels. We are privileged to have four individuals who
know a great deal about the area of the world that we are going
to delve into this afternoon. We very much appreciate your time
and your investment of your efforts in putting together your
testimony and the opportunity to exchange some thoughts as you
complete your testimony.
So with that, I would just say all of your testimony in its
completion will be inserted into the record. You are free to
give that testimony any way you like.
So let us begin with you, Deputy Assistant Secretary
Simons.
STATEMENT OF PAUL SIMONS, DEPUTY ASSISTANT SECRETARY OF STATE
FOR ENERGY, SANCTIONS AND COMMODITY POLICY, ECONOMIC AND
BUSINESS AFFAIRS BUREAU, U.S. DEPARTMENT OF STATE
Mr. Simons. Thank you, Mr. Chairman. Thank you for the
opportunity to testify this afternoon on the very important
issue of U.S. energy security and West Africa. I would ask that
my full testimony be entered into the record and I would like
to present just a few brief comments in my oral statement.
I would like to focus on three points. First, West Africa
is very much an important region of the world in terms of
energy security for the United States and for commercial
opportunities. It will continue to play an important role as a
significant contributor to the diversity of supply that was
outlined in the President's April 2001 energy policy. We
recognize Nigeria's role in particular as a major energy
supplier and as the anchor of West Africa. Nigeria in recent
years has grown to become the fifth largest supplier of crude
oil to the U.S., contributing something more than a million
barrels a day, about 10 percent of our total imports. It is
expected to become an increasing supplier of crude oil as well
as an important supplier of LNG in the coming years.
Angola also now produces over a million barrels of oil a
day, a figure that we anticipate will increase substantially in
the coming years as new fields are brought on. Already we are
importing more than 350,000 barrels a day of Angola's
production here into the United States.
Equatorial Guinea, as you mentioned, Mr. Chairman, is also
emerging as a major producer, and in 2003 oil began to flow for
the first time through the $3.7 billion Chad-Cameroon pipeline,
the largest single private U.S. investment in Africa.
So we have important energy security as well as commercial
interests in promoting a stable environment for oil production
in West Africa.
The second point--which has also been highlighted by the
committee as well as in the recent CSIS report, which we very
much welcome--is that the U.S. has a strong interest in
supporting oil producing countries to channel receipts from
energy development into poverty reduction and solid and
sustainable economic development that benefits their
populations. The key here of course is transparency.
The administration has demonstrated a clear commitment to
encouraging reforms needed to improve investment climates and
to create transparent systems. As President Bush highlighted at
the Sea Island Summit, we are committed both to taking our own
important steps to help fight corruption as well as to support
the efforts of developing countries. I would specifically note
that this year our G-8 leaders followed up on the commitments
made in Evian the prior year to pilot efforts, to support
transparency compacts that we were able to put together in June
at Sea Island with four countries, to promote transparent
budget, procurement, and concession-letting policies.
These compacts, which involve an important element of
political contribution on the part of the developing countries,
will help open up government processes, will help reveal to
citizens and others the sources and uses of public resources,
and will also help establish a clearer and more level playing
field for business.
The G-8 initiative focuses on host government commitments
and leadership to fight corruption. It is not only driven by
the G-8 side. There is a very important element of host
government buy-in, which is something unique to this compact
process. It covers procurement processes, and concession-
letting. It recognizes that the government commitments to
transparency and good governance are central to ensuring sound
and accountable uses of energy sector resources.
My third point is to highlight the fact that the government
of Nigeria was one of the four countries that was involved in
the pilot programs and the Nigerian commitments at Sea Island
we believe demonstrate this government's full ownership of its
reform program. It is neither imposed by the international
community nor dependent on external actors for its success.
We are deeply engaged in transparency and good governance
activities in Nigeria. We believe that the initial commitment
that the Nigerians have made--and I would draw your attention
to the full text of the Nigeria transparency compact, which is
really quite an impressive document. They have agreed to move
ahead with full disclosure of fiscal activity of the
government. They put their budget, including the energy portion
of it, out on the Internet. They are launching an effort
beginning in September to divulge the balance on petroleum
proceeds, the inflows and the outflows into the petroleum
account. They are also disclosing much more information on how
they award contracts.
So it really is a landmark effort and initiative by the
government of Nigeria. Hopefully, this will serve as a model
for other oil-producing countries as well as other developing
countries as they move forward to develop full ownership of the
transparency process.
Let me conclude by saying that improving transparency in
the oil and gas sectors of the major African producers, we
believe, is a win-win situation. We believe the fact that
Nigerians have bought into this through the G-8 shows that they
recognize that for their own political stability they need to
turn the corner on this transparency issue.
There have been some ups and downs in Nigeria. We think we
have a high degree of political commitment on the part of the
current Nigerian government. Finance Minister Ngozi has taken
some personal risks in putting this program together.
Presidential Adviser Obe Ekaswali also has been very heavily
involved. It was really their initiative to get themselves on
the agenda at Sea Island.
When we take a look at the history of how countries have
been involved in the corruption and transparency fight, one of
the real missing elements has been host government buy-in. So
we are hopeful that this transparency compact process can lead
the way to creating a more stable situation for these energy
producers, in particular in West Africa. And we are very
pleased at the efforts by the Government of Nigeria to get this
launched.
Thank you very much, Mr. Chairman.
[The prepared statement of Mr. Simons follows:]
Prepared Statement of Paul Simons
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 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 G-
8 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 G-8 announced the action plan on ``Fighting
Corruption and Improving Transparency'' at the 2003 G-8 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 (bid) 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 bid 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 G-8 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 G-8.
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 subcommittee, 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, G-8 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 G-8 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 dependent 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
Senator Hagel. Mr. Simons, thank you.
Mr. Brodman.
STATEMENT OF JOHN R. BRODMAN, DEPUTY ASSISTANT SECRETARY OF
ENERGY FOR INTERNATIONAL ENERGY POLICY, OFFICE OF POLICY AND
INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF ENERGY
Mr. Brodman. Thank you, Mr. Chairman. I am pleased to be
here to discuss the important role of West Africa in our energy
security. The Department of Energy fully supports the
subcommittee's undertaking of this series of hearings on energy
security, begun by you last year, and we stand prepared to
cooperate with you in efforts aimed at improving the security
of our energy supplies.
I testified before this subcommittee on the importance of
Latin America and Africa to our energy security in October 2003
and the points that I raised in that earlier testimony still
stand. My remarks today can be viewed as a followup and an
update to that earlier testimony, with a specific focus on
Africa and in particular on West Africa.
For our purposes today, I have defined West Africa as the
regional grouping of countries from Mauritania to Angola and
inwards to include Chad and the two Congos. This group includes
six significant current oil-producing countries, namely
Nigeria, Angola, Gabon, Congo Brazzaville, Equatorial Guinea,
and Chad, and other countries with smaller amounts of current
production, namely Cameroon, Ghana, Cote d'Ivoire, and Congo
Kinshasa. It also includes a number of frontier oil provinces
that may become hot exploration areas during the coming decade,
and here I am referring to Mauritania, Senegal, Sierra Leone,
Sao Tome and Principe, The Gambia, Liberia, Togo, Benin and
Niger.
Now, just a brief word about our energy policy. From an
energy security point of view, U.S. Government energy policy
has a role to play in assuring that our energy supplies
represent a diverse set of energy resources from a diverse set
of energy suppliers. President Bush's National Energy Plan,
issued in May 2001, embodies these fundamental principles and
recommends actions that will help achieve these objectives.
The plan also recognizes that the United States cannot
address its energy concerns alone, that our energy security is
intricately linked to international markets as a result of our
increasing dependence on external sources of supply.
The National Energy Plan specifically noted the importance
of Africa to U.S. energy security and to global energy
production, and it provided specific recommendations for
strengthening our engagement, promoting favorable investment
climates, and encouraging transparency, good governance, and
the responsible use of revenues from natural resource
development to support sustainable social and economic
development in Africa.
In my earlier testimony I noted that our policy of
diversifying supplies relies on commercial investments in
energy projects. We do not tell our companies where to invest
or where to buy oil and gas. It is up to them to weigh all the
factors involved and to make their own decisions. I noted that
there are a considerable number of obstacles to realizing
successful development of commercial trade and investment flows
directly related to economic, political, and security risks and
that many of the new sources of supply, such as those in
Africa, are more dispersed geographically, are often located in
undeveloped and conflicted regions, and they often carry very
high recovery, transportation, and infrastructure costs.
I also outlined new risks from so-called nontraditional and
often internal sources of conflict, such as corruption, the
lack of rule of law, political instability, ethnic and
religious conflicts, and other so-called governance issues. I
noted that the capabilities of energy companies and financial
institutions to handle these risks in order to allow energy
development projects to become economically viable is itself a
tremendous challenge.
I noted our concern about the negative impacts that an
unfavorable business climate can have on the resource
development process. Nowhere is this more true than in Africa.
An unfavorable business climate may keep needed resources
locked away from development for a long time.
I concluded my earlier testimony by indicating a need to
remain engaged on sustainable development issues with African
producers in order to minimize many of these new internal
threats to stability and in order to promote, protect, and
defend our security of supply and our own security in
commercial trade, energy trade, and development relationships.
These points are still valid and, while that is so, my
testimony today will focus more on the role of West Africa in
global energy markets and on the prospects for continued
development of oil and gas in the region. My colleague from the
State Department, Paul Simons, has already spoken about many of
these policies and programs that we have under way in West
Africa to promote transparency, stability, and good governance.
Africa as a whole is currently producing nearly 9 million
barrels of oil a day, with approximately 4.7 million barrels
per day coming from West Africa. African oil production
currently accounts for about 11 percent of the world's total
oil supply and Africa for the first 5 months of the year 2004,
Africa was supplying approximately 18 percent of U.S. net oil
imports, which is a considerable jump over what it was just
last year and the year prior to that.
At the present time, Nigeria, Algeria, and Angola are among
the top ten suppliers of oil to the United States and, as you
noted, Mr. Chairman, our dependence on oil from Africa is
expected to rise in the future. Estimates of Africa's proven
oil reserves vary considerably from source to source, but most
sources indicate that African proven oil reserves in the range
of approximately 7 to 10 percent of the world's total, or
roughly some 80 to 110 billion barrels.
Estimates of Africa's undiscovered oil resources and of its
undiscovered producible reserves vary even more widely, but
most estimates support the expectation that Africa as a whole
and West Africa in particular have a reserve base that is
capable of supporting increased oil production for years to
come.
Several recent studies undertaken by the U.S. Department of
Energy and others conclude that sizable but untested resource
potential exists in many African and West African countries. In
the right circumstances--and that is an important phrase when
it comes to Africa--in the right circumstances, African oil
production could rise by 4 to 6 million barrels a day in the
next 10 to 15 years. In these scenarios, West Africa's five key
producing countries--Nigeria, Angola, Gabon, the Republic of
Congo Brazzaville, and Equatorial Guinea--could see their
combined production rise by 2 to 3 million barrels per day in
the next 5 to 10 years and by 3 to 5 million barrels per day in
the next 10 to 15 years. The revenues from this oil resource
development in West Africa alone are likely to amount to over
$50 billion a year in each and every one of those years.
West Africa's frontier oil countries, such as Senegal,
Sierra Leone, and San Tome and Principle in the joint
development zone and other countries, could also become hot
exploration areas in the next decade. While their potential is
very promising, it is too early to determine with any certainty
what the timing and magnitude of future production from these
countries is likely to be.
While under almost any scenario Africa will become an
increasingly important supplier to the world's energy markets
in the next decade, continued success will greatly depend on
the continued favorableness of deep water geology and continued
investment. Continued investment will depend on political and
economic stability, on the existence of transparent regulatory
regimes, and on a continuation of competitive fiscal terms
capable of attracting international capital.
Turning to natural gas for a moment, as natural gas becomes
monetized in Africa and in West Africa it can also play a
larger role in economic development. Africa currently holds
approximately 8 to 10 percent of the world's proven reserves of
natural gas and is responsible for a little over 5 percent of
world gas production. This figure on world gas production does
not include the gas that is currently being flared or
reinjected in Africa.
Many countries in Africa and in West Africa have
significant untapped production and export potential and, with
world gas demand rising, many international companies are
rapidly expanding their investments in African gas development
projects.
While development of gas is under way in several countries,
there are many other countries in Africa that are still
struggling with the basic principles of gas commercialization
and with its economic and regulatory links to the power and
other sectors for domestic consumption. As you know, many of
these countries have very little, very limited technical and
managerial capability to see these regulatory institutions put
in place in a conducive manner that will support gas
development.
The U.S. consumes more than 24 trillion cubic feet of
natural gas a year and our dependence on natural gas and
imported LNG is expected to rise. Much of this additional gas
to supply the U.S. market could come from West Africa.
To sum things up, Mr. Chairman, given its reserve base, it
is unlikely that Africa or West Africa will ever take the place
of the Middle East in its importance to the world's oil and gas
markets, but it will nevertheless continue to be an important
source of additional supplies to the United States and the
world market.
We have learned from experience that it is the additional
or marginal barrels that have a significant impact on
developments in the marketplace, and Africa has the potential
to be an important source of the marginal barrels and
incremental supplies of gas for years to come. West Africa is
one of the world's fastest growing sources of oil and gas and
is now the location of significant new investments by many of
the United States and international major oil companies. West
Africa is also a part of the Atlantic Basin, relatively close
to the main markets in the United States. It is also the source
of light sweet crude oil so critical for U.S. refining needs
and it as such represents a key replacement for declining North
Sea production, in the United Kingdom primarily, but beginning
more slowly in Norway as well.
Mr. Chairman, the rest of my prepared testimony provides a
synopsis of recent developments in the oil and gas sectors of
the key West African producers, and I would like to submit my
entire testimony for the record. But in the interest of time, I
will forgo the country by country detail.
I want to thank you very much for the opportunity to
testify before this committee today and I welcome any questions
that you or the committee may have. Thank you.
[The prepared statement of Mr. Brodman follows:]
Prepared Statement of John R. Brodman
Mr. Chairman, and Members of the Subcommittee. I am pleased to be
here today to discuss the important role of West Africa in U.S. and
global energy security. The DOE fully supports the Subcommittee's
undertaking of this series of hearings on energy security, begun last
year, and we stand prepared to cooperate fully with you in efforts
aimed at improving the security of our energy supplies.
I testified before this Subcommittee on the importance of Latin
America and Africa to U.S. and global energy security in October 2003,
and the points I raised in that earlier testimony still stand. My
remarks today can be viewed as a follow-up and an update to that
earlier testimony, with a specific focus on Africa and, in particular,
West Africa.
For our purposes today, I have defined West Africa as the regional
grouping of countries from Mauritania to Angola, and inwards to include
Chad and the two Congos. This group includes six significant, current
oil producing countries (Nigeria, Angola, Gabon, Congo Brazzaville,
Equatorial Guinea, Chad), other countries with smaller amounts of
current production (Cameroon, Ghana, Cote d'Ivoire, Congo Kinshasa), a
number of frontier oil provinces that may become ``hot'' exploration
areas during the coming decade (Mauritania, Senegal, Sierra Leone, and
Sao Tome and Principe), and others that are currently, or soon hope to
be, exploring for oil and gas (The Gambia, Liberia, Togo, Benin, and
Niger).
U.S. ENERGY POLICY AND ENERGY SECURITY
From an energy security point of view, U.S. Government energy
policy has a role to play in assuring that our energy supplies
represent a diverse set of energy resources from a diverse set of
energy suppliers. President Bush's National Energy Plan, issued in May
2001, embodies these fundamental principles and recommends actions that
will help achieve these objectives. The Plan also recognizes that the
United States cannot address its energy concerns alone, that our energy
security is intricately linked to international markets as a result of
our increasing dependence on external sources of supply.
In recognizing these challenges, the National Energy Plan calls for
strengthening global alliances through such important mechanisms as our
existing bilateral relationships with key countries and regions around
the world, and through our participation in multilateral international
energy organizations. The National Energy Plan specifically noted the
importance of Africa to U.S. energy security and to global energy
production, and it provided specific recommendations for strengthening
our engagement, promoting favorable investment climates, and
encouraging transparency, good governance and the responsible use of
natural resource revenues to support sustainable social and economic
development in Africa.
In my earlier testimony, I noted that our policy of diversifying
supplies relies on commercial investment in energy projects. As I
stated before this subcommittee last year, we don't tell our companies
where to invest or where to buy oil and gas. It is up to them to weigh
all the factors involved and to make their own decisions. I also noted
that there are a considerable number of obstacles to realizing
successful development of commercial trade and investment flows,
directly related to economic, political, and security risks. I noted
that many new sources of supply are more dispersed geographically, are
often located in undeveloped and conflicted regions, and they often
carry very high recovery, transportation and infrastructure costs.
I also outlined new risks from non-traditional, and often internal
sources of conflict such as corruption, the lack of ``rule of law,''
political instability, ethnic and religious conflicts and other so-
called governance issues. I stated that the capabilities of energy
companies and financial institutions to handle these risks, in order to
allow energy development projects to become economically viable, is
itself a potential source of worry for our energy security.
I noted that I was less concerned about the technical capabilities
of the companies, but more concerned about the impact that an
unfavorable business climate can have on the resource development
process. Continued investment will depend on political and economic
stability, on the existence of transparent regulatory regimes, and on a
continuation of competitive fiscal terms capable of attracting
international capital, and nowhere is this truer than in Africa. An
unfavorable business climate may keep needed resources locked away from
development for a long time. I concluded my earlier testimony by
indicating a need to remain engaged on sustainable development issues
with Africa producers in order to minimize many of these new internal
threats to stability, and to promote, protect and defend our security
of supply, and our own security in commercial energy trade and
development relationships.
While these points are still valid, my testimony today will focus
more on the role of West Africa in global energy markets, and on the
prospects for continued development of oil and gas in the region. My
colleague from the Department of State will talk about many of the
policies and programs we have underway in West Africa to promote
transparency, stability, and good governance.
THE IMPORTANCE OF AFRICA
Africa as a whole is currently producing nearly nine million
barrels of oil per day, with approximately 4.7 million barrels per day
coming from West Africa. African oil production currently accounts for
approximately 11 percent of the world's oil supply. Africa currently
supplies approximately 18 percent of U.S. net oil imports, and both,
Nigeria and Angola are currently among the top 10 suppliers of oil to
the United States. U.S. dependence on oil from Africa is expected to
rise in the future as new fields are brought on line.
Estimates of Africa's proven oil reserves vary considerably from
source to source, but most sources indicate that Africa proven oil
reserves are in the range of approximately 7 to 9 percent of the
world's total, or 80 to 100 billion barrels. Estimates of Africa's
undiscovered oil resources, and of its undiscovered, producible
reserves vary even more widely, but most estimates support the
expectation that Africa as a whole, and West Africa in particular, have
a reserve base that is capable of supporting increased oil production
for years to come.
Several recent studies undertaken by the USDOE and others conclude
that sizable but untested resource potential exists in many African and
West African countries. With continuation of deep water and ultra deep
water discoveries, with optimization of overall resource development
and production, and with sufficient levels of investment in exploration
and development and in maintaining production from mature fields,
African oil production could rise by 4-6 mmbd in the next 10 to 15
years.
In these scenarios, West Africa's 5 key producing countries
(Nigeria, Angola, Gabon, Republic of Congo-B, and Equatorial Guinea)
could see their combined production rise by 2 to 3 million barrels per
day in the next 5 to 10 years, and by 3 to 5 million barrels per day in
the next 10 to 15 years. West Africa's frontier oil countries, such as
Senegal, Sierra Leone, and Sao Tome and Principe in the Joint
Development Zone, and other countries, could also become ``hot''
exploration areas in the next decade. While their potential is very
promising, it is too early to determine with any certainty what the
timing and magnitude of future production from these countries is
likely to be.
While under almost any scenario, Africa will become an increasingly
important supplier to the world's energy markets in the next decade,
continued success will greatly depend on the continued favorableness of
deep water geology and continued investment. Continued investment will
depend on political and economic stability, on the existence of
transparent regulatory regimes, and on a continuation of competitive
fiscal terms capable of attracting international capital.
As natural gas becomes monetized in Africa and in West Africa, it
can also play a larger role in economic development. Africa currently
holds approximately 8 percent of the world's proven reserves of natural
gas, and is responsible for a little over 5 percent of world gas
production (note: this figure does not include gas flared or
reinjected). Many countries in Africa and in West Africa have
significant untapped production and export potential, and with world
gas demand rising, many international companies are rapidly expanding
their investments in African gas development projects.
The U.S. Department of Energy (USDOE) is working with various
African countries and international organizations in Africa to promote
the development and utilization of natural gas resources, which, in
turn, will directly contribute to the reduction of gas flaring and
venting, increase revenues to the state, and help provide efficient,
reliable energy for sustainable development.
Development of natural gas is well underway in several countries,
but many countries are still struggling with the basic principles of
gas commercialization and its economic and regulatory links to the
power and other sectors for domestic consumption.
West Africa is also a part of the Atlantic Basin, and relatively
close to the main markets in the U.S. West Africa is also the source of
light, sweet crude oil critical for U.S. refining needs, and a key
replacement for declining North Sea oil production.
The U.S. consumes more than 24 trillion cubic feet of natural gas
per year. Our dependence on natural gas and imported LNG is expected to
rise, and much of that could come from West Africa.
Given its reserve base, it is unlikely that Africa or West Africa
will ever take the place of the Middle East in its importance to the
world's oil and gas markets, but it will nevertheless continue to be an
important source of additional supplies to the U.S. and world market.
We have learned from experience that the additional or marginal barrels
can have a significant impact on developments in the marketplace, and
West Africa has the potential to be an important source of the marginal
barrels for years to come.
West Africa is one of the world's fastest growing sources of oil
and gas and is now the location of significant new investments by many
of the U.S. and international major oil companies. The following brief
synopsis of recent developments by country is indicative of the
activity underway.
Chad began producing oil for the first time in July 2003, and is
currently producing 110,000 barrels per day (bpd). The U.S. is now
receiving approximately 34,000 bpd of oil from Chad that did not exist
a little over a year ago. The realization of oil production in Chad was
made possible by the construction of the $3.7 billion, 650-mile Chad-
Cameroon oil pipeline project, led by ExxonMobil.
Nigeria, an OPEC member, has proven oil reserves of nearly 40
billion barrels, and currently produces approximately 2.5 million
barrels per day. Nigeria's goal is to raise its production capacity to
4 million barrels of oil per day by 2010. Nigeria has also emerged as a
major exporter of liquefied natural gas (LNG) in recent years (it is
now the second largest LNG exporter on the African continent and the
fifth largest in the world), and it has the world's 9th largest
reserves of natural gas and the largest reserves in sub-Sahara Africa.
Angola, a non-OPEC member, is the second largest sub-Saharan oil
exporter to the U.S., currently producing 1.07 million barrels per day.
Angola's total proven oil resources are estimated to be between 5 and 9
billion barrels, and rising with new discoveries. Angola's stated goal
is to increase oil production to 2 million barrels per day by 2008.
Angola is also planning the development of an LNG project for export.
On May 13th, at the Angolan Embassy in Washington, Sonangol
(Angolan national oil company), ChevronTexaco (lead), Total and ENI
signed an extension agreement to further the development of one of
Angola's most prolific offshore oil production areas, Block 0. This
agreement has been negotiated in an open and transparent manner and
includes disclosure terms for the signing bonus. The disclosure terms
for the signing bonus represent significant progress for transparency
and meaningful reform in revenue oversight and will engender greater
goodwill in the international community.
Equatorial Guinea's oil production is currently about 360,000
barrels per day. It is a non-OPEC producer and has total proven oil
reserves conservatively estimated at 1.2 billion barrels. Major oil
companies operating in Equatorial Guinea are Marathon Oil, ExxonMobil,
AmeradaHess, and ChevronTexaco. The U.S. reopened its Embassy in
Equatorial Guinea in October 2003. President Obiang recently visited
the U.S. and met with Secretary Abraham at the Department to discuss
bilateral energy issues. Equatorial Guinea also has considerable
natural gas potential and is planning the development of a LNG project
for export.
Gabon is West Africa's fourth largest oil producer, currently
producing about 250,000 barrels per day. While Gabon's oil production
has decreased somewhat in recent years, it has recently taken steps to
improve the investment climate and attract more interest. It also
recently settled a territorial dispute with Equatorial Guinea that will
allow exploration and development to proceed in previously disputed
offshore area.
Republic of Congo (Brazzaville) is currently producing about
243,000 barrels per day. The majority of its crude oil production is
located offshore, and is considered to have significant potential.
Sao Tome and Principe--Since the attempted coup of one year ago in
Sao Tome and Principe, there has been a reconciliation process underway
which thus far has remained peaceful. As part of this process, there
has been a series of public town hall style meetings to allow a wide
range of Sao Tomean society to debate national direction and the
priorities for future oil revenues. Commitments have been made by the
Governments of Sao Tome and Principe and Nigeria to ensure openness and
transparency in the bidding process on oil blocks in the offshore Joint
Development Zone (JDZ) shared by the two countries. On June 26, 2004,
President de Menezes of Sao Tome and President Obasanjo of Nigeria
signed the Abuja Declaration which states that oil payments made by
companies to the Joint Development Authority (JDA) will be made public
quarterly and annually by the JDA and that use of JDZ funds received by
the two governments will be monitored and audited, with the audits made
public.
CLOSING
Mr. Chairman, that completes my overview of West African oil and
gas developments, and I believe that my statement covers all the topics
you have proposed for today's hearing. Thank you for the opportunity to
testify before you today. I welcome any questions that the committee
might have.
Attachments: Chart on African Oil and Gas Production; Table on U.S.
Petroleum imports from Africa.
Net Imports of Oil (Crude & Products) into the U.S. By African Country
(JANUARY THROUGH APRIL 2004)
------------------------------------------------------------------------
Daily Average (Thousand
Country Barrels)
------------------------------------------------------------------------
OPEC
Algeria 400
Nigeria 1130
Non-OPEC
Angola 309
Cameroon 30
Congo (B) 13
Congo (K) 6
Egypt 5
Gabon 134
Ivory Coast 2
Tunisia 1
Total African Imports 2030
Total U.S. Imports 11405
Percentage of Total Net Imports 17.8
------------------------------------------------------------------------
Source: EIA Petroleum Supply Monthly, June 2004.
Senator Hagel. Mr. Brodman, thank you. As I stated at the
beginning of the hearing, each of your full texts of your
testimony will be included for the record.
Mr. Brodman, you mentioned in your statement a number of
criteria that will be and of course are critically important to
the development of these energy resources in Africa. One of
those of course is investment. Would you go a little deeper
into that as to what your sense of the level of foreign direct
investment into energy development in these areas? Obviously,
the other criteria that you mentioned affect investment--
security, stability. But how would you rate the investment so
far, what we anticipate it to be as to the potential of
developing those areas as you have noted in your statement?
Mr. Brodman. Mr. Chairman, I do not have exact figures in
front of me about the cumulative investments that have been
made by I guess both public and private oil companies in the
development of oil and gas resources in the West African
countries that we are focusing on here today. But I would
venture a guess that it is probably somewhere in the
neighborhood of $50 to $75 billion that has been invested
already.
I have also seen figures that suggest that the investments
that will go into West African oil and gas development over the
next 10 years are of a similar, similar magnitude. So we are
looking at West Africa as being literally one of the most
important investment plays and investment outlets for both the
international major oil companies and many of the large
independent oil companies as well.
Now, as you know, investment is very fickle and it will
tend to go to the places where risks are lower and rates of
return are higher. In many of the so-called frontier West
African oil provinces, there is so far no proven track record
as to how the companies' investments will in fact be handled
over time. I think there is a certain amount of reluctance on
the part of any large investor to be the first, especially when
many of the countries lack the kind of institutions, I think,
and technical and managerial capacity to deal with large-scale
investments by multinational investors.
So I think for many of the frontier areas there will be a
need for considerable institution-building before we really see
investments take off. In many of the current producing areas
where the companies have had a track record of operating for
many years, there is still a need to improve transparency and
the rule of law. In many places in West Africa, many countries
will oftentimes change the tax code, change the rules governing
foreign exchange earnings and the ability of companies to
repatriate their profits, and things like that, without much
consultation. We have in several cases seen investments slow
down as a result.
So it is a constant--I think it is a constant--there has to
be some constant vigilance and constant efforts on our part to
work with these countries to help them and the rest of the
international community understand that a stable, open and
transparent investment environment is the key ingredient that
will be needed if we expect to see these resources develop in a
timely manner.
Senator Hagel. Of the numbers that you noted--and I
recognize you do not have the specific figures with you and I
recognize that they are general figures--the $50 to $75 billion
number, what percent of that would you say would be American
investment?
Mr. Brodman. Probably close to half. It would vary country
by country, but I would say if you are talking about the past
cumulative investment it is probably close to half.
Senator Hagel. Would you say that, from what you know,
would hold for the future, over the next 5 years or so, that
that level of American investment would be maintained at half
of that total investment, from what you know?
Mr. Brodman. From what I know, I believe that American
investment may actually rise. Again, it will vary considerably
from country to country. I have not sat down and really racked
up all the investments country by country and divided them up,
American or not American. But these are just my sort of seat of
the pants guesses from being familiar with the region.
Senator Hagel. Where would the bulk of the remainder of
that come from? Europe?
Mr. Brodman. Europe predominantly.
Senator Hagel. Is there in your sense of this significant
Chinese investment in energy?
Mr. Brodman. Not yet. The Chinese are very actively trying
to become more involved in West Africa.
Senator Hagel. By the way, I will address the questions to
maybe one of you specifically, but I would appreciate, if one
of you or both of you have additional comments, please feel
free to engage. Thank you.
Where do you think the U.S. Government can do more, should
do more, in the way of assisting investment? Now, some of it
will spill over into Mr. Simons' area, I know. But we are
somewhat limited, any government is, as to what we can do. We
have some programs that we have mentioned this afternoon. I
want to get into some of those, Millennium Challenge Account,
some of these areas where it does cut to the core issue of
climate and environment, stability, security, things that we
try to do, what governments can focus on.
But any areas, Mr. Brodman, that you think the government
can do more in and should do more in in the way of encouraging
investment in these areas?
Mr. Brodman. Sir, I think we really need--we have done a
very good job of engaging these countries on a bilateral basis.
But I think we need to keep the dialog going to help them out
and to help them to build a technical and managerial capacity,
to understand the trends in the oil and gas development around
the world. I think it is very important that we help the
countries of West Africa learn about what I would call
international best practices, or sort of the international
standard for investment regimes and investment climates, so
they can make more informed decisions and take the steps that
are necessary to attract the international investments that
they will need. I think that is one thing.
I also think we need to encourage them to maintain an open
dialog with the companies so that every time they are thinking
of changing their tax laws or their petroleum legislation or
the laws governing exploration and development in their
countries that they do so in consultation with the private
companies that will be making the investments, so as to not
take steps that will adversely affect the investments in the
longer term.
I think it is this kind of dialog that is the most
beneficial.
Senator Hagel. Let me ask a question that both of you can
answer, and I know Mr. Simons will get into this. But another
question that relates to this: How do we coordinate our policy
on this issue between your two Departments and agencies? How do
we integrate foreign policy and energy policy specifically in
this area? And I will let you start with that, Mr. Simons,
because you have some other things you want to talk about as
well.
Mr. Simons. Sure. If I could just pick up on the last
question and perhaps add a little bit and then move on to the
question of the policy integration. On the issue of promoting
investment, I think we can look at it perhaps on three
different levels. One is the broad macro level, where we have
really been working very closely with the IMF and the World
Bank to get these African countries in the situation of basic
macroeconomic stability, which also is a precursor for any sort
of reasonable involvement by oil companies and energy sector
investments. So we have the international financial
institutions playing on that macro level.
We have the international financial institutions also
playing a role now on transparency, good government, and
budgetary issues, much more so than they did say 10 or 15 years
ago. So I think that has been an area we have made a lot of
progress.
The second issue, I would agree with John, involves ways
that we can introduce, through bilateral mechanisms, through
dialog with the Department of Energy and private consulting
firms, appropriate investment strategies, appropriate laws,
regulations, and best practices. That is very, very important
as well.
Then finally, I think we should not overlook the impact
that we can have on the ground through our missions, through
our Ambassadors, our staffs, in terms of providing linkages
between the companies and host governments. For instance, we
are reopening an office in Equatorial Guinea for the first time
in a number of years. We are expecting that will be an
important link, an important bridge between our companies and
the Government of Equatorial Guinea.
Our Ambassadors throughout West Africa are extremely active
on commercial advocacy as well as investment climate advocacy
with host governments. It is one of their top priorities. And
they are really the hands and ears on the ground. Having served
in Africa myself, as has John, I think we recognize the
importance of having folks on the ground who have a feel for
how far local governments can go, how you can steer them, how
you can get deals done, how to get investment regimes shaped
properly.
So I think we have those three levels. I will say a couple
words about policy cooperation and coordination. I think, quite
frankly, the relationship, the basic players within the U.S.
system right now are the Energy Department, the State
Department, to some extent the White House. We really have an
excellent cooperative relationship. We travel together. We
coordinate papers together. We share documents. We are in
continuous coordination on the Internet.
Secretary Abraham has been I think a great leader in terms
of shepherding the Africa energy minister process along over
the the last few years. He has excellent relationships with all
the major African energy ministers.
We also work together through the International Energy
Agency in Paris to provide initiatives to non-member countries,
again to get countries to improve their investment climates.
So I think the inter-agency process, compared to other
inter-agency processes that I have worked on over the years, I
think it is quite, quite healthy and is working well.
Senator Hagel. Well, part of the reason for Secretary
Abraham's effectiveness is he was trained in the Senate and he
brings that advantage to the job that few others have, of
course.
Before I go back to Mr. Brodman to get his response to that
general question, could you address specifically the Africa
Growth and Opportunity Act and the Millennium Challenge Account
in the context of what we are talking about here and how we
would tailor that, apply that, implement that, get that down
into the areas that we are talking about that we must see
improvement in in order to connect the investment and all the
other pieces that you both have noted in your testimony?
Mr. Simons. Right. Mr. Chairman, I do think both the Africa
Growth and Opportunity Account as well as the Millennium
Challenge Account are very, very important and new tools in our
tool kit. They are the sorts of vehicles we did not have 10
years ago to work with. So we are very appreciative that the
Congress has given us these instruments that we can use, in
addition to the transparency process, which is purely an
administration initiative.
But to offer unique kinds of trade opportunities to African
countries, to be able to offer substantial amounts of incentive
resources for countries that can qualify for the Millennium
Challenge Account, is I think very much a cutting edge
opportunity and it is one that we do need to take advantage of.
And I think we have taken advantage of it.
If you look at the 37 eligible beneficiaries for the Africa
Growth and Opportunity Act, most of the major oil producers are
included in that group--Nigeria and Angola. We do have
conditionality attached to qualifications for membership in
that group that references continuing progress in terms of
corruption, in terms of rule of law, and in terms of human
rights. So we do have benchmarks that countries need to meet.
My own personal view of the AGOA is, with respect to oil
countries, it gives them the opportunity also to diversify.
Certainly we do not want to be creating or promoting countries
that are purely dependent on oil. So AGOA really provides the
opportunity to develop nontraditional resources, to develop
competitiveness in those areas, and to have access to the U.S.
market.
With respect to the MCA, the Millennium Challenge Account,
we have five West African countries that have qualified in the
first tranche. None of them happen to be major oil producers,
but the oil producers continue to be candidates. The benchmarks
are a little bit higher in terms of transparency and good
government. That is not to say the oil countries could not meet
the bar, but they have not yet.
I think it provides a good standard to aspire to for the
oil producing countries, again a very important tool, and I
think as the first set of countries develops their compacts
that will also provide some perspective to the countries that
are now aspiring under the MCA, and hopefully will show
Congress also that this is a very good program and it deserves
continued funding.
Senator Hagel. Thank you.
Mr. Brodman.
Mr. Brodman. Mr. Chairman, I would like to echo the
sentiments on cooperation that my colleague from the State
Department just made. I think we clearly realize, as you stated
in your opening statement, that international energy policy is
not made or carried out in a vacuum. Our international energy
policy is an integral part of our foreign policy, our economic
policy. There are elements of trade and investment policy in
there and of security policy as well.
So we rely very much on the State Department, the Treasury,
USAID, and others for the context, I think, within which we try
and develop close bilateral energy relationships to make
strides on strictly energy issues with most international
governments, and especially those in West Africa.
Our cooperation runs the full gamut. In many cases the
energy policy component and dialog that we have ongoing with
individual countries is the part of a larger economic dialog
that is managed by the Department of State, and in other cases
we have a very active energy policy dialog going on, where we
invite State Department representatives, but clearly it is the
overall energy policy dialog. But we do work very closely with
State and are dependent on them for advice and oftentimes
resources.
There have been a number of times in the past--as you know,
sir, the Department of Energy is not an economic development
agency per se, so the resources that we have available to
devote to, let us say, economic development issues, including
energy policy development, in developing regions of the world,
like West Africa, are in fact fairly limited. We have some
technical expertise and some advice and we can have working
dialogs and exchanges of information with many countries that
draw on the expertise and advice that we have. But the
resources we have to really carry out sustained programs in
individual countries are limited.
In a couple of instances in the past few years, the State
Department has been instrumental in helping to provide the
Department of Energy with economic support funds to help us
carry out programs of assistance in the energy area in specific
African countries. More specifically, a number of years ago
USAID provided the Department of Energy with several million
dollars to start an energy cooperation and assistance program
in Nigeria that just recently came to a conclusion. More
recently, the State Department and USAID were instrumental in
providing the Department of Energy with $200,000 to have us
assist the Government of Angola in the development of a
comprehensive national energy strategy that would focus on the
provision of energy services to the Angola domestic economy.
So these I think are two very good examples of how we work
cooperatively together.
Senator Hagel. Thank you.
Mr. Brodman, are there fundamental differences that exist
currently with these gulf country oil-producing areas, where
the countries are more specifically tailored to their own
traditions, their own specific business dynamics, resource
development, versus a more regional concept of development, of
not just the resources but of the stability in general of the
region?
Is there developing or has there been developing or yet to
develop that kind of a regionalization appreciation,
understanding, between governments, that they are not isolated,
that if two or three of their neighbors are not doing well and
unstable then that is going to affect them? I know Mr. Simons
is going to talk about that, as he referenced the compact that
was signed in Sea Island, Georgia, at the G-8 conference, which
relates to my question. So I will ask Mr. Simons the same
question. Thank you.
Mr. Brodman. Mr. Chairman, I think we have seen very, very
positive developments on exactly that front in the last 10
years, but more so in really the most recent few years. In the
past, you know, the bulk of the investment really going on in
exploration and development in Africa was in one country, in
Nigeria, and Nigeria really was leaps and bounds ahead of its
neighbors in terms of understanding how to deal with the
multinational oil companies, how to negotiate contracts, how to
play the international oil development game.
Here I am speaking in general terms and I know Nigeria has
not exactly been a model of stability over the years and it has
had many successive military governments prior to the current
democratic government and it has had a fairly rocky history.
But in the recent past we have seen a number of countries
really step up and resolve their territorial disputes with
their neighbors. I am thinking here of Gabon and Equatorial
Guinea in particular. I think just earlier this month Gabon and
Equatorial Guinea resolved a longstanding territorial dispute
in offshore waters that had been stalling and delaying
exploration and development in that area for a considerable
period of time.
We have seen the same happen in Nigeria and Cameroon. We
see the same kinds of thing happening I think with Equatorial
Guinea and Cameroon as well. This kind of gradual encroachment,
I guess, of a realization on the part of the countries that
they are a region, that they can work together and cooperate
for their own best long-run interests, is something that is
taking foot there very positively.
Another important example that I see developing is the
example that is being provided by the joint development zone
between Sao Tome and Principe and Nigeria. The joint
development zone is basically this territorial waters between
Sao Tome and Principle and Nigeria where there are no clearcut
boundaries. It is expected that it has large-scale--or the oil
resource potential of that disputed territory, if you will, is
considerable.
We have seen Sao Tome, which has no experience in dealing
with the multinational oil companies in developing resources,
enter into a pact with Nigeria whereby they will jointly work
with them. They have jointly created a board consisting of both
Nigerians and Sao Tome officials, that will proceed with the
development of the oil resources in this joint development
zone. And it is a very logical step forward because it will
allow the officials from Sao Tome to learn from their Nigerian
counterparts as they go forward and develop this joint zone.
I think the lessons they can learn from that experience
they can then bring home and apply to their own, their own
development in their own territory, outside of the disputed
area.
But there are a number of other examples that we see
happening. In Equatorial Guinea, for example, Equatorial Guinea
hopes to develop an LNG facility in Equatorial Guinea that will
take gas from several of the surrounding countries. The gas
resources in a number of the surrounding countries in and of
themselves are not enough to sustain investment in a major LNG
port for export. As a matter of fact, some people believe that
the gas resources in Equatorial Guinea by themselves may not
sustain a large-scale LNG facility for a long time. But the
countries of the region have gotten together. They have decided
on an operator. The operator, Marathon in this case, plans to
build an LNG facility that will purchase gas from Cameroon, gas
from ExxonMobil, and gas from other producers in the region and
bring it all back to Equatorial Guinea for processing through
this one LNG facility and sale to the world market.
So we see very positive signs along that score, sir. These
are things that we would like to encourage.
Senator Hagel. Mr. Simons.
Mr. Simons. I would certainly associate myself with all of
John's examples. They are impressive in the African context. I
would just cite two other areas that I think merit mentioning.
First is the Chad-Cameroon pipeline, where you have a
landlocked country that really is investing its entire economic
future in the political viability of its neighbor. It is a very
impressive arrangement that we hope again will be a model.
The second area, is a little out of economics and is more
in the security area. The work that ECOWAS has been doing
lately on conflict management is very impressive. They have set
up a small defense security staff. They have successfully
deployed, as you know, to Cote d'Ivoire and Liberia in the last
couple of years. We have been able to get some other Western
donors to help build capacity. We are also putting a small
amount of our own money into their operation. We have been able
to make their headquarters a hub for peacekeeping training, and
this is something that certainly 10 years ago would not have
been imaginable.
Senator Hagel. Thank you.
Let me ask each of you about terrorism. First, Mr. Brodman,
have we changed in any significant way our U.S. strategic
energy policy since September 11, 2001? Obviously we have all
recalibrated to some extent, which affects all our policies,
but especially international policy. But has it been
significant? Where has it been significant? How has it made it
more difficult in order to fulfill, accomplish a number of the
areas that you talk about?
Then I would ask Mr. Simons the same question, only on a
little broader scale, specifically tailored to the West Africa
region; and more specifically for each of you, the Gulf of
Guinea energy countries that we are talking about here--threats
and then how we are dealing with those in our policy? Mr.
Brodman?
Mr. Brodman. Clearly the war on terrorism has highlighted
the key security concerns that American companies and Americans
working abroad are likely to encounter in many hostile parts of
the world. This has affected the energy industry considerably
in many places, and it has even in some cases I think at this
point placed in doubt their ability to maintain a significant
footprint in some countries.
There are clearly risks to Americans living abroad in some
countries that companies must have a corporate policy for
dealing with. When lives are at stake, I think corporations
will always tend to be risk-averse and will do the most they
can to minimize the danger to their personnel, even if that
means withdrawing them from the country and shutting down
operations. That is kind of an extreme case.
The other things we have seen in terms of impacts of the
war on terrorism I think have to do more with economic costs
that the companies will incur by exploring and developing
energy resources in other countries. Clearly the higher costs
of security will have to be factored into all their investment
decisions from here on out. Just the logistical cost and the
extra personnel and things associated with providing security,
with hardening your facilities, with building redundancy into
the key infrastructure and everything like that to deal with
potential terrorist threats is a significant additional burden
that the industry has to factor into its calculations.
When it comes to West Africa per se, clearly there are
terrorist threats that exist in West Africa. I think we have
been fortunate to some extent in that many of the oil-producing
facilities in West Africa are offshore, they are far from large
population centers, they are geographically isolated, such as
those in Nigeria in the Niger Delta, in places that are
difficult to reach.
While that in and of itself may provide a certain measure
of security to the Americans and the American firms working
there, it is by no means a simple proposition. The fact that
these facilities are isolated can make them targets of
opportunity as well. These are issues that I think the industry
is beginning to address. I think we have a long way to go as
far as trying to deal with all the threats that might possibly
arise and to handle all the issues that could come up. But I
think we are making some progress.
Senator Hagel. Thank you.
Mr. Simons.
Mr. Simons. I think John summed it up pretty well. I would
perhaps make a couple of observations just to put John's
comments in some context.
I think we have a whole set of physical security issues,
homeland security issues that host countries face, that
industry faces, and that we face here at home. We have an
unanswered question, which is how many of those external
homeland security types of questions, physical security for
soft targets kinds of questions, how much of that is the
responsibility of the United States, how much of it is the
responsibility of the private sector, and how much of it is the
responsibility of the host governments.
I think that whole set of issues we are starting to come to
grips with. I do not think it is really Africa-specific. It is
worldwide. We are addressing these questions in the Middle
East, in Southeast Asia, as well as in Africa. But it is a
question that we need to take a good hard look at and begin to
define where our involvement and our responsibility begins and
where it ends.
So that is one set of issues. A second set of issues, which
John has also alluded to, involves country risk. To what extent
has the war on terrorism heightened overall perceptions of the
risks of operating in certain countries, which are not really
soft target countries but might be hard target countries, where
you would have a real threat of a terrorist incident against a
facility in a country.
I think that these issues taken together may be having some
impact in terms of the marketplace, in terms of the world
market, oil markets, short-term markets as well as long-term
investment markets. So this is to some extent a price of doing
business post-9-11. We talk with the companies about this, we
talk with host governments. We have discussions inside our own
executive branch, and it is something that we are sorting
through.
Senator Hagel. Thank you.
How would you rate--I know this is imperfect, but give me
some answer to the question, the terrorist threat in the area
that we are talking about? High? You must be aware always, as
you have noted. Give me some calibration of that issue in the
area we are talking about? We have so far seen not a great deal
of terrorist activity in those areas. But because as we develop
those areas and see them develop into major energy centers,
they represent newer targets, bigger targets, more significant
targets.
Mr. Brodman. I do not know if I--I am not going to give you
a numerical rating on a scale of one to ten or anything like
that, Mr. Chairman, if you do not mind. But in the case of West
Africa, it has been historically here an inherently conflicted
region. Religious conflicts; there are ethnic conflicts; there
are conflicts between the countries. And within individual
countries, as you know, the history of the region, there are
relatively--there are some positive examples of political
stability, but there are probably more pronounced examples of
political instability.
While we think the region is making progress as a whole
and, as you say, a lot of the security concerns that I think
these companies--or the countries and our companies that are
operating there have experienced, they really come more from
these sources of conflict that are inherent within the region
than they have from terrorism themselves. But the fact that
they are politically unstable places and the fact that there
already are existing other types of conflict I think makes
these countries a potential breeding ground for future
terrorism activity.
So to what extent are the terrorists there and active
today? I really do not know. To what extent are terrorists
really looking at these conflicted areas as possible places to
carry out terrorist activities in the future? I do not know
either. But it would seem to me that, because the countries are
weak, because they are inherently conflicted the way they are,
that they do become fertile ground for potential future
terrorist activities.
Senator Hagel. Thank you.
Mr. Simons.
Mr. Simons. I think it is important also to note that the
problems that we have seen to date, which have largely been
concentrated in Nigeria, where we have actually had supply
interruptions because of different internal conflicts, have
largely been local in nature. They have had to do with internal
problems, ethnic problems, and their solution is a combination
of development, internal security, as well as law enforcement.
I do think that to the extent that you have a weak law
enforcement base in a number of these countries that you are
vulnerable as a soft target for terrorists to come in. For the
time being, though, I do think that it is the weak law
enforcement structure and some of the other unresolved issues
with respect to how resources are divided within the countries,
which can be attacked more directly by this transparency
process.
I think the countries have to get that right. They also
have to get moving on the law enforcement side as well, where
they have substantial weaknesses. So there is currently a
vulnerability to terrorism, but the immediate challenge I think
is more on the transparency side.
Senator Hagel. Thank you.
Gentlemen, you have been most helpful. The committee
appreciates your testimony and your forthright answers to the
questions. What we will do is keep the record open for a couple
of days. I know some of my colleagues had wanted to be here. We
have Dr. Rice coming here in about an hour actually to a
different room. So there were other members of the committee
who wanted to ask some questions and we may send those along
for your answers. So we will keep the record open a couple of
days.
But thank you very much. Please give our thanks to your
colleagues who do such good work for our country. We appreciate
it. Thank you.
If the second panel would step up when we have the table
cleared, we will get started. Thank you.
Gentlemen, welcome. As you know, I have introduced each of
you. I see you are well fortified with water and if you need
more we will pour more water for you. So thank you again for
coming up this afternoon and presenting your thoughts on an
important issue for the future of this country, the future of
the world.
So I will get started. We will ask each of you to present
your testimony. As you have noted, I have already stated you
can do that any way you like. Anything you brought along in
formal remarks, additions, insertions, will be all included in
the record. So thank you again.
Mr. Goldwyn, I will reintroduce you and you can begin: Mr.
David Goldwyn, Founder, Goldwyn International Strategies,
Washington, DC. Sir, thank you.
STATEMENT OF DAVID L. GOLDWYN, FOUNDER, GOLDWYN INTERNATIONAL
STRATEGIES, LLC
Mr. Goldwyn. Thank you, Mr. Chairman. It is a pleasure to
be here again and an honor to speak to you and this committee.
This committee's sustained interest in the issue of energy
security has helped keep this issue on the agenda with the
executive branch and so I commend you for your sustained
interest.
Oil supply from the Gulf of Guinea is important to U.S.
energy security, but the supply from that region in my view is
vulnerable to a disruption from both internal and potentially
from external threats. We do not have an energy policy that is
strategic in any sense, not nationally and not in the Gulf of
Guinea. As a government, we are not organized to address either
the chronic causes of the unrest in that area or the acute
threats of crime, privacy, and possibly terrorist attacks on
the energy infrastructure.
I have had the opportunity, as you have noted to some of
the other witnesses, to study these issues closely in concert
with my good friend and colleague and fellow witness Dr.
Stephen Morrison. We have done two studies this year for CSIS
on oil in the Gulf of Guinea. Dr. Morrison is going to talk
about our recommendations for addressing the region's chronic
problems in his testimony. I am going to talk about what energy
security means in a globalized market, why the Gulf of Guinea
is critical to U.S. energy security, what is at risk, and what
we ought to do about it.
In terms of energy security, energy security is more than
just access to diverse, reliable, abundant and affordable
supplies of energy. Diversity is important, but the real threat
to our economy is price volatility, because rapid spikes in oil
prices cause recessions, drive up inflation, make our
industries uncompetitive, and create job loss. And oil prices
have been highly volatile in recent years, swinging from $10 to
$40 from 1998 to now, because we are more and more dependent on
nations that are less than stable themselves.
Conflict among nations, when you look back 20, 30 years--
the Iran-Iraq war, Iraq's invasion of Kuwait--caused major
disruptions in supply. Internal conflict does this as well. The
Iranian revolution, the 2003 strike in Venezuela, and strikes
in Nigeria are examples of this. So we cannot deter these kinds
of disruptions with strategic stocks. That was our old energy
security policy, deter an embargo by having strategic stocks.
For the new threats we need conflict prevention and diplomacy.
The newest threat we face, of course, is the potential of a
terrorist attack on oil installations. We have seen attacks in
Iraq by insurgent forces and we have seen them in Saudi Arabia,
reportedly by al-Qaeda. In terms of the overall market, we have
rarely been more energy insecure than we are today. The global
market itself is stretched to capacity. Prices are at nearly
$40 and, due to a deliberate OPEC policy, there is barely
600,000 to 800,000 barrels a day of excess capacity, depending
on whose statistics you believe.
So if there is a supply disruption--a strike in Nigeria or
a disruption in Venezuela or Iraq, much less something
happening in Saudi Arabia--we have no cushion. Commercial
inventories, which is what we would draw on first, are also at
historic lows. So we are in no position to endure a supply
interruption from the Gulf of Guinea today.
But the threat of having that disruption, as I said, is
real. And if we want to have energy security at home, we need
to focus on promoting stability in the nations we rely on and
help them protect the infrastructure that delivers the oil and
gas we depend on.
As many of the witnesses have said today, the nations of
the Gulf of Guinea are and will remain critical to U.S. energy
security. I will not torture you with the statistics since we
are all working off the same numbers, but the Gulf of Guinea
provides roughly 14 percent. It is not the Persian Gulf, but
the marginal barrel sets the price of oil and if these
countries exports go off the market the price shoots to 50
bucks. That is why they are important.
In the future they are going to be important as well. OPEC
productive capacity really has not changed, but the Gulf of
Guinea next year will provide the second largest increase of
oil supply in the world. Russia will provide the most barrels.
The Gulf of Guinea is going to be No. 2. OPEC is holding fast.
So the Gulf of Guinea is important and if all goes well--this
is what we are talking about today, will all go well--we could
get to 20 percent of imports from this region in 20 years.
The reasons why increased exports from the Gulf of Guinea
are important is well known--they make us less dependent on
Middle East crude. And all of these nations except for Nigeria
are non-OPEC nations, so that they provide some competition to
OPEC in terms of driving down the price of oil.
It is important to note for a trade subcommittee that the
reason these countries are growing is because they are open to
Western investment. They provide a competitive rate of return,
about 15 percent or so, and they have attracted $30 to $40
billion or will attract $30 to $40 billion of investment this
decade. I think it is actually about 40 percent American and
about 60 percent European investment.
But it is the very openness of these nations to Western
investment that also makes them a potential target for
terrorism. And of course, it is important to note that we have
more than oil at stake. There are thousands of Americans who
work in this region and our taxpayers, through investments in
companies, have billions invested there.
The geological prospects are good in the region, but the
risk of an oil disruption is high for a variety of reasons. One
is rising violence. The unrest in the Niger Delta is
unresolved. Political violence is often directed at foreign oil
workers and facilities. Foreign oil workers have been held
hostage for weeks at a time. Just last April, seven people were
killed, including two Americans who worked for ChevronTexaco.
The risk of onshore violence is reportedly leading some
companies to consider even selling off their Nigerian
operations.
Labor strikes are another major threat to security of
supply. In March 2003, strikes led to 800,000 barrels of oil
coming off the market. That is a lot of oil. Earlier this
month, Elf Nigeria suspended 235,000 barrels over fears that a
threatened strike would become violent. That was 10 percent of
Nigeria's oil supply. There are strikes threatened against
Shell, which produces 950,000 barrels a day, and ExxonMobil,
which produces 500,000 barrels a day.
I do not profess to be an expert on the labor issues that
are involved, but from a consumer perspective we can look
forward to more disruptions.
Piracy and theft are another rising concern. CSIS has
documented there are organized thefts of between 100,000 and
200,000 barrels a day of oil in the Niger Delta. That is about
a billion dollars in cash disappearing. It reportedly involves
armed militias and criminal groups. So we have got two worries.
One is we do not have the oil. Second is what are they doing
with the money?
The Nigerian Government is working hard to combat piracy,
but frankly they are having modest success. In terms of the
overall issues, the government has no credible plan to foster
development and reconciliation in the Delta. So we are likely
to continue to see oil disruptions from Nigeria until this
problem is addressed.
There are problems in the rest of the neighborhood as well.
Sao Tome, while not yet an oil producer, saw a coup attempt
against its President in July 2003, and criminal networks have
already appeared there looking for the spoils which are yet to
come. Equatorial Guinea has faced two coup attempts against its
President in the past 8 months. The one in March involved a
well-financed mercenary group possessing somewhere between $10
and $15 million that was arrested while its plane was refueling
in Zimbabwe.
The threat of terrorism also looms over the region. The
2003 al-Qaeda attack on the French oil tanker in Yemen and,
more relevant to this area, Osama bin Ladin's pronouncement
referring to Nigeria as a target in February 2003 both raise
serious concerns about security in the gulf. We do not know how
serious this threat is, but we do know that the forces of the
Gulf of Guinea states do not have the capacity to protect their
oil rigs and facilities. It is a soft target for a terrorist
group that is willing to attack. So hardening these targets I
think is at least a prudent deterrent.
So what should we do? I think the most urgent task for the
United States in the Gulf of Guinea is to fashion a strategic
policy that draws on our diplomacy, our influence in
international financial institutions, our aid, and our military
relationships, all to enhance the stability of these nations.
As I detail in my written testimony, I think the United States
has had no serious engagement with these countries on energy
security issues in at least the last 3 years.
As part of a comprehensive strategy--and we need to wrap
this all into a comprehensive strategy--I think the United
States should lead an urgent effort to help the countries of
the Gulf of Guinea protect their maritime territories and
enhance onshore policing and security. In the long term, the
United States and others can help train local personnel on how
to secure these installations themselves and to do so in a
manner that respects human rights. But in the short term they
are not going to be able to fulfill this task, and I think that
means the United States should enhance its own presence in the
Gulf of Guinea, including maybe an on-the-ground training
center, begin direct security consultations with the region's
governments, and organize an equip-and-train effort to
establish a regional maritime security force.
The U.S. European Command has begun this process with
periodic visits by carrier groups and visits by senior
personnel. EUCOM's Africa Coastal Security Program I think is a
good start. But there is really no indication that EUCOM has
support from the Department of Defense or the Department of
State or that they have been given the resources to lead.
I would urge the U.S. Government to create a decidedly
regionally focused and regionally managed program. President
Obasanjo has talked about a regional security commission to his
neighbors in Equatorial Guinea and Sao Tome. I do not think it
is actually formed. The Government of South Africa is
supportive of a regional program also and they have proposed a
binational commission with Equatorial Guinea.
The United States ought to use its resources to work with
all the region's governments, help them pool their physical
assets, create some common security response doctrines, and
organize them into a cohesive group. An effective regional
program will reduce tensions among the Gulf of Guinea states,
and these tensions are quite ample with different countries, by
focusing them on sharing threat intelligence, promoting common
strategies, conducting confidence-building measures,
professionalizing training of security forces, and ensuring
that their conduct respects human rights norms.
The United States does not need to do this alone. We can
and we should engage other nations in our effort to improve
security in this part of the world. The African Union, the
European Union, ECOWAS, and the United Kingdom can all be
important allies in this effort. As I said earlier, European
investment in the Gulf of Guinea is significantly greater than
American investment.
The United States can contribute leadership and training
through the IMEP program, the International Military and
Education Program, and our focus should be counterterrorism,
counternarcotics, and customs enforcement, all with a human
rights training component.
It is important to take a couple seconds on human rights
here, because the United States historically has been very
cautious about providing security assistance to countries which
have committed human rights violations or that misuse their
national wealth, and there are a lot of those countries in this
region. We have been loath to issue licenses to some of these
countries even to purchase training by U.S. trainers because we
want them to do other things first.
But I think in this case the benefits of professionalizing
their forces and offering them exposure to human rights
training outweigh the risks. I think a lot of these countries
are going to procure the help they need anyway, but they might
do it from sources which are not interested in having a human
rights training component to the training that they get. I
think if the countries are wealthy they ought to be paying for
this themselves. The U.S. does not need to pay for it. But the
U.S. ought to be able to provide them the expertise.
In conclusion let me say that I think the nations of the
Gulf of Guinea have the potential to enhance U.S. energy
security and global energy security by delivering new supply to
the market. I think the United States can promote stability by
addressing both the chronic problems of governance which people
talk about and also the acute threats posed by the fact that
they have very weak security forces. I hope that this
committee's sustained interest in these issues will help us
produce such a policy.
Thank you.
[The prepared statement of Mr. Goldwyn follows:]
Prepared Statement of David L. Goldwyn
Mr. Chairman and Members of the Committee, it is an honor to speak
with you today about the importance the Gulf of Guinea to U.S. energy
security.
We do not have a strategic energy policy in force in the United
States today, but we need one. Today I will address briefly what energy
security means in a globalized market, why the Gulf of Guinea is
critical to U.S. energy security, why the stability of supply in the
Gulf is at risk, and what we should do about it.
I have had the opportunity to study these issues closely, in
concert with Dr. Stephen Morrison, my colleague and fellow witness
today. I co-authored two studies on this subject this year. The first
was ``Promoting Transparency in the African Oil Sector: A Report of the
CSIS Task Force on Rising U.S. Energy Stakes in Africa'' (CSIS: March
2004) with Dr. Stephen Morrison. The second was ``Crafting a U.S.
Energy Policy for Africa:'' in Rising U.S. Stakes in Africa: a Report
of the Africa Policy Advisory Panel (CSIS: May 2004).
These studies show that the nations of the Gulf of Guinea will
enjoy an enormous increase in government earnings from oil revenue
between now and 2010. Nigerian oil earnings will exceed $110 billion.
Angola's could reach $40 billion. Equatorial Guinea could earn $10
billion. These revenues give these countries a chance to achieve
significant economic growth in the years to come, but they also
demonstrate the importance of their energy resources for global oil
market. This wealth can provide a platform for expanding prosperity in
the region or it may encourage more rent seeking and destructive
competition for a share of the new wealth. These studies provide
detailed recommendations for enhancing U.S. energy security in the Gulf
of Guinea. The recommendations focus on the need for much higher level
U.S. diplomacy in the region, using our limited leverage to promote
transparency and better governance by the producing nations, and
building the administrative capacity of the region's governments to
promote internal development as well as the development of their
natural resources. I will draw on these reports for much of what I have
to say today.
ENERGY SECURITY IN A GLOBALIZED MARKET
Let me take a moment first to talk about what I mean by energy
security. U.S. energy security depends on access to diverse, reliable,
abundant and affordable supplies of oil and gas. But energy security
today means more than access to supplies of oil. In a global market,
the United States can buy the supply it needs by outbidding other
consuming nations. The greatest risk to our energy security today is
the volatility of the price of oil.
When prices rise rapidly, as they have this past year, American
consumers and industry cannot adjust quickly. We cannot easily change
our cars, stop commuting, switch to other fuels, or move to warmer
climates. We can reduce our vacations, reduce discretionary spending or
cut back our production of products when fuel costs make them
uncompetitive. It is no wonder that despite our significant increases
in energy efficiency, nearly all of the recessions we have suffered
over the past half century have been preceded by oil shocks.
We have seen unprecedented price volatility in the past six years.
Prices have swung from $10 to $40 between 1998 and 2004. Prices are
volatile because too many producers are unstable. Look back thirty
years and ask what caused the greatest price spikes, spikes that sent
the U.S. economy into recession or hurt our consumers. The answers are
war, civil unrest, or revolution, not embargoes. The major disruptions
were the Iranian revolution, the Iran-Iraq war, the two Persian Gulf
wars, the Petroleos de Venezuela (PDVSA) strike of late 2002, which
removed 3.1 million daily barrels from the global market during over 2
months and, to a lesser degree, the 2003 strikes in Nigeria which
removed 800,000 barrels of oil from the market. The newest threat of
course is terrorism against oil installations. The very fear of a
terrorist attack on Saudi Arabia, no longer a hypothetical
potentiality, adds several dollars to today's oil prices.
Our old system of energy security does not address today's threats.
The old system was a system of deterrence--if we built our reserves
large enough, we could deter an embargo. After September 11, the
concept of security has dramatically changed, and this affects the oil
industry. Threats are no longer localized, intermittent and manageable.
Our paradigm for oil security has to be modified. Today, the U.S.
invests approximately $50 billion per year in the security of the
Middle East and only very modest amounts to directly secure energy
infrastructure in other critical regions. Neither the U.S. nor the
producers we rely on in many parts of the world are deployed to protect
this strategic commodity. We need to rethink our policy.
These problems which give rise to oil supply disruptions are
chronic in the Gulf of Guinea. Unrest in the Nigerian delta, piracy in
its waters, coups in Equatorial Guinea and Sao Tome and Principe,
strikes protesting rationalization of fuel costs are all derived from
decades of corruption, poor governance, under development and neglect.
We must use diplomacy, training, trade and the creative intervention of
the international financial institutions to help these nations build
stability by better governance. We need to empower our military to help
build up local forces that can combat terror and crime while respecting
the rights of their citizens. A strategic energy policy would marshal
these foreign policy tools to enhance our energy security, while also
addressing our demand for hydrocarbons. While we have such tools, we so
far lack the vision to use them effectively. We have not empowered or
directed our senior foreign policy or security officials to make this a
priority. In the Gulf of Guinea, where governments are weak and deeply
in need of reform, we must develop new mechanisms to address their
unique needs and limited capacity.
THE GULF OF GUINEA IS CRITICAL TO U.S. ENERGY SECURITY
The nations of the Gulf of Guinea are and will remain critical to
U.S. energy security. They are a key contributor to the diversity of
global oil supply. In this case I refer to Nigeria, Angola, Chad,
Equatorial Guinea, Gabon, and Sao Tome and Principe. Today, oil exports
from the countries in the Gulf of Guinea provide us with 13-14% of the
oil we import. While OPEC countries cut production, countries from the
Gulf of Guinea provided one out of every four barrels of new oil that
came on the market last year. This Gulf is much closer to U.S.
refineries than the Middle East, and we have good relations with all of
the exporting countries. In the future, if the investment and security
climate remains stable, the U.S. could draw 20% of its imports from
this region. Their share of global oil supply will rise from 4% this
year to nearly 6% by 2007. Increased exports from the Gulf of Guinea
allow the U.S. to reduce our dependence on Middle East crude.
Furthermore, the non-OPEC nations in this area--all of them except
Nigeria--provide a counterweight to OPEC's monopoly power.
The region is a rising gas power as well. If current projects under
development are brought to fruition, Nigeria, Angola and Equatorial
Guinea will increase their liquefaction capacity from 9 million tons
(M/T) per year to nearly 40 MT per year. These nations are growing as
suppliers because they have opened their economies to Western
investment. While most of the world's oil reserves are closed to
international oil companies, the Gulf of Guinea has offered nearly 15%
returns on investment. These terms (and high prices) will attract $30-
$40 billion in investment this decade. The very openness of these
nations to Western investment can make them a potential target for
terrorism.
Nigeria and Angola are the region's most important suppliers.
Nigeria produces 2.12 million b/d and exports 1.85 million b/d. It
provides 8.25% of U.S. imports and it is planning to expand to 4
million barrels per day by 2009. Angola produces 900,000 b/d and
exports 866,000 b/d, providing 4.6% of U.S. imports, and is planning to
reach 2 million barrels per day by 2009. Angola is our ninth largest
supplier and our third largest non-OPEC supplier outside of the Western
Hemisphere and is expanding in oil and gas as well. The other countries
in the Gulf are significant as well. According to EIA estimates, in
2003 Cameroon, Chad, Equatorial Guinea and Gabon exported approximately
500,000 b/d in aggregate, with 221,000 b/d going to the U.S. Chad is
beginning oil production this year. Equatorial Guinea will grow as a
supplier of gas and light sweet crude for U.S. markets. Gabon and
Cameroon are on the decline.
From a geological and investment perspective, the regions'
prospects are quite bright. New technologies, competitive investment
frameworks and the availability of reserves for exploration by
international oil companies have produced outstanding results.
According to a study by PFC Energy, the estimated reserves of the
region doubled in the last decade. Production rose from 2 million
barrels per day to 3.5 m/bpd. Companies will invest between $30 and $40
billion in these nations in this decade. Much of this oil is the kind
of low sulphur crude oil that U.S. refiners need to produce gasoline
that meets our environmental requirements. By 2010, these nations could
add 2-3 million barrels of oil per day to global oil supply, an
increase from its 3.4 million barrels to 7.4 million.
SECURITY OF SUPPLY FROM THE GULF OF GUINEA IS AT RISK
While the region's geological prospects are good, the risk of an
oil supply disruption from the region is rising from internal and
external sources. We are in no position to endure a serious oil supply
disruption from the Gulf of Guinea today. The global oil market is
stretched to capacity. Prices hover at nearly $40 West Texas
Intermediate. Due to deliberate OPEC policy, there is barely 1.4
million barrels per day of excess capacity available to redress a
supply disruption. Nearly all of that spare capacity is in Saudi
Arabia, and it is not enough to substitute for Nigeria's exports, much
less a disruption from Venezuela or Iraq. Commercial inventories are at
historic lows as well.
We are not ready for trouble, but trouble is on the horizon.
Nigeria faces the greatest challenge, from rising violence,
strikes, piracy and potentially terror. The unrest in the Niger Delta
region remains unresolved. Political conflict is often directed at
foreign oil workers and facilities. Foreign workers have been held
hostage for weeks at a time. Sabotage of oil pipelines has killed
hundreds of Nigerians. Two ChevronTexaco oil workers were killed in the
town of Ogheye last April. The risk of onshore violence is reportedly
leading some international companies to consider selling off their
Nigerian operations. Shut-ins due to security risks will persist absent
relief from the unrest in the Delta.
Strikes are another major threat to security of supply. In the
prelude of the national elections of 2003, there was a sharp escalation
of inter-ethnic violence that took 800,000 barrels per day off the
market, adding pressure to already high oil prices. Production was shut
down for months for security reasons. In early July of 2004, Elf
Nigeria faced a shutdown over fears that a threatened oil union strike
could become violent. Elf suspended pumping 235,000 barrels of oil--10%
of Nigeria's production--and 187 million cubic feet of natural gas
daily. More strikes loom on the horizon. Workers unions for Shell
operations started a two-day warning-strike that opposed a
restructuring plan for the company which would cut jobs by 30%. Shell
is the biggest foreign investor in the country with 950,000 barrels
daily. Similarly, ExxonMobil received a 21-day ultimatum to reverse the
company's ``predilection for hiring foreign employees.'' The company
produces 500,000 barrels daily. Additionally, labor unions, demanding a
setback on the recent rise in gasoline price, are threatening to start
a nation-wide strike in the coming days.
Piracy and theft are another rising concern. As documented by CSIS,
the organized theft of 100,000 to 200,000 barrels per day in the Niger
Delta, reportedly involving armed militias and criminal groups that use
some of the proceeds to acquire weapons, is an indication that oil
mismanagement can threaten regional stability. The coastal piracy in
this country is second globally only to the piracy in the Moluccas. The
Nigerian government is working hard to combat piracy but with modest
success. The Government has no credible plan at this time to foster
development and reconciliation in the region, and rebel groups have
taken advantage of this situation. Oil interruptions from Nigeria are
likely to continue or worsen unless these issues are promptly
addressed.
Sao Tome, while not yet a producer can begin getting oil revenues
in 2007. The country saw a coup attempt against its President in July
2003. The coup created severe doubts about the stability of the
country's regime and enhanced the risk associated with investing in Sao
Tome. The situation can threaten the exploitation of this nation's oil
wealth, which is currently estimated at 4 billion barrels, but might
prove up to 10 billion barrels. In a country with a population of
140,000, and virtually no administrative capacity, the early appearance
and growth of criminal networks make the security a top priority.
Equatorial Guinea has faced at least two coup attempts against
President Obiang in the past eight months. Last December a clan member
was caught escaping the country with $400,000 and a brother of the
President mysteriously drove off a bridge. In March a well-financed
mercenary group (with an estimated $10-$50 million at its disposal) was
arrested while their plane was refueling at the airport in Zimbabwe.
The threat of terrorism also looms over this region. The 2003 Al
Qaeda attack on a French oil tanker in Yemen and Osama Bin Laden's
pronouncement referring to Nigeria as a target in February 2003 have
raise serious concerns about security in the Gulf of Guinea. We do not
know how serious this threat is. But the naval forces of the West
African states do not have the capacity to protect oil rigs and
facilities. The area is a soft target for any terrorist group willing
to attack. Hardening these targets is a prudent deterrent.
POLICY OPTIONS TO ENHANCE U.S. ENERGY SECURITY
Most of the region's problems are chronic. My colleague Dr.
Morrison will address how these chronic problems of poor governance
threaten political stability of the states of this region and how a
clear U.S. policy can use pressures and incentives to address these
root causes and help nascent reform movements in Nigeria and Angola to
succeed. There will be no sustainable solutions to instability in the
Gulf of Guinea without fiscal transparency and better governance.
Yet some of the Gulf's problems are acute. The rise of criminal
syndicates in Nigeria, the threat of terrorism in Nigeria, the
vulnerability of offshore oil facilities in Angola, Nigeria, Equatorial
Guinea are urgent concerns. The U.S. and host country personnel who
operate these facilities are at risk as well as the oil and gas supply
they deliver.
The most urgent task for the United States is to fashion a
strategic policy that draws on our diplomacy, our influence in
international financial institutions, our aid and our military
relationships to enhance the stability of these nations. We have had no
serious engagement with the region on energy security issues. We have
had one U.S.-Africa Energy Ministerial in four years. The U.S. Energy
Secretary has not yet visited the Gulf of Guinea. We have no regular
bilateral talks with these countries. We have no real funding or
program behind our promises to support capacity building. We no longer
have an energy attache in Nigeria. We have no funding for debt relief
for Nigeria.
The CSIS Task Force and the Africa Policy Advisory Panel both
recommended appointing a Special Adviser to the President and Secretary
of State for African Energy Diplomacy to forge and lead this policy.
Dr. Morrison will address this and other recommendations in more
detail.
With billions of U.S. investment, thousands of U.S. workers on the
ground, and strategic supplies of energy at stake, the U.S. should also
lead an urgent effort to help the countries of the Gulf of Guinea
protect their maritime territories and enhance on-shore policing and
security. In the long term the U.S. can help train local personnel how
to secure oil installations themselves in a manner that respects human
rights. In the short term the U.S. should enhance its own presence in
the Gulf of Guinea and begin direct consultations with the regions'
governments and an equip and train effort to establish a regional
maritime security force.
The U.S. European Command has begun this process with periodic
visits by a carrier group and senior personnel through the Gulf of
Guinea and its proposal for Coastal Security program. It is unclear if
they have been given the resources to carry this out, or been given
support by the Departments of State of Defense. They are clearly the
source of leadership on this issue. I would urge the U.S. government to
create a decidedly regionally focused and regionally managed program.
President Obasanjo has proposed a regional security commission to
neighbors in Equatorial Guinea and Sao Tome and Principe. The
government of South Africa is supportive of a regional approach as
well. The U.S. should use its resources to work with these local
governments, help them pool physical assets, and conduct a regional
equip and train effort. An effective regional program will reduce
tensions among the Gulf States--which are ample--by focusing on sharing
threat intelligence, promoting common strategies, conducting confidence
building measures, professionalizing the training of security forces
and ensuring that their conduct respects human rights norms. The U.S.
does not need to do this alone; we can and should engage other nations
in our efforts to improve security in this part of the world. The
African Union, the European Union, ECOWAS and the UK can all be
important allies in this effort.
The U.S. can contribute leadership and training through the
International Military Education and Training (IMET) program. The focus
of U.S. training should be counterterrorism, counter-narcotics and
customs enforcement efforts. The U.S. has rightly been cautious about
providing security assistance to countries which have committed human
rights violations and countries that misuse their national wealth. We
have been loathe to issues licenses for U.S. trainers. In this case I
would argue that benefits of professionalizing these nascent forces,
and offering exposure to human rights training, outweigh the risks.
These countries may procure the help they need from sources unconcerned
with human rights training. The U.S. should ease its licensing policy
to permit the nations of the Gulf of Guinea to purchase U.S. training
where needed. Wealthy nations should procure their assistance on a
reimbursable basis.
CONCLUSION
The nations of the Gulf of Guinea hold the potential to enhance
U.S. and global energy security by delivering significant new supplies
of oil and gas to world markets. These supplies can help moderate oil
prices and help insure the U.S. against political instability in the
Middle East. But the nations of the Gulf of Guinea can just as easily
make oil prices more volatile if internal instability leads to further
oil supply interruptions. U.S. policy can promote stability by
addressing both the chronic problems of poor governance and misuse of
oil wealth and the acute threat posed by weak security forces. To
succeed, such a policy must be strategic, well resourced, and backed by
high level diplomacy. I hope this Committee's sustained interest in
these issues will help produce such a policy.
Senator Hagel. Mr. Goldwyn, thank you.
Dr. Morrison.
STATEMENT OF J. STEPHEN MORRISON, PH.D., DIRECTOR OF AFRICA
PROGRAMS, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES
Dr. Morrison. Thank you, Senator Hagel, and thank you for
the chance to be here today.
I want to commend you for your leadership on this issue. I
know you are taking a special interest in the question of
maritime security in this zone, and I think I will start out
with some quick comments in support of the concluding remarks
that David provided around the notion of a Gulf of Guinea
maritime strategy.
Let me reinforce that there is a glaring vulnerability in
the Gulf of Guinea, and it is a function of both unrivaled
piracy levels in Africa--in fact, the piracy that you see in
the Gulf of Guinea is second only to the Malacca Strait in
Southeast Asia. And this is inviting extensive illicit
trafficking in weapons and drugs, illegal immigration, and it
potentially invites terror attacks against an energy
infrastructure that is rapidly developing in this region, but
which is not constructed with any serious sabotage threat in
mind.
It is very much in the U.S. interests to take a higher
level of engagement in this regard. I want to reinforce the
remarks that David made about the threat that comes out of the
theft or bunkering of oil in the Niger Delta, which is
dependent on transit through the waters of the Gulf of Guinea.
We are talking about 10 percent or more of production, onshore
production in Nigeria, with a value of well over $1 billion per
year. This is a huge loss. It is a huge boon to criminal
activities and it could continue to rise, and it permeates the
entire region in terms of the criminal networks that grow up
around it. This oil shows up supplying refineries and traders
all over the region and shows up in Europe as well.
If we were to take a higher level of engagement in trying
to build maritime security in the Gulf of Guinea, we could
begin to curb piracy and shrink the bunkering or theft of oil.
We could improve the oil production environment, encourage much
greater regional integration, and deter terror and sabotage
while protecting American citizens and American property.
The cost is not prohibitive. A sensible, aggressive, robust
American program could run at $10 to $20 million per year, with
major gains for security in the area and for U.S. commercial
national interests.
The gulf states themselves have signaled their strong
interest in joining us in this regard and that is an important
factor. Particularly Nigeria, Sao Tome and Principe, and
Equatorial Guinea have been very overt in signaling their
interest in partnering with the United States, and I think the
other major states, such as Angola and Gabon, Cameroon, can
also be brought into a discussion around these issues fairly
easily.
If we are going to get serious about building a regional
maritime security initiative in the Gulf of Guinea among these
six states, I think it is very important that we make sure
Angola is in that package.
What do we need to keep in mind? The first thing is we need
to act very quickly and we have to act with a very real sense
of realism about what is possible in what timeframe. We have to
proceed on a long-term strategy of at least 5 years. Speed is
essential because the environment today is receptive. If we
wait much longer the surge of oil wealth is going to create new
sets of incentives and distractions, and that surge of oil
wealth is going to be fully upon us in the next 2 to 3 years.
Speed is also essential that we demonstrate concrete
benefits to the states themselves and to Congress and to the
administration and to others and that we minimize the
distractions that will come as China, India, and others become
a larger presence in this region. We have competitors in this
region who are arguing a different strategy of protecting
interests.
We have to be very realistic that we are starting with U.S.
capacities on the security side, on maritime security, as
minimal, at a minimal level. It is going to take some time to
create the relationships and operational capacities. This is an
environment with an exceptionally weak infrastructure and
technical expertise. This is different from operating in the
Caspian, and I think we need to bear that in mind. We have to
make an investment for at least a full 5 years.
The second thing we need is a coherent regional partner.
There have been early discussions among the six states around
forming some type of body. I know the European Command under
General Wald's leadership has taken some efforts to begin some
early conversations. I think those conversations and that
diplomacy should be intensified. We need a partner. The spirit
is there today. The environment is receptive to doing that.
The third thing we need is more of an internal U.S.
Government consideration, which today there is not an inter-
agency operational plan for moving ahead in this regard. There
are concepts, there are ideas that are very worthy, that need
to be put into finer detail and vetted quickly through our
system, costed out, and approved. This strategy is not simply a
military strategy. This is a strategy that has to have a very
heavy diplomatic component and it has to be backed by a
strategy of putting pressure upon oil-wealthy governments, to
offer them both incentives and disincentives to buildup the
accountability and transparency within their systems.
Let me shift to what a governance strategy would look like.
I will not go through all the policies, specific policies that
are proposed in the task force report which we issued at the
end of March, but I want to emphasize two points. One is we
need a governance strategy that is sensitive to democratic
process and respect of human rights and creating transparency
and reform in the energy-rich countries in the Gulf of Guinea.
This has to be enshrined as a top priority of U.S. foreign
policy. It is not today enshrined as a top priority.
Second, in order to make it clear that this really is a top
priority we need to appoint a special adviser to the President
and Secretary of State dedicated to the concerns of energy in
this zone of the Gulf of Guinea. I think there are very strong
arguments for needing someone of this ilk with a strong mandate
and with a direct authority vested from the President and the
Security Council to be able to lead this effort within the
region. This will guarantee that the diplomacy is carried
forward in an adequate way. It will guarantee that we have
coordinated the political, economic, military, and government
policy of the U.S. Government.
I will not dwell on the other pieces, the specific policy
initiatives that are laid out in our report. Let me close with
a couple of specific comments on Nigeria. I argue in my
testimony that any regional strategy for the gulf needs to give
a very, very special priority to Nigeria because of Nigeria's
scale, its complexity, and the dangerous mix that one sees
there today. It is very close to the edge of disorder. It is
emerging from years of misrule. It is engaging in bold
experiments of reform in the management of Nigeria's oil
wealth. It presents very stark risks and very alluring
opportunities.
Yet our capacity today to shape events in Nigeria is
exceptionally weak and I think needs to be corrected. I make
the point that the high-level regular U.S.-Nigeria consultative
mechanisms that were created in the late 1990s have been
allowed to lapse. There have been some recent exceptions to
that in consultations between Secretary Snow and his
counterpart, Minister Ngozi. There have been high-level law
enforcement negotiations or consultations.
But we need to really create something that is a routine
high-level mechanism that covers multiple sectors and has
predictability to it. We have no diplomatic presence in the
north of Nigeria. Northern Nigeria arguably is among the most
dangerous places in Africa at the moment. It is where the
strongest terrorism threat resides and it is a place where we
are fundamentally blind to what is happening.
Our embassy in Nigeria has been chronically understaffed
and in disarray, although under Ambassador John Campbell, who
arrived in May, is beginning to improve. We have chronic
problems in attracting and holding talent in that embassy. The
working environment there is very difficult. We need to take
special measures. We need to incorporate Nigeria within the
pan-Sahel Initiative, which is a counterterrorism initiative
begun by General Wald and the European Command.
To pursue these interests then in Nigeria, what do we need
to focus on? We need to focus on rebuilding the staff strength
and morale. We need to devise a much more serious
counterterrorism approach that has a strong public outreach and
public diplomacy focus on northern Nigeria. We need to upgrade
our intelligence. We need to bring forward creative new forms
of debt relief and other forms of assistance that can reward
the experiments that are under way in the early economic reform
campaign begun by Minister Ngozi.
Thank you very much.
[The prepared statement of Dr. Morrison follows:]
Prepared Statement of Dr. J. Stephen Morrison
INTRODUCTION
Senator Hagel, Chairman of the Subcommittee, Senator Sarbanes,
Ranking Member of the Subcommittee, other Members: I am grateful and
honored to have the opportunity to speak here today on a subject that
in recent years has swiftly risen to the top of U.S. foreign policy
challenges in Africa, namely, how to conceptualize and execute a
dynamic, U.S. energy strategy for the Gulf of Guinea.
The preceding speaker, David Goldwyn, is a close friend and
professional colleague with whom I have collaborated in two projects in
the past year that are directly relevant to the subject before us
today.
Beginning in mid-2003, we co-chaired the CSIS Task Force on Rising
U.S. Energy Stakes in Africa, which concluded in its March final report
that a major, heightened U.S. diplomatic effort was warranted to
promote greater transparency in the use of Africa's burgeoning oil
wealth, especially governance in Nigeria and Angola, but also in three
small states experiencing substantial growth of oil production, Chad,
Equatorial Guinea and Sao Tome and Principe. As these states add 2-3
million barrels per day to world markets in the next five years, their
oil earnings will skyrocket. Nigeria is estimated to earn over $110
billion between now and 2010, Angola over $43 billion. These are
staggering figures by any measure. When set against the legacy of
corruption and mismanagement of these and other African producing
states, these figures are potentially destabilizing.
David also authored an excellent chapter, ``Crafting a U.S. Energy
Policy for Africa,'' as part of the Africa Policy Advisory Panel, an
exercise authorized and funded by Congress, overseen by Secretary
Powell, and for which I served as the executive secretary. Former
Assistant Secretary Walter Kansteiner chaired the Panel.
Just one week ago today, we released the full Panel report here on
Capitol Hill. Secretary Powell spoke at length on U.S. Africa policy.
Two panel members, Senator Feingold and Representative Royce, also
spoke at length of the need to think in new and innovative ways about
better advancing rising U.S. national interests in Africa. Congressman
Wolf, the impetus in Congress for the creation of the Panel, also spoke
eloquently in the same vein. All shared an enthusiasm for the focus
placed in the Panel's report on building transparency, accountability
and stability in Africa's expansive oil sector.
In his testimony here today, David has laid out in considerable
detail how the Gulf of Guinea figures in global security terms, why
this small pool of important African producing states in the Gulf of
Guinea are of rising vital significance to U.S. energy security, why
their supply to U.S. markets remains at risk of disruption, for both
internal governance reasons and, externally, from regional instability
and emergent terrorist threats, and what the policy options are to
enhance U.S. energy security. I wholeheartedly support David's
analysis, and will not retrace the ground be has covered. I will
instead concentrate upon providing complementary details to back two
core assertions.
The first, core assertion, consistent with what we have heard thus
far, is that there is indeed an urgent need for a coherert U.S.
strategic energy policy to fill the gap that exists today. Only then
will rising U.S. interests in the Gulf of Guinea be addressed
effectively.
Such a strategy needs several key elements. It must be long-term,
it must be built upon sustained partnerships with African counterparts,
and must feature a two-pronged, regionally coordinated approach. It
needs simultaneously to address both serious deficiencies in the
internal governance of key African oil-producing states at the same
time that it systematically addresses the shared, external security
threats these states face.
Improved internal governance fundamentally calls for enhanced
diplomatic engagement to promote transparency and accountability in the
use of a producing country's wealth, including respect for human rights
and democratic process, and ensuring that oil revenues are tied to
sustained and equitable economic growth. Regional security
fundamentally calls for heightened engagement by U.S. intelligence and
military institutions, under the guidance of overall U.S. foreign
policy, to strengthen maritime security and meet other threats,
especially in northern Nigeria. Reconciling these two imperatives is
not always easy, and requires high-level oversight and a durable
compact with Congress. As a matter of U.S. policy, we are not yet at
that point, though if there were sufficient will in the administration
and Congress, significant early progress could be realized, I believe,
in relatively short order.
Second, a special bilateral priority needs to be assigned, in any
U.S. strategy, to Nigeria's central importance to the Gulf of Guinea.
What transpires there in the near and medium term, with respect to both
governance and security, will be decisive to the future of the Gulf.
For that reason alone, I would like to spend a few minutes at the
conclusion of my presentation to discuss recent developments in Nigeria
and specific measures that need to be taken to make the U.S. approach
to Nigeria more comprehensive, dynamic, and effective.
ELEMENTS OF A GOVERNANCE STRATEGY FOR THE GULF OF GUINEA
What I summarize briefly in this section are the major elements
laid out in the CSIS report, ``Promoting Transparency in the African
Oil Sector: A Report of the CSIS Task Force on Rising U.S. Energy
Stakes in Africa,'' issued in March 2004.
First, the United States should pursue sustained, high-level
engagement, bilaterally and multilaterally, to promote transparency and
reform in the Gulf of Guineas oil producing nations. It should
explicitly enshrine this goal as a top priority of U.S. Africa policy.
This will entail devising clear and transparent benchmarks for
regional behavior, complementary to the standards of the Millennium
Challenge Account. The touchstone should be a public commitment to
transparency in public finance, with benefits contingent on verifiable,
sustained, and public disclosure of government revenues and
expenditures and adoption of open public finance practices. Examples of
transparency practices could include disclosure of aggregate revenues
(royalties, taxes, and other fees) from extractive industries,
disclosure of oil-backed loans, publication of IMF Article IV reports
(which report annually a country's macroeconomic management and
compliance with IMF programs), open procurement practices, transparent
processes for bidding oil concessions, public disclosure of signature
and other bonuses, auditing of national accounts and national oil
companies, expenditure transparency in public budgeting, legislative
access, and review of public finances.
Second, to pursue this goal, a Special Adviser to the President and
Secretary of State for African Energy Diplomacy (S/AED), with
ambassadorial rank, should be designated to lead Interagency policy.
A special adviser with ambassadorial rank would be housed at the
State Department, but endowed with authority by the president and the
National Security Council to lead interagency policy. The appointment,
an unprecedented act of commitment in this area, would powerfully
signal U.S. leadership on this issue.
The special adviser would be mandated to develop relationships with
senior African leaders, coordinate political, economic, military, and
governance policy for the U.S. government, interact with the G-8
process and other multilateral fora, liaise with like-minded nations,
and brief the Congress on U.S. policy. The Special Adviser should chair
a U.S.-Africa Energy Policy Business Advisory Council to work with U.S.
agencies and industry on a coordinated and consistent basis to address
transparency, governance, human rights, and democracy issues.
Third, the United States should introduce a set of reinforcing
bilateral policies with special application to the Gulf of Guinea.
The United States should declare publicly its benchmarks for
regional behavior, in close parallel with those benchmarks set out for
the Millennium Challenge Account. Any leader who makes such a
commitment would meet with the secretary of state and be eligible for
regional support programs. The level of support for a nation would be
calibrated to concrete irreversible actions and the level of
development. The United States should continue to utilize Africa Growth
and Opportunity Act (AGOA) eligibility as a means of leverage for good
governance.
Regional programs that committed nations would be eligible for
include:
African Energy Producer Summit. A summit would provide a platform
for governance issues, and could be appended to the G-8 meeting or the
annual AGOA summit. Meetings with the president of the United States in
conjunction with these biannual summits should be restricted to those
countries practicing transparency and good governance, and would serve
to single out countries that manage their oil wealth well.
Peacekeeping and IMET Training. The United States should
dramatically increase peacekeeping training and International Military
Education and Training (IMET) support for nations that commit to
respect human rights norms and adhere to transparency criteria.
zMaritime Security Program. The United States should help to
establish and train an African regionally-coordinated maritime force to
protect offshore oilrigs, contingent on mandatory human rights
training. This force would police borders, strengthen customs
enforcement, counter-narcotics efforts, and counter-terrorism. Maritime
security programs would also protect offshore infrastructure from
piracy or attack.
Support for Civil Society. Indigenous nongovernmental organizations
in energy-rich countries should be encouraged, trained, and empowered
to monitor and report on their governments' progress in implementing
reform and fulfilling their public commitments to transparency in
revenues and expenditures, especially within the oil sector.
Fourth, the U.S. should Integrate the World Bank and IMF into its
Gulf strategy and devise new innovative collaborations.
The World Bank and IMF will play a lead role in fostering
transparency in many countries by upholding standards for staff
monitored programs or conditions of revenue and expenditure disclosure
contained in Poverty Reduction Strategy Papers. The United States
should support a common and consistent agenda of promoting oil revenue
and expenditure transparency, especially where the World Bank provides
financing for the oil sector. The United States and G-8 allies should
also focus diplomatic support on the implementation of World Bank
standards for the Chad-Cameroon pipeline.\1\ There is great hope that
Chad-Cameroon can be a model for public-private partnerships that can
foster investment and transparency. Public confidence in such efforts
will hinge on how the Chad-Cameroon project proceeds, and how the
international community deals with inevitable problems that arise.
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\1\ Chad is now emerging as the critical test case of whether
African oil-producing nations can use their oil windfalls for
development purposes and not sink into the typical pattern of
corruption and autocracy. The Chad-Cameroon pipeline project is the
largest development project in Africa today. It has spawned a unique
multi-stakeholder experiment in transparency that involves civil
society, governments, the World Bank and oil firms.
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The United States should press for new multilateral programs for
which committed nations would be eligible:
Debt for Transparency. The burden of debt puts pressure on public
budgets, stunting development and giving politicians little space for
satisfying public demands.
While the Paris Club debt rescheduling process and the IMF staff
monitoring programs that precede Paris Club reschedulings are
critically important, more generous U.S. appropriations and greater
flexibility for debt rescheduling, reinforced by heightened U.S.
leadership in multilateral reschedulings, can provide a powerful tool
for promoting reform in countries such as Nigeria and Angola. Non-HIPC
eligible countries, such as Nigeria, should be eligible for debt relief
if they make appropriate commitments and demonstrable progress.
Electric Power for Good Governance. The United States should lead a
G-8 effort to fund a fresh, conditional commitment to financing
national electrification, with appropriate focus on restructuring and
regulatory capacity-building, including revenue management to help
recoup investments and operating costs, as well as rural
electrification and distributed generation, based on new contributions
by World Bank shareholders, in exchange for transparency and
development commitments by the recipient nation.
Capacity-Building Trust Fund. Most African nations lack the human
capital to prepare, audit, and monitor public finance, and to manage
their petroleum reserves. The United States and other nations must
support a long-term capacity-building program to train national
officials in these essential skills, and link U.S. and African academic
institutions to provide education on an ongoing basis. The program must
be based in Africa and tailored to African needs.
Conditional Trade Finance. Energy development is capital intensive,
and trade financing through the Export-Import Bank, the Trade and
Development Agency, and international equivalents plays a critical
role. To obtain financing, countries would need to demonstrate a
commitment to using the proceeds of the resources for national
development and to agree to transparent monitoring and auditing of
project revenues to obtain finance.
Capital Market Access. G-8 nations can ensure that all national or
correspondent banks that have relationships with G-8 banks disclose the
beneficial owners of those accounts to prevent government officials
from using western banks to hide misappropriated funds.
A GULF OF GUINEA MARITIME SECURITY STRATEGY
A glaring vulnerability in the Gulf of Guinea is the lack of
effective control over its maritime and coastal environment. This has
encouraged levels of piracy unrivalled in Africa (and in global terms,
second only to the Malacca Straits in Southeast Asia.) It invites
illicit trafficking in weapons and drugs, illegal immigration, and
terror attacks against an energy infrastructure that was constructed
with no serious sabotage threat in mind.
It is very much in U.S. interests to become more directly engaged
in strengthening the Gulfs maritime security, given the projected
growth of U.S. oil operations there. Short-term benefits can be quickly
realized, in curbing piracy and the bunkering of oil, improving the oil
production environment, encouraging greater regional integration,
deterring terror and sabotage, and protecting American citizens and
property. The cost of such programs is not prohibitive, particularly if
the effort is effectively multilateralized and costs shared with host
governments, European allies, and oil corporations. Major gains can be
achieved with an annual U.S. government investment of $10-$20 million.
A number of Gulf coastal countries have signaled their strong interest
in building their maritime security capacities in collaboration with
the United States, most notably Sao Tome and Principe, Nigeria, and
Equatorial Guinea.
What are the other requisites for success?
First is the imperative to act with speed, realism, and a long-term
commitment. Speed is essential to take advantage of the current
receptive environment and to avoid attempting to engage host
governments after the steep upsurge of oil earnings in a few years
time. Speed is also essential to demonstrate rapid benefits and to
minimize the distractions that may grow as China, India, and other
energy-hungry powers enlarge their presence in the region. Realism will
require the United States to recognize that it will be starting its
programs from scratch, in an environment that has very weak
infrastructure and technical expertise. Success will only come if the
U.S. strategy calls for an investment of five years, at a minimum.
Second is the imperative to work hard to encourage the formation of
a coherent African regional body, comprising Sao Tome and Principe,
Nigeria, Cameroon, Gabon, Congo-Brazzaville and Angola, with which the
United States and others can partner. Early discussions are now under
way around the formation of a Gulf of Guinea Commission. These should
be intensified.
Third is the imperative, internal within the U.S. government, that
an interagency consensus and operational plan be devised for funding
and implementing a Gulf maritime initiative. It will be essential to
call upon high-level diplomatic support across a range of states, to
bring in both military and civilian agencies, and to monitor progress
closely and have a process in place that can make adjustments swiftly
and effectively.
PUTTING A SPECIAL FOCUS ON NIGERIA
Despite major U.S. oil investments in Nigeria and enduring U.S.
interests in counterterrorism, democracy, transparency in the use of
oil wealth, and regional stability, the United States at present is
ill-equipped to shape events in Nigeria. Quick action is needed to
correct that reality.
Nigeria is a challenging mix. It remains dangerously on the edge of
disorder, emerging from years of misrule. At the same time, Nigeria's
leadership is advancing experimental, bold reforms in the management of
Nigeria's oil wealth, and seeking to reconcile high expectations with
weak, decayed institutions and grave reputational problems globally.
Given Nigeria's sway in the region, and the stark risks and alluring
opportunities it presents, Nigeria should be the top country focus of
any U.S. strategy that aims to advance U.S. national interests in the
Gulf of Guinea.
Yet to achieve that will require overcoming constraints in our own
approach to Nigeria.
The high-level U.S.-Nigeria consultative mechanism created late in
the Clinton Administration has lapsed. U.S.-Nigeria military-military
relations have been frozen by Congress since the Benue massacre of
2002. The U.S. has no diplomatic presence in the north; the U.S.
embassy in Nigeria has been under-staffed and in disarray for several
years, though it has begun to improve somewhat with the arrival of
Ambassador John Campbell in May. Special focused measures will be
needed to attract talent to bring the embassy up to grade. The U.S. Pan
Sahel Initiative (focused on Mali, Mauritania, Niger, Chad; now also to
encompass Morocco and Tunisia) does not include northern Nigeria, even
though that is arguably the zone of greatest potential terrorist threat
in West Africa.
To pursue U.S. interests in Nigeria, U.S. policymakers will need to
get far more serious about (i) rebuilding the staff strength and morale
of the U.S. embassy; (ii) devising a serious counter-terrorism approach
with a strong public diplomacy component to northern Nigeria; (iii)
improving our grasp of Nigerian President Obasanjo's calculations, as
well as those of the military, and political forces in northern
Nigeria; and (iv) bringing forward debt relief and other forms of
assistance to reward concrete action by Nigeria's impressive early
economic reform campaign.
We propose that the State Department should re-establish a high-
level bilateral consultative mechanism to work in conjunction with the
previously-mentioned special adviser for African energy diplomacy to
encourage and assist the Nigerian government in its reform efforts. The
United States should send the Secretary of the Treasury to Nigeria to
develop a bilateral debt relief program with Nigeria's new finance
minister to bolster her leadership. Finally, the United States should
develop and offer G-8 adoption of an oil tagging system, analogous to
the Kimberley Process for identifying conflict diamonds, to curb the
growing problem of oil theft and reduce corruption of government
officials involved in oil sales, shipping, and customs.
U.S. policy has up to now been predominantly oriented around the
consolidation of democratic governance, HIV/AIDS, and collaboration
with Nigeria and other West African states in regional peacekeeping,
most recently in Liberia. I am not arguing that these priorities should
be downgraded. Rather, I am arguing that the U.S. should elevate the
seriousness and level of effort it commits to Nigeria overall, and put
a special new focus on strengthening diplomatic, intelligence, and
counter-terrorism capacities and supporting economic reforms through
creative multilateral debt relief measures.
Dramatic recent promise
In the past year, President Obasanjo's economic reform team, led by
Finance Minister Ngozi Okonjo-Iweala, has advanced an ambitious
homegrown transparency initiative in the management of Nigeria's oil
wealth, involving a February workshop with civil society and business,
the publication for the first time of allocations from the central
government to the states, and close cooperation with the World Bank and
IMF in auditing the oil sector and organizing internal agency-by-agency
data on income and expenditures. For the first time, the government has
issued a realistic federal budget, fiscally linked to a projected oil
price of $25 per barrel, and adhered to the discipline of applying
surpluses to a special account. International reserves have risen to
$10 billion, and inflation has dropped. A key outstanding question is
whether the Nigerian National Petroleum Corporation (NNPC) will divulge
its data and whether ingrained resistance to transparency within major
agencies can be overcome. For U.S. policy makers, a key question is
whether and how to provide significant debt relief, to reward progress
in a timely way, when the sustainability of these reforms remains
uncertain and when Nigeria does not yet have a formal agreement with
the IMF.
Continued instability
On May 18, Nigerian President Obasanjo declared a state of
emergency in the central state of Plateau, suspended its elected
officials, and put a retired general in charge as sole administrator.
This followed months of Muslim-Christian violence there, and also in
the northern Muslim state of Kano. Human rights activists have renewed
calls for a sovereign rational conference to create a new national
consensus and constitutional basis for governing Nigeria, a proposal
that has been raised repeatedly over the last decade.
What is happening in Plateau State is not a new development, but
rather a continuation of past patterns. Indeed, since Nigeria returned
to democratic rule in 1999, upwards of 10,000 have died in sectarian
violence. While these conflicts have taken on religious overtones, the
original cause in many instances is not religious, but economic aid
political, aggravated by social dislocation, poverty and
marginalization, and high unemployment, particularly among the region's
large youth population. For example, in Plateau State, there have been
longstanding clashes over land and resources between established
Christian residents and Muslim migrants. Recent violence was instigated
by Christian youths against Muslims and touched off religious reprisals
in neighboring Kano.
The state of emergency and return of military rule in Plateau
raises the specter of renewed violent abuses of civilians at the hands
of the military and the possibility that Nigeria's democratic
governance has entered a phase of heightened strain and uncertainty. In
April, there were reports of coup plots within the military, which may
suggest mounting dissatisfaction within Nigeria's military over
Obasanjo's handling of internal unrest, along with corruption.
The terror threat
There are strong suspicions that northern Nigeria may become an
attractive base for Nigerian and outside radical Islamists, potentially
serving as a base for anti-American terrorist activities. The U.S.
government unfortunately remains woefully ignorant of what is actually
happening in northern Nigeria, and debate persists among experts as to
how much of a threat exists there and whether Islamist radicalism will
translate into anti-American violence. Armed Islamist militias have
been on the rise in the north, just as armed non-religious militias
have been on the rise in the central and southern states. Instability
in the central Plateau state could strengthen the hand of radical
Islamist interests in the north, and might invite renewed violence in
the chronically unstable Niger Delta in the south.
Nigeria's regional peace-keeping role
Despite internal uncertainties, Nigeria has also proven to be an
important partner in restoring stability to the West African region and
has won praise from Pentagon officials as ``a force for stability that
has earned a reputation as one of the most capable armed forces in
Africa.'' The country is also beginning now to more systematically
tackle HIV/AIDS within its armed forces.
The Nigerian military's performance in Liberia in 2003, as the lead
element of the intervention force there, was much improved over earlier
interventions in Sierra Leone and Liberia, attributed in no small part
to U.S. military training. The United States is constrained from
providing support to militaries with questionable human rights records,
but Nigeria is a case in point that U.S. training and support can
improve discipline and respect for human rights.
Any analysis of U.S. stakes in the Gulf of Guinea must address the
realities and vulnerabilities of Nigeria, the region's--and indeed the
continent's--largest state. And in turn, an effective strategy toward
Nigeria cannot focus solely on the security of the oil fields in the
south. Rather, the United States will need to craft a security strategy
for the entire country that deals with multiple threats--in the north,
specifically with opportunistic extremist Islamic politics, and across
the country where the movement of men, money, arms, and drugs through
illicit networks facilitate terrorism and instability.
Senator Hagel. Dr. Morrison, thank you. Again, to each of
you, we appreciate you being here this afternoon.
Let me ask you each. You sat through both the Deputy
Assistant Secretaries' presentations and listened to the
exchange that we had in the questions and answers. They each
addressed U.S. policy, specific areas of trade, and we talked
about the Millennium Challenge Account. Their assessment was I
thought more on the positive side of developments in this
region that we are talking about this afternoon.
Each of your assessments are not near as rosy as what I
heard from the administration. Now, we are somewhat realistic
up here about those kinds of things and normally
administrations do not come up and say the world is going to
hell and we have got real problems. But nonetheless, there
seems to be, unless I just did not listen carefully enough,
some disconnect between what the two of you have said and what
I heard these two Deputy Assistant Secretaries say.
Let us start with the programs that I have just mentioned,
AGOA, Millennium Challenge Account, areas that you all focused
on. Both Mr. Brodman and Mr. Simons did not dispute the general
objectives in these areas, but I think presented a little
different way and hue as to the color of what was going on.
I would like to go a little deeper down in these areas,
taking those two specific programs and policy. Do we have a
policy in your opinion, a foreign policy, an energy policy,
that is specifically targeted to this area? And if that policy
is there or if you think it is there, what is it? And you could
take that anywhere you would like. We can start with you, Mr.
Goldwyn.
Mr. Goldwyn. Thank you, Mr. Chairman.
We do not have a policy targeted at the region. We have
policies--the Millennium Challenge Account is geared toward
setting benchmarks for certain countries which are eligible for
that program and if they become, if they do well enough, then
they get some aid. It is a very good program. It is not
targeted to the Gulf of Guinea. Lots of the countries in the
Gulf of Guinea will not be eligible for it.
AGOA is very important for countries that have non-oil
sectors, particularly manufacturing, to be able to trade and
have access to our market. But most of the countries in the
Gulf of Guinea need to learn to be able to use AGOA, but they
are not there now. They are selling oil, the market is open,
and they have got it.
A strategy to me is something that identifies the problem,
deploys a set of measures to fix it, and then takes you to a
different place than you are right now. None of what we have in
place right now adds up to a strategy. I agree with John, who
used to work for me, and with Paul Simons: Relations between
the State Department and the Energy Department are great and
there are lots of meetings. But it does not amount to a
strategy.
Nigeria is having these chronic problems because it has had
years of corruption, deep poverty, unresolved conflict,
underdevelopment, and governments which are pretty much
incapable or in the past unwilling to change that. So how do
you change that? Well, you have got reformers in Nigeria. You
have to make them succeed. You have to make sure they live up
to certain kinds of behavior, and they have to be able to
deliver, if they are going to actually take the people who used
to be on the take, risk going to jail, and say we are not going
to steal any more.
What is in it for them? For Nigeria, that is debt relief.
Obasanja is going to deliver and he is going to tell his
people, you are off the till, you are not on the take any more,
we are going to clean this thing up. Ngozi has got the way to
go. He has got to deliver something. A little bit of aid does
not make any difference in Nigeria. So if we were talking
seriously we would be talking about debt relief and we would
tell them what bar to clear.
A country like Angola, what is their problem? They have
ended their civil war. They have all this, the resettlement,
repatriation, the years of corruption, that government. What
does it take to get the President of Angola or the Angola
Government to stop doing what they used to do with the oil
money, come clean, risk going to jail, and suddenly change?
Well, I think it is donor relief. There the strategy is we need
to leverage the huge amount of money that will come from the
international financial system and say: If you want that money,
this is what we want you to do in terms of transparency.
I would say overall, if we had a strategy, it ought to say
we need to have incentives and we ought to have pressures that
will make these governments come clean about what money is
coming in, but also where they are spending the money, and
there will be rewards for doing that. But the issue is not on
the top of the agenda for the United States with either of
those countries.
It is not that Secretary Powell does not care, because he
does. But when we think about Nigeria we think about Liberia,
we think about HIV-AIDS, we think about counterterrorism. When
we think about Angola, we think about ending the war and they
are on the Security Council and we are thinking about other
issues. We do not think about Equatorial Guinea for the most
part. We do not think about Cameroon. We do not think about
Congo Brazzaville. Just there are too many problems in the
world; they do not make it on the list.
So I would say add all that together and, no, we do not
have a strategy and the bilateral policies that we have with
these countries do not amount to anything that will change
their behavior, make them more transparent, and therefore make
them more stable and reduce our risk of having an oil supply
disruption.
Senator Hagel. Dr. Morrison.
Dr. Morrison. I agree with what David has said. I would add
a few other angles to this argument. Let us be clear. Places
like Nigeria and Angola are very, very tough places, and people
who have worked those issues for a very long time have
understandably grown to be very cautious, skeptical, wary,
hesitant to think that this can be turned around in the near
term.
If you go back and look at the energy policy that was
issued in the first year of this Bush administration and you
look at the Africa sections, I think you will see that edginess
contained in there, the hesitation about the exceptionalism of
the corruption and toughness in these environments. That is one
point.
The second point, our Africa policy--and this is not just
true for this administration, but Africa policy in general
tends to focus on trying to do one and maybe two things really,
really well, and that is about the limit of capacity. In this
administration the Sudan policy has dominated, much to its
credit in terms of seeking a negotiated peace settlement and
now seeking to deal with the crisis in Darfur.
It has not left a lot of space for new major initiatives of
the kind we are talking about here today, particularly when you
focus on the general kind of attitudes that have accumulated
around these cases over the years.
Now, what has changed? First of all, I think, to the
administration's credit, I think there is a lot of excitement
today at high levels and at mid levels around what is happening
in Nigeria, and it is reflective of some of the high-level
consultations that have taken place in the last 6 months, and
the administration deserves to be commended for that, just as
the President deserves to be commended for going to Nigeria
during his trip last July, after a period in which there had
been a sharp dropoff of high-level contact in Nigeria. This is
a reflection of the seriousness of the effort of reform under
way in Nigeria.
What else has changed that gives us an ability to have this
kind of conversation? You have got reformers under way in
Angola and we should lose sight of the fact. They are not as
far along as Nigeria, but there is a serious team. The IMF is
taking another new look at Angola. There is a mission out there
today.
Second is the emergence of the counterterrorism agenda
post-9-11 and the sudden awareness of the threat that truly
does exist concentrated in and around Nigeria, in the illicit
diamond-trafficking and money-laundering networks in West
Africa, and the other criminal networks that we have talked
about.
Third is the need for energy security on the global level
in such a fragile environment. This zone, the Gulf of Guinea,
is adding 2 to 3 million barrels of oil onto world markets in
the next 5 years, and we are going to be at the table as
investors and we are going to be at the table as consumers in a
very significant way.
Those are the factors that argue today for bringing this
into focus. But I think that administrations are slow to
respond. Bureaucracies are slow to respond. There is some
evidence, as I said, with respect to the enthusiasm and
interest levels of the Nigerian reformers. You can see the
turn-around. But as a strategic turn-around, in looking at the
Gulf of Guinea and saying, my gosh, we need a strategy that is
going to be concentrated and focused on these six or seven
countries with these elements in terms of our security
engagement, in terms of our diplomatic governance engagement,
we are not there yet.
Senator Hagel. Thank you.
You mentioned the IMF and I know in your prepared remarks
you go into some detail, Dr. Morrison, with the World Bank and
IMF. I would be interested in hearing each of you develop that
a little more and areas where the IMF--and you noted the IMF
has got a team in, where, Angola today or tomorrow. Both of
those institutions, each in its own way is very important to
this part of the world. I would like to have each of you
address it as to where they can be playing more of a role, how
does that role integrate into overall U.S. policy, and any
other comments you would like to make regarding those two
institutions in this area of the world.
Mr. Goldwyn.
Mr. Goldwyn. Thank you, Mr. Chairman.
First, I think the IMF and the World Bank have an agenda in
Africa which is, when they do poverty reduction, to try and
incorporate transparency as part of it. That is pretty much new
to their doctrine, but they have got it. Part of our foreign
policy ought to be trying to tell countries when we talk to
them we think that agenda is important too, that living up to
the IMF standards or the World Bank standards is something that
is important to our relationship. I do not think we do that in
a consolidated way. I never heard it when I was in government.
So that is I would say step one, integrate it in our policy.
Step two is we have got to realize who has got the
leverage. With Angola, companies are going to go there. U.S.
policy is not going to make a difference. Aid, we are not going
to be able to give them enough money, you know, especially
when--Steve mentioned in passing there was a study CSIS
commissioned about rising oil revenues in the gulf and it shows
that in the next, between now and 2010 Nigeria is going to get
$110 billion in government take, Angola is going to get about
$40 billion in government take in addition. A lot of cash. So a
little bit of aid is not going to make a difference.
But what these countries want is debt relief. The IMF has
said to them: You want debt relief, here is what you have got
to do. And donor relief for Angola, rather than Nigeria, is
also very important. So we need to lead the team, not just get
on the team, of saying the standards for donor relief are going
to be these transparency issues and backstop the IMF so that
they are not out there competing.
The other thing we need to do is use our bilateral
diplomacy to support the agenda. That means in the case of
Angola again, it is talking to other countries to make sure
they do not cut a separate deal with Angola to get an oil field
and forgive them whatever trespasses they have, but everybody
stays on the donor team.
So I think those are important priorities.
Senator Hagel. Thank you.
Dr. Morrison.
Dr. Morrison. We lay out several proposals: a debt for
transparency initiative, an electric power for good governance
initiative, capacity-building trust fund. All of these are ones
which will only succeed if they are truly multilateral and have
the backing of the international financial institutions.
I want to also draw attention to a recent development. In
Angola, the IMF has had on and off dialog with Angola around
the need for greater transparency in its oil sector. We are in
a period now of renewed hope around that subject. When the
Chinese come in and offer special concessionary arrangements of
offering a $2 billion cash facility leveraged against oil
deliveries, that significantly weakens the ability of our
bilateral dialog, the IMF dialog, and those of others, and
brings forward again the degree to which this is really a
global problem that requires a global diplomacy, and it reaches
beyond simply the scope of what the IMF is able to do and to
leverage multilaterally.
The Chinese and the Indians are large and ever-larger
players on this field and it has not really entered our
consciousness, much less our diplomatic strategy around these
problems.
Senator Hagel. Thank you.
You heard Mr. Simons note the compact agreement that was
signed at the G-8 conference at Sea Island. I would be
interested in getting each of your thoughts about what the
expectations are for that agreement, what the potential is, how
can that work into addressing some of the problems, questions
that you each posed this afternoon. Thank you.
Mr. Goldwyn.
Mr. Goldwyn. Well, I think the compact agreements are right
now more of a concept than they are a program. I think the
concept is very good, which is work with a country, help them
train their people how to do public finance, train them how to
supervise auditors, learn to do transparency. I have not been
able to detect the program funding for these compacts or the
staff that is dedicated to implementing these compacts. So I am
not sure how much there is there.
But I think it is a good start. It is the U.S. complement
to Prime Minister Blair's extractive ministries transparency
initiative, which is another pledge by governments to say, you
do the right thing, we will fund your ability to do this.
The reason I am a little bit skeptical is that it is pretty
expensive. If we were going to get the Nigerians to do an audit
of their oil sector, if they are hiring, you know,
PriceWaterhouseCoopers or somebody like that, we are talking
millions of dollars and we are talking about serious training
programs. I think the compact is something that is good and
ought to be expanded, but I would urge some oversight on the
substance behind it.
Senator Hagel. Thank you.
Dr. Morrison.
Dr. Morrison. I would echo the sort of mixed sense that,
yes, this is progress, but of a limited sort. It could have
been done more aggressively with some more significant backing,
but let us be looking forward. Next year Britain will be
hosting the G-8 summit. It has arranged for the creation of a
high-level Africa commission fully 18 months prior to that,
which is planning to arrive with some significant
recommendations in this very area that we are talking about
here.
Britain announced this week some rather historic projected
rises in foreign aid that will support this strategy. As a
matter of U.S. policy, we should be looking downstream to next
June and planning in the administration's discussions with
Congress and with others to be coming in fully in support of
these, because this is a major opportunity to push the agenda
for transparency and accountability.
Thank you.
Senator Hagel. Thank you.
Gentlemen, I am going to ask you each one more question and
then I have to go to a meeting with Dr. Rice. It is regarding
natural gas in this part of the world that we are discussing
today. We really did not talk much about that. I do not think
it was referenced more than two or three times in the testimony
of our witnesses prior to you. We have spoken primarily about
oil.
I would be interested in each of your assessments on the
natural gas side of this. Obviously, the investment security,
stability dynamics in the region stay the same regardless of
what the commodity is, but the development, the pace of that
development, what is really there, what we know is there,
related to natural gas. Mr. Goldwyn.
Mr. Goldwyn. Yes, Mr. Chairman. The gas potential of the
gulf is enormous. Nigeria has tremendous amounts of gas.
ChevronTexaco has large gas infrastructure there. They are a
huge potential for LNG. Angola, increasingly a gas power.
Equatorial Guinea, as John Brodman mentioned, has Marathon's
methanol plant already in place.
They used to cap those wells because they did not think the
gas was worth anything, and now they are going to go back there
and find out where the caps were and produce it. So it has
tremendous potential and tremendous potential to convert to LNG
and ship it here if the United States has the ability to
receive the LNG and supply our market. So I think it is a huge
potential resource.
The other key driver for natural gas production in West
Africa is the reduction of gas flaring. It is the legal regimes
in Nigeria and Angola in particular which will fine companies
if they do not cease gas flaring by a date certain that have
led companies, I would say ChevronTexaco's West Africa gas
pipeline in particular, to find ways to monetize this gas,
because they are going to pay for it either way. That has been
a very wise policy, very positive for the environment, and will
be a continuing push factor in West Africa's natural gas
production.
Senator Hagel. Thank you.
Dr. Morrison.
Dr. Morrison. On the flaring aspect, it is important to
remember that Nigeria accounts for about 25 percent of the
world's flaring. It is visible from outer space. It is
remarkable. So in terms of immediate environmental benefits as
well as the economic benefits of capturing this asset and
converting it into a useable commodity, there is a big
turnaround benefit there.
There is a big potential benefit in terms of power
generation within a region that is woefully inadequate in terms
of its own power generation capacities. The biggest issue, not
just for capturing natural gas within Africa but also in the
former Soviet Union and elsewhere where there are huge
deposits, is finding the guaranteed accessible market consumers
that will be sustainable over a long enough period of time and
reliable that you can invest in that infrastructure and
transport infrastructure to move it to the marketplace.
We know we are not there yet. We know that this is a highly
desirable commodity for power and heating in the United States.
But we also know how terribly difficult it is to find new
landing sites on our two coasts. There are roughly three dozen
proposals. They are very controversial, complicated, and
difficult proposals.
Hopefully we will work our way through this phase in the
next couple of years. I am no expert on this. I just read the
accounts of all the different local controversies. But if we
can get to the point where the market becomes more accessible
on our shores, I think you can reliably predict you will see a
significant uptick in the investments in this.
Right now, outfits like ChevronTexaco which have made a big
bid on natural gas have lots of natural gas, but are having a
hard time landing it at the markets.
Thank you.
Senator Hagel. Thank you. Your note about the port
facilities to receive this is a critical, critical issue. As
you mentioned, we have some legislation here and in the House
as well, that we are not going to get to, unfortunately, this
year. We are not getting really to anything this year. But that
has to be addressed because if we cannot receive it it does not
make any difference what happens in the Gulf of Guinea.
Gentlemen, you have, as usual, been very helpful and we
appreciate your wise counsel and your good effort and the
organizations you represent. Thank you very much.
[Whereupon, at 2:55 p.m., the subcommittee adjourned, to
reconvene subject to the call of the Chair.]