Africa to Draw Benefit from Gulf Spill

Spewing up to 60,000 barrels of oil into the Gulf every day at this moment, the Deepwater Horizon spill is huge. However, it pales in comparison to the massive leakage that has contaminated the Niger Delta and Ecuador’s Amazon.
The Deepwater Horizon oil rig explosion in the Gulf of Mexico cumulative oil spill reached a bit more than six times that of the 1989 Exxon Valdez (around 27 000 barrels) by early July. However, it is easily dwarfed by the estimated equivalent of more than 50 Exxon Valdez spills into the Niger Delta by Shell, Chevron, and numerous other companies over the past five decades.

The precise impact that the Deepwater Horizon spill will have on BP is hard to predict, but the outlook is grim. Under the onslaught of the collective fury of the US against the company, BP, the third-biggest oil company in the world, is set to pay a huge price for the apparent trade-off between cost efficiency and safety. Its share prices are plummeting and its reputation is ripped to pieces. Deep-water drilling is extraordinarily complex, risky and expensive, unlike much of what is happening in the on-shore exploration by Shell in much of the Niger Delta. As findings on land and in shallow waters run dry, it is also expected to expand considerably, and BP, the most swashbuckling and entrepreneurial, has been at the forefront of deepwater drilling for a long time.

The majority of the Nigerian oil leaks came from old pipes that corroded and were not maintained properly. Determined efforts by local communities, gangsters and criminals to tap oil or, by generating a spill, gaining some reward during the subsequent cleanups have been some of the newer issues. Shell eventually decided to reduce its on-shore exposure in Nigeria earlier this year due to the anticipation of the damage that could befall its stock market price and the remains of its reputation. The impending legislation in front of the federal legislature in Abuja has also affected the decision.
As world use of carbon fuels comes to a necessary end, its remaining reserves of oil are swiftly expiring. After 140 years of using its first trillion barrels of oil, the second, and final, trillion will be gone in 30. And the demand for it is only rising.
With the increase in global wealth (particularly in China and India) set to continue, the demand for energy is endless, as currently some 1.5-billion people still live without electricity, and that demand of energy will determine global growth patterns in the future.

Morocco, the only North African country without oil is planning ahead, investing several billion dollars in wind energy, and will soon provide almost half its need from wind, with the remainder planned for nuclear. While substantial reserves of coal and gas remain, the dependence on a dwindling supply of oil makes competition for this scarce resource particularly voracious. Despite possessing only 10% of the world’s proven oil reserves, by 2025, Africa will provide around 25% of North America’s oil. New sources of oil are located more often in Africa than anywhere else in the world. Pristine environmental areas are discovered almost daily. Companies are tripping over one another to obtain exploration rights to Africa, which is becoming a hotbed for lucrative business, and the reasons are not hard to imagine. Since a lot of the oil in Africa is located off the coast of neighbouring countries, transport costs are reduced and pipelines are not required. Furthermore, Sub-Saharan African oil is viscous and requires less refining.

It also provides a very favourable contractual environment for its clients, as most countries in sub-Saharan Africa operate on the basis of so-called production-sharing agreements that offer foreign oil companies massive down-stream profits. Virtually all the big discoveries of oil in recent years have been offshore, and one-third of the world’s new oil discoveries since 2000 have been in Africa. John Ghazvinian notes that “African oil is cheaper, safer, and more accessible than its competitors”, and there seems to be more of it every day. It may not present competition to the Persian Gulf and its level of proven reserves, but it represents the future.

The fact that the oil spill occurred in the backyard of the giant global superpower is perhaps the sole reason for such an enthusiastic outburst of the public and the government. However, the sad reality is that if the Deepwater Horizon happened say to Chevron off the coast of Angola, no $20 bn compensation would occur, Chevron’s share price would not have been affected, no delay in paying out handsome dividends would happen, and legislative pressure would have been avoided.

Chances are best that a new spill will not be within US territorial waters, but perhaps in places such as the Mediterranean where BP will shortly start deepwater drilling in 1 700 metres of water, and the oil companies will not be able to obscure when it happens. It is evident that oil safety technology has not kept pace with exploration technology and the risks obvious. The events in the US will hopefully spur improved safety awareness and hopefully, containment and emergency measures. African governments, for their part need to enter into an alliance with the global green movement to effectively monitor exploration practices. A new partnership, well beyond current practices then needs to be crafted.