[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
AFRICA'S ENERGY POTENTIAL
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HEARING
BEFORE THE
SUBCOMMITTEE ON AFRICA
OF THE
COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
THURSDAY, MARCH 16, 2000
__________
Serial No. 106-121
__________
Printed for the use of the Committee on International Relations
Available via the World Wide Web: http://www.house.gov/international
relations
______
U.S. GOVERNMENT PRINTING OFFICE
65-579 CC WASHINGTON : 2000
COMMITTEE ON INTERNATIONAL RELATIONS
BENJAMIN A. GILMAN, New York, Chairman
WILLIAM F. GOODLING, Pennsylvania SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa TOM LANTOS, California
HENRY J. HYDE, Illinois HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey ENI F.H. FALEOMAVAEGA, American
DAN BURTON, Indiana Samoa
ELTON GALLEGLY, California MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina ROBERT E. ANDREWS, New Jersey
DANA ROHRABACHER, California ROBERT MENENDEZ, New Jersey
DONALD A. MANZULLO, Illinois SHERROD BROWN, Ohio
EDWARD R. ROYCE, California CYNTHIA A. McKINNEY, Georgia
PETER T. KING, New York ALCEE L. HASTINGS, Florida
STEVE CHABOT, Ohio PAT DANNER, Missouri
MARSHALL ``MARK'' SANFORD, South EARL F. HILLIARD, Alabama
Carolina BRAD SHERMAN, California
MATT SALMON, Arizona ROBERT WEXLER, Florida
TOM CAMPBELL, California STEVEN R. ROTHMAN, New Jersey
JOHN M. McHUGH, New York JIM DAVIS, Florida
BILL LUTHER, Minnesota EARL POMEROY, North Dakota
LINDSEY GRAHAM, South Carolina WILLIAM D. DELAHUNT, Massachusetts
ROY BLUNT, Missouri GREGORY W. MEEKS, New York
KEVIN BRADY, Texas BARBARA LEE, California
RICHARD BURR, North Carolina JOSEPH CROWLEY, New York
PAUL E. GILLMOR, Ohio JOSEPH M. HOEFFEL, Pennsylvania
GEORGE P. RADANOVICH, California
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado
Richard J. Garon, Chief of Staff
Kathleen Bertelsen Moazed, Democratic Chief of Staff
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Subcommittee on Africa
EDWARD R. ROYCE, California, Chairman
AMO HOUGHTON, New York DONALD M. PAYNE, New Jersey
STEVE CHABOT, Ohio ALCEE L. HASTINGS, Florida
TOM CAMPBELL, California GREGORY W. MEEKS, New York
GEORGE RADANOVICH, California BARBARA LEE, California
THOMAS G. TANCREDO, Colorado
Tom Sheehy, Subcommittee Staff Director
Malik M. Chaka, Professional Staff Member
Charisse Glassman, Democratic Professional Staff Member
Charmaine V. Houseman, Staff Associate
C O N T E N T S
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Page
WITNESSES
Calvin Humphrey, Deputy Assistant Secretary for International
Affairs, U.S. Department of Energy............................. 5
J. Robinson West, Chairman, The Petroleum Finance Company........ 18
APPENDIX
Prepared statements:
Chairman Edward Royce............................................ 28
Calvin Humphrey.................................................. 30
J. Robinson West................................................. 38
Submissions:
Statement from Chevron Corporation............................... 84
Fact Sheet on Sudan.............................................. 99
Statement of Paul Michael Wihbey................................. 102
AFRICA'S ENERGY POTENTIAL
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Thursday, March 16, 2000
House of Representatives
Subcommittee on Africa
Committee on International Relations
Washington, D.C.
The Subcommittee met, pursuant to notice, at 2 p.m., in
room 2200 Rayburn House Office Building, Hon. Edward R. Royce,
(Chairman of the Subcommittee) presiding.
Mr. Royce. This hearing of the Subcommittee on Africa will
come to order. Today the Subcommittee will look at the
development and use of energy resources in Africa. This is an
important issue.
In order to improve the lives of their citizens, African
nations need to develop affordable energy that is reliable and
is environmentally friendly. Some African countries are major
exporters of energy resources which brings them significant
political and economic challenges.
The democratically elected Nigerian government of President
Obasanjo, for example, is facing a very difficult challenge
posed by Nigeria's production of over 2 million barrels of oil
a day. To succeed with Nigeria's national revival, President
Obasanjo must address legitimate grievances over revenue
sharing and environmental polices--grievances ignored by the
previous military regime--while rejecting the small element of
radicals in the oil-rich Delta region who are committed to
violence and destruction and who have halted production on
several occasions.
Foreign oil and gas companies face their own task of being
part of the solution in Nigeria and elsewhere in Africa. Energy
development can also raise diplomatic questions. Many Americans
are concerned that a Canadian oil company is helping Sudan's
National Islamic Front regime to develop that warn-torn
country's oil sector.
Energy revenue can be less than a blessing economy-wise.
Academic studies suggest that an oil boom leads to a weaker
performance in other sectors of an economy. Once a government
feels flush, the pressure to reform is relieved and the non-
energy sectors of the economy wither. This is largely in the
past been the Nigerian experience. New offshore production
doubled Equatorial Guinea's GDP overnight. This small country
just now successfully manage this boom. Other Africa countries
confront similar economic and political challenges.
Resource management issues are all the more pressing
because Africa is developing an increasing amount of its energy
resources. With technology allowing for ever deeper offshore
drilling, West Africa is now considered to be one of the
world's top regions for petroleum prospects. An American oil
company recently made a billion barrel discovery off the
Nigerian coast. Another company has announced a $8.5 billion
investment in Nigeria, which is the largest industrial
investment in the history of the continent. Meanwhile, interest
in oil exploration is spreading to East Africa.
Africa has more than petroleum though. Some 17 African
countries hold potential as major natural gas producers. A
liquefied natural gas plant off the Nigerian coast recently
came on line. This is one of the biggest industrial projects in
Africa. In the works for Nigeria is another project to supply
natural gas to Ghana, Benin and Togo. Natural gas is
increasingly seen as the energy of the future, being cleaner
and cheaper than other energy resources. Developing Africa's
natural gas should help African countries overcome their heavy
dependence on the environmentally destructive practice of
burning wood to produce energy. Africa's hydroelectric
potential is nearly limitless. Congo alone has the potential to
light up half the continent.
The U.S. has a significant interest in Africa's energy
development. Our country would be better off if African
countries developed their economies while protecting the
environment. We have an interest in seeing that energy
resources do not fuel African conflicts and we are major
consumers of African produced oil, some 15 percent of America's
oil imports are from Africa. Given Africa's potential, this
figure promises to grow. Analysts suggest that West Africa
could soon rival the Persian Gulf in terms of strategic
significance to America.
The U.S. has an obvious interest in greater oil exploration
and development in Africa, especially in light of the recent
hike in prices Americans are paying at the pump. This interest
gives us even more reason to be attentive to Africa's many
energy challenges. Today the Subcommittee will hear from the
U.S. Department of Energy which is spearheading U.S. Government
energy efforts in Africa, and a private witness, who will share
his views on energy issues in Africa.[The statement of Mr.
Royce appears in the appendix.]
Mr. Royce. I will now turn to the Ranking Member of the
Subcommittee, Mr. Donald Payne of New Jersey for an opening
statement.
Mr. Payne. Thank you very much, Mr. Chairman. Let me
commend you for calling this very important hearing at a time
when we know that this is an issue, the question of energy,
throughout this country and the world. We in the northwest
suffered tremendously because of the home heating fuel problem
in addition to the gasoline problem. The fact that the
northeast has very little natural gas pipelines and so it
certainly hit my congressional district and my State extremely
hard.
But I am pleased to join you here to explore Africa's
potential and to see what can be done in order to spur this
along. As we all know, Africa has a tremendous amount of
natural resources, both in oil and natural gas and other
potential energy resources and we would like to explore what is
going on there.
We all are concerned about the cost of gasoline. We are
seeing prices go as high as $2.00 to $2.25 a gallon. This is
the sharpest increase in prices over a 2-week period that we
have seen in this country since the Persian Gulf War in 1990.
The full International Relations Committee convened a
hearing on February 10th to discuss the energy crisis with
representatives from the State and Energy Departments. At that
time administrative witnesses indicated that there was little
that the United States could do to convince the major oil
producing nations to increase the international supply of oil.
I know that Secretary Richardson recently returned from a
trip to major oil producing nations in which he urged OPEC
members to raise production levels. We know that Secretary
Richardson has been doing an outstanding job, although he is
taking a lot of criticism for OPEC's behavior and I do not know
how we can blame him for what the Saudis and the Kuwaitis are
doing, but you have got to blame someone in the Administration,
so I guess he is the target right now.
We really need to exert pressure to see if we can break
this stranglehold that we currently see. According to the
President of OPEC, his Excellency Attiah, OPEC produces 40
percent of the world's reserves and in this era of rising oil
prices and legislative efforts to pressure the Saudis and
others, we need to seek alternative solutions. In addition to
other means of energy, we ought to look at how can we expand
the potential of the Africa markets where I think trade and
investment has sorely lacked as relates to our country's
position and I would like to see that as another alternative
for additional oil production.
It will be interesting in finding out what role African oil
exporters play in setting world oil prices, not just Nigeria,
but the other sub-Saharan African countries in the oil cartel,
countries like Angola and Gabon and Equatorial Guinea.
Today, the U.S. imports an average of 736,000 barrels today
of Nigerian oil or close to 10 percent of the total United
States imports and I understand that Angola is not too far
behind. If we could substantially increase Africa's production,
we could see that the United States could move up to 25 to 30
percent of our oil dependency being on Africa, therefore
reducing the cartel, OPEC cartel's control and moving into
Mexico and Venezuela could possibly offset the dependency.
Let me say that we are working very hard to insure the
passage of the Africa Growth and Opportunity Act. This bill
will provide additional incentives for U.S. businesses to tap
into Africa's rich oil and natural gas reserves and also to
develop its energy infrastructure.
On the international front I am eager to hear from
witnesses about the--the representative Humphrey about how the
Chad, Cameroon and Benin pipeline project is going and where
the proposed pipeline for natural gas which currently has been
flared, creating in Nigeria, creating environmental havoc and
where the proposed pipeline for natural gas stands at this
time.
We would also like to conclude by saying that we are
certainly concerned about the continuing problems in the Niger
Delta the Chairman mentioned which produces most of Nigeria's 2
million gallons of crude a day. When we visited with President
Obasanjo in December, not only did we discuss problems in
Nigeria and commending them for other things like ECOWAS troops
helping Sierra Leone and Liberia, but we also talked about the
role of the Nigerian government and how the problem in the
Delta region can be resolved.
So once again, Mr. Chairman, I look forward to the
testimony of our witnesses.
Mr. Royce. Thank you, Mr. Payne. Mr. Campbell?
Mr. Campbell. Mr. Chairman, in the interest of getting to
the witnesses I will simply say thank you for your
conscientiousness in holding the hearing. Thank you, Mr.
Chairman.
Mr. Royce. Thank you, Mr. Campbell.
Congresswoman Barbara Lee made a trip to Nigeria a few
months ago, met with an important delegation there on
environmental issues and I believe they are here and if I could
turn it over to you at this time.
Ms. Lee. Thank you very much, Mr. Chairman.
Let me just say thank you very much and Mr. Payne for your
leadership on this issue. Africa's energy potential really is a
matter that I do not believe has received significant and
sufficient congressional attention and so this hearing is very
important today. It is very timely in light of the issues that
we are dealing with in this country which Mr. Payne spoke of.
Let me say how excited we are to see the Minister from
Nigeria here. We did have the privilege to be in Nigeria and we
saw the great potential now in terms of this transition and we
know that Nigeria is one of our trading partners and we want to
hear from our Administration how our policy toward Nigeria can
really help increase the supply of oil and what we need to do
from this Committee, at least, in terms of our policies to
insure that this be part of our U.S. foreign policy as it
relates to Africa.
Also, let me just say Mr. Chairman, I want to hear, I guess
from Mr. Humphrey with regard to the whole war in Angola and
given that Angola is really one of our major, primary sources
of oil, how the devastating civil war is really impacting the
oil industry there.
Finally, let me just say that as we look at Africa's energy
potential, we also have to be concerned and aware of
environmental protections and what the issues are around oil
spill cleanup and just all of the other surrounding issues that
hopefully we can help address.
Thank you very much for being here and I look forward to
this hearing and thank you, Mr. Chairman, for your leadership.
Mr. Royce. Thank you. Thank you very much. I will just
mention that President Obasanjo announced plans to raise oil
production 50 percent over the next 4 years in Nigeria and I
would like to ask our delegation to stand at this time, if they
would.
If I could ask our guests to stand, Minister of State for
Environment, Dr. Ome Oko Pido. He is accompanied by the
Chairman of the House and Senate Committees on the Environment,
the Environmental Commissioners for the River State and by Elsa
State and the Secretary General of the Peoples Democratic Party
which won the election last year with the election of their
Presidential candidate, President Obasanjo. If I could ask the
whole delegation to stand at this time.
We now turn to our first panel. Calvin R. Humphrey is
principal Assistant Secretary for International Affairs at the
U.S. Department of Energy. Mr. Humphrey has a B.S. degree from
Bradley University, a law degree from Georgetown University Law
Center and he has completed the Senior Executives in National
and International Security Program at Harvard University's John
F. Kennedy School. Mr. Humphrey is no stranger to Capitol Hill.
He worked as a legislative assistant to former Congressman
Lewis Stokes of Ohio after completing law school. He then
assumed the position of counsel to the House Permanent Select
Committee on Intelligence. In 1995, Mr. Humphrey was promoted
to the position of Senior Democratic Counsel for the Committee.
In his current position which he has held since 1998, Mr.
Humphrey is responsible for advising the Secretary of Energy on
international energy affairs.
I thank you for joining us today, Mr. Humphrey.
STATEMENT OF CALVIN HUMPHREY, DEPUTY ASSISTANT SECRETARY FOR
INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF ENERGY
Mr. Humphrey. Thank you, Mr. Chairman, and it is a pleasure
to be before the Committee and let me also thank the Ranking
Member, Mr. Payne and all the Members of the Committee for your
interest in Africa and what the Department of Energy is doing
there. I have submitted a statement for the record and with
your permission, Mr. Chairman, I would like to read an oral
statement that is a synopsis of that complete statement. Thank
you.
I am both pleased and honored to appear before you today to
discuss the Department of Energy's strong commitment to
promoting stability and achieving economic growth on the
African continent through sustainable energy development. By
promoting sustainable energy development in Africa, we strive
to enhance Africa's economic and social development, alleviate
poverty, improve health services, increase prosperity and
integrate African states into the world economies.
To demonstrate our commitment, last year Secretary
Richardson launched the African Energy Initiative at Howard
University, an historically black college and university. Under
the initiative, the Department of Energy vigorously engages in
bilateral and multilateral efforts to promote sustainable
energy development and regional integration. The initiative
builds upon President Clinton's U.S.-Africa partnership and the
blueprint for U.S.-Africa partnership, as you know, was signed
in Washington in March 1999 to promote democracy, good
governance, human rights, trade and investment and global
integration.
In December 1999, Secretary Richardson hosted the U.S.-
Africa Energy Ministers conference in Tucson, Arizona. The
conference represented the first time that energy ministers
from Africa and the United States convened as a collective body
to discuss the future of Africa's energy sector. The response
was overwhelming. Representatives from 48 countries
participated, including 41 energy ministers. They expressed
their desire to establish an on-going process and agreed to
meet again in South Africa later this year.
From the Department's perspective, we must first and
foremost help African countries develop an economic framework
that will attract private sector investment. This includes
assisting them in the development of independent and effective
regulatory bodies and helping them through the restructuring
process that must accompany their energy sector development.
Africa is important to us as a key source of diverse energy
supply, as a market for energy goods and services, and as a
fountain for investment potential. Moreover, we want to support
efforts to improve the quality of life in Africa and promote
political stability.
With a population of approximately 785 million and an
annual growth rate of approximately 20 million, Africa is
poised to become the next important emerging market in terms of
trade and investment, energy resources and energy consumption.
Energy will fuel the engine of economic change and sustainable
economic development in Africa. It will also promote a wealth
of opportunities for U.S. trade and investment. Africa is the
third largest oil exporter to the United States and plays a
critical role in our efforts to diversify oil supply. In 1999,
Africa exported approximately 1.5 million barrels of oil per
day to the U.S. or 15 percent of all U.S. imports. Nigeria,
Angola and Algeria were among the largest suppliers.
The development of new infrastructure in the region will
allow for an even greater share of the U.S. market. Africa's
proven oil reserves of 74.9 billion barrels and proven gas
reserves of about 400 trillion cubic feet, can enable African
countries to increase their importance to the U.S. market while
allowing the U.S. to expand and diversify its oil supplies.
The largest of these reserves are located in Algeria,
Nigeria, Angola and Egypt. Oil and gas revenues represent a
primary source of income for many African countries. They
account for a large share of export revenues and foreign
exchange earnings. If managed properly, energy sector
development can be a powerful force for fielding the economic
development of these countries.
But energy production is just one of the forces for
economic development. In 1998, Africa accounted for about 3
percent of the world's primary energy consumption. That is, 13
percent of the world's population consuming just 3 percent of
the world's primary energy. Excluding South Africa, Egypt,
Algeria, Nigeria and Libya, Africa countries use the same
amount of energy as Belgium, a country of only 10 million
people.
Clearly, there are huge opportunities for U.S. and African
businesses to develop the infrastructure necessary, to increase
access to energy for all of Africa's people.
Let me take this opportunity to inform you that just today,
earlier this morning the Energy Information Administration
released its latest long term forecast for the world. The
outlook for Africa is similar to the numbers described in my
written testimony, however, I would note that the forecast
indicates that total African energy consumption may go up by 76
percent through the year 2000. The most significant growth in
consumption is expected in natural gas which could grow 147
percent over the next 20 years.
Several U.S.-based firms have already begun to take
advantage of these opportunities. In May 1999, Chevron
announced plans to invest $12 billion in its Africa operations
over the next 5 years. The West African gas pipeline is a gas
transmission pipeline project designed to connect Nigeria's gas
reserves to markets in Benin, Togo, and Ghana. I traveled to
Benin last year to lend U.S. Government support to the signing
of this historic pipeline agreement. Exxon Mobil is leading the
development of the Chad Export Project, a proposed $3.5 billion
project to produce and transmit 250,000 barrels of oil per day
from southern Chad through neighboring Cameroon to the Atlantic
Coast for export to the world and this includes the United
States.
Dallas-based Triton Energy has nearly doubled its
investment in Africa to about $200 million with its on-going
oil develop in Equatorial Guinea. Ethiopia announced the
signing of a $1.4 billion joint venture deal with the U.S. firm
Secore to develop and transport natural gas. Enron, an oil and
gas firm, Houston, Texas, has signed several joint venture
agreements with the States of Abuja and Lagos in Nigeria for
power development. AES is involved in a 250 megawatt
hydroelectric project in Uganda. CMS Energy Corporation is
working in Ghana on two 110 megawatt thermal power plants.
There are many other examples throughout the continent.
Two key things of the Department's initiative are achieving
support from African nations to encourage private sector
investment as the vehicle for economic growth and to promote
growth that supports the global environment, two themes, Mr.
Chairman, you mentioned.
At the U.S.-Africa Energy Ministers Conference, we achieved
unanimous support among the ministers on policies and practices
that promote economic development, address environmental
concerns, encourage private investment, enhance regional
integration and increase access to energy for Africa's people.
The ministers approved the joint statement on investment
principles for the energy sector to demonstrate their
commitment to establishing a transparent and reliable framework
that encourages expanded trade and private sector investment.
The ministers also approved a joint statement on sustainable
energy development and cooperation and support of the
environment to highlight important measures that can be taken
in the energy sector to address global climate change concerns
and to promote a sustainable cleaner environment for future
generations while at the same time ensuring economic growth.
Bilaterally, the Department has strong programs in many
African countries. Our longest running and largest effort is
with South Africa, a program initiated in 1995 under the Gore-
Mbeki Binational Commission. We have worked on over 100 joint
programs. These programs include providing the benefits of
renewable energy to rural schools, clinics and homes and
offering training to government and business energy experts.
We have begun to expand cooperation with Nigeria. Secretary
Richardson visited Nigeria last August and it resulted in the
signing of a bilateral cooperation program. The Department, in
coordination with USAID is developing an action plan with the
government of Nigeria.
In the context of the Angola Bilateral Consultative
Commission the Department of Energy will work with the Angolan
Energy Ministry to streamline its energy sector and facilitate
development of its infrastructure.
With Mozambique, we are involved in the U.S. Government
effort to address the recent flood disaster. Department
officials traveled to Mozambique last fall and agreed to send a
team to evaluate the potential for renewable energy. That
program becomes even more important as we revisit the issue of
the reconstruction effort.
We know, however, that individual country efforts in a
continent the size of Africa will not be an effective way to
reach the many. We are working hard to support regional
integration with efforts like the West African gas pipeline,
the South African power pools and the West African gas power
pool. In this regard, we are building pillars of cooperation
with regional organizations such as ECOWAS, SADC and COMESA.
Under the Africa Energy Initiative, the Department works with
countries and regional organizations in Africa along with U.S.
agencies and organizations such as USAID, the Overseas Private
Investment Corporation and the Export Import Bank to promote
sustainable energy development.
We believe energy development in Africa should not only
generate export revenues, but must, and I underscore must also
respond to internal energy demand and address the issues of
sustainable development that benefit all African citizens.
Good corporate citizenship which includes continued
investment in local communities and developing indigenous human
infrastructure is an important element that we hope to advance
under this initiative.
Again, I am pleased to be here with you to discuss Africa's
energy potential, U.S. energy policy in Africa. We have an
opportunity to build a partnership with African countries that
will allow Africa to realize its energy and economic potential
and a sustainable economically sound future for all of its
people. We believe this initiative will help promote
sustainable energy development in Africa and lead to a
measurable expansion of U.S. energy cooperation with Africa
well beyond the tenure of Secretary Richardson and the Clinton
Administration.
Mr. Chairman, Ranking Member, this concludes my oral
statement. I will be happy to answer your questions and we look
forward to working with you in a cooperative effort.[The
statement of Mr. Humphrey appears in the appendix.]
Mr. Royce. Thank you, Assistant Secretary Humphrey for your
testimony. Let me ask you a few questions. You said last year
about 15 percent of America's oil imports came from Africa. Do
oil imports in the United States have the potential to increase
from Africa over the next few years in your view?
Mr. Humphrey. Absolutely, Mr. Chairman. One of the
initiatives that is part of the Africa Energy Policy is to work
closely with a number of African countries to do a couple of
things, No. 1, create a better private sector investment
climate in those countries. To do that, we have to work with
the African countries to develop a regulatory framework, a
framework that includes such things as sanctity of contracts,
transparency and process, a streamlined bidding process.
We believe and we have talked with a number of U.S.
companies that these are some of their major concerns. If we
can address these concerns the private sector will go in. They
will be able to make a fair judgment on what the risk
associated to their investment will be and they will go to
Africa.
Mr. Royce. Given the importance of African oil to the
United States would it be correct to describe West Africa as
strategically important to the U.S.?
Mr. Humphrey. Absolutely, Mr. Chairman. West Africa is
definitely strategic. Nigeria is the second largest oil
producer in Africa. They also have tremendous gas potentials.
But there are also strategic alliances in South Africa, East
Africa, Central and North Africa. We have talked to a number of
companies and in our travels we have found that a number of
exploration activities are on-going in all regions of Africa.
So to expand upon your question, I would say that the African
continent is a strategic reason for the United States to be
involved in the energy sector.
Mr. Royce. We are going to have to work to make that
perception commonplace to have people better understand.
The international community is beginning to normalize
relations with Libya which is a major oil exporter. Do you
envision U.S. energy firms operating in Libya in the near
future?
Mr. Humphrey. As you know, Mr. Chairman, U.S. firms were
actively engaged in Libya prior to U.S. sanctions which predate
U.N. sanctions. The U.N. sanctions have been relaxed at this
point in time until after the trial which begins on May 3rd. It
is our policy that we want to see a couple of things from Libya
first. First, payment of appropriate compensation. Second,
cooperation in the trial of the Lockerbie defendants. Third,
renunciation and an end to the support of terrorist
organizations. If this is done and the State Department really
has the lead on this, it will be their judgment that sanctions
would be removed. I can assure you that U.S. companies will go
in to Libya. It is a tremendous opportunity and they want to go
in.
Mr. Royce. Let me ask you about the comment that I made
earlier about President Obasanjo's announcement to raise oil
production by 50 percent over the next 4 years in Nigeria. As
part of OPEC last year, Nigeria cut production. What are the
prospects for increased production in Nigeria given the
political turmoil in the Delta region? If I could ask you that
question and also did non-OPEC member Angola reduce oil
production in accord with OPEC's decision to cut production
last March?
Mr. Humphrey. We are aware that President Obasanjo has made
comments of his intent, his desire to increase production by 50
percent. We think that that will be a difficult goal to
achieve, but that begs the question. Certainly, there is an
opportunity to increase production in Nigeria.
You mentioned the problems in the Delta. Secretary
Richardson and I visited Nigeria in August. We had an
opportunity to go to Escarvos there in the Delta and to talk
with some of the representatives of the people there in the
Delta. Certainly we think that the government is making
progress, is making effort at reconciling some of those
differences.
Two things to increase the production, first, again
providing an effective investment climate. Investors will
invest if they have an investment climate. Notwithstanding the
problems in the Delta, having again transparency, streamline
bidding process and sanctity of contracts. Second, a number of
the oil produced by Nigeria is offshore. So those can be
expanded, but it will require technology and U.S. companies and
other foreign companies and of course, U.S. companies are
second to none and have that technology, but to date they have
been a little resistant to invest wholeheartedly in Africa.
Mr. Royce. Let me ask you as part of that. When we were
there for the election in Nigeria one of the big election
issues was the Niger Delta Commission, the concept of putting
together a bill to guarantee a certain amount of revenue to go
locally to different purposes, basically, that would be decided
locally.
What is the status of that bill to provide for more
dispersed distribution of oil revenues to the States in
Nigeria, if I could ask you?
Mr. Humphrey. Mr. Chairman, the latest information that I
have is that the differences have been worked out between both
Houses, but there is still some fine tuning of the legislation
that needs to be done.
I might also add that we did talk about that with President
Obasanjo and Secretary Richardson certainly offered his support
for measures that do take into account people of the region and
look toward putting back some of those resources and to the
infrastructure and to the human capital of those regions of
Nigeria.
Mr. Royce. Let me ask you one last question. How badly is
the recent oil spike hitting the economies of the majority of
African states that are not oil exporters, that are in fact oil
importers? Is this a major threat to their development?
Mr. Humphrey. Mr. Chairman, it is devastating them. One of
the problems that we see with many of the African countries is
first and foremost most of its citizens do not have the
resources to pay for energy, notwithstanding the oil spikes
that we are presently seeing. But because of the oil spikes,
those individuals that had the capability are now experiencing
difficulty. This is exacerbating deforestation. People are now
going out, cutting down more trees. This is creating
desertification problems, the burning is creating greenhouse
gas emissions and it is retarding their development. There is
an over dependence on the Federal budget in many African
countries to import oil. Now that those prices have gone up,
they are having to spend even larger portions of their budget
for the oil. So, yes, it is having a devastating impact and if
it continues it will definitely retard the growth of many
African nations.
Mr. Royce. Thank you, again. Mr. Payne?
Mr. Humphrey. Thank you, Mr. Chairman.
Mr. Payne. Thank you very much, Mr. Humphrey, for your
comprehensive testimony. Just the last question highlights the
difficulty of dependence on oil as the source of energy. I know
that there is a tremendous amount of potential for
hydroelectrical energy. As a matter of fact, there is, I
understand, rivers that start in Angola and go all the way
through Africa and up in Mozambique. Along that way it seems
that there would be a lot of potential for hydroelectrical
power. I heard some statistics years ago that said that
Mozambique could probably provide enough energy for all of the
countries if they had properly built hydroelectric
opportunities.
Have you seen any interest on the part of U.S. companies,
the Bechtel types to take a look at the potential of
hydroelectrical which, of course, therefore reduces dependence
on other forms of energy?
Mr. Humphrey. Thank you, Mr. Payne. Yes, we have. In fact,
just January AES Corporation headquartered right here in
Virginia signed an agreement with the government of Uganda to
move forward with a major hydroelectric facility.
We support hydroelectric facilities. One of the concerns we
have is that they are very capital intensive. Additionally, one
of the things that we need to work with our African colleagues
on is integration. In the past, we have had a number of
hydroelectric plants built in Africa, but there has become a
debt problem for the government. One of the reasons, because
there was not regional integration. The amount of power that it
is producing is not cost effective unless you can reach it out
and deliver that power beyond the country's borders. This is
one of the reasons while we are focusing on regional
integration, working with SADC, working with ECOWAS, working
with COMESA so that you maximize the efficiencies.
Additionally, we support hydroelectric plants, but one of
the things that we want to caution about is that we do not want
to see you just going totally to hydroelectric because if a
drought comes, now you have created a real extensive problem.
Just as we need to diversify our sources, we want our African
colleagues to diversify their sources. But hydroelectricity has
a tremendous application and tremendous potential throughout
Africa.
Mr. Payne. Thank you, as a matter of fact, I think your
statement is really on target because I think, Mr. Campbell and
I, on one of our visits to Ghana there was a U.S. aluminum
plant, I believe, that built many years a hydroelectrical plant
and of course they got about 80 percent of the energy and the
country got the other 20 percent. But be that as it may the
drought then has created a real problem for energy at that
point now and I think we sent several generating barges to that
region because of the inability to have sustainable energy.
Energy is so important in trade and in investment. If
companies are going to have computers running, if they are
going to have refrigeration for products and all that, there
really needs to be that sustainable energy, dependable energy
and the practices, for example, I might ask you this question
about Sudan. I have a hundred of them, but the red light is
going to go on in a minute. The Talisman Company is a Canadian
based, but Chinese and Malaysian and we have moved in our State
of New Jersey, I did get the State to divest 850,000 shares. I
got a letter from the Governor's office just several seeks ago
because Talisman's investment in Sudan, Sudan supports slavery,
bombs its people in the south, uses torture and other things
and are we--what is our policy toward oil from Sudan and
whether it can be segregated out well enough to seek that we
are not involved with it?
Mr. Humphrey. Thank you, Mr. Payne. Our sanctions policy
toward Sudan dictates that we are to have no trade whatsoever
with Sudan. There are to be no materials, oil, gas. They also
have the capability to produce gas, coming from Sudan to the
United States, nor is there any technologies that would support
those industries, supposed to be coming from the United States
going into Sudan.
So our sanctions are fairly carte blanche and we would hope
that we are doing an effective job of monitoring to insure that
that oil or that gas coming out of Sudan is No. 1, definitely
not making it into the U.S. markets for the very reasons that
you stated.
Mr. Payne. Our time is up, but I would just like to just
mention that hopefully the Libyan change could not only for
energy, but if Libya can become a productive country in Africa,
as you know many of the African states have positive relations
with Libya. Sometimes when developments start, can start of our
Libya, that energy can be changed into a positive area, then I
think that will have an impact on sub-Saharan Africa and some
of the problems that it faces.
Iran, there seems to be a changing of a policy and that may
also bring some more oil to the table, but just my last quick
question is that these energy projects are so capital
intensive, hydroelectrical dams, you talk about Chevron, $12
billion, you mentioned somebody else putting $3.5 billion and
it is such a large industry that does the Department of Energy
have any kind of policy?
I know the Congress has a policy of attempting to encourage
our agencies to use small and disadvantaged businesses and with
such a large capital intensive, it would certainly be difficult
for minority business people to jump in and put bids and
proposals out for some of these potential projects. But does
the Energy Department talk to the Chevrons who incidentally
have a bad record anyway in Nigeria under the past regime,
maybe they would be interested in trying to clean up their act.
But are there any kind of initiatives taken by the Department
of Energy? I think that the Congress still would like to
encourage diversity. What are you all doing in your Department?
Mr. Humphrey. Mr. Payne, those programs are run out of the
Office of Economic Impact and Diversity. However, I can tell
you first and foremost my personal commitment to ensuring
diversity. There is a mentor protegee program that is operated
domestically where we try to team small disadvantaged
businesses in the U.S. as well as businesses from Africa with
some of the major multinational corporations here in the United
States. We are committed to seeing what we can do to take that
program internationally, to see what we can do in working with
some of the multinational corporations here in the U.S. teaming
them with some of the small disadvantaged women-owned
biosciences so that they can have opportunities in Africa too.
One of the beauties that we see in that is that in many
instances because of the size of some of the countries in
Africa, it is not economically feasible for the multi-nationals
to go in and invest the large resources that they have. But for
some of the small businesses, it becomes very, very profitable
and they have the technology. So we are hoping to expand that
program internationally to take the lessons and the skills that
the multinationals have and see if they will mentor and
protegee some of the very, very qualified and very technically
sound competent small disadvantaged and women-owned businesses
in the U.S.
Mr. Payne. Thank you.
Mr. Humphrey. Thank you, Mr. Payne.
Mr. Royce. Mr. Campbell.
Mr. Campbell. Thank you, Mr. Chairman, for holding the
hearings. Thank you, Secretary Humphrey for your helpful
testimony. I want to ask you about Ethiopia and the Blue Nile.
Here is what I know and I would love to hear encouragement, but
I would certainly like to have enlightenment, short of
encouragement.
Blue Nile rises from Tata, runs through this deep gorge,
then winds its way, of course, up through the Sudan and
eventually joins the White Nile at Khartoum. Up in Egypt the
Nile is dammed at Aswan and creates this huge shallow lake,
Lake Nasser and evaporation is extreme. If you took the same
cubic feet from Lake Nasser and instead put it behind a dam in
the Blue Nile Gorge in Ethiopia, you would be able to supply
Ethiopia with water to guarantee no drought ever again, purely
from the evaporation savings, if you follow me, so that there
is no diminution in downstream supply. Now all that is missing
is the cost of a dam on the Blue Nile in Ethiopia. The will of
the well to do nations to assist Ethiopia in doing so. If I
have my facts wrong, I stand ready to be corrected. That is
what I said about enlightenment, but I am prepared to be
encouraged to hear from you that this is something the
Administration looks with favor upon. How is that for a leading
question?
Mr. Humphrey. That is a very good leading question. I just
hope I do not strike out on it. No, I cannot provide you any
additional facts that might enlighten you, but let me try to
respond this way.
One of the things that we have found that we need to do is
educate some of the businesses in the United States about some
of the tremendous opportunities in Africa. One of the things
that we do is we hold a quarterly industry dialogue where we
invite representatives from a variety of industries, energy
industries, oil, gas, renewable, efficiencies and we dialogue
with them and tell them what we are doing, what opportunities
that we see available, places they may want to look. We also
work with our African colleagues to encourage them to No. 1,
put in an investment, friendly climate. That is central and
that is integral.
What we can do is take your idea. We will vet it throughout
the Department. We can certainly discuss this with our
Ethiopian colleagues, but also make it known to the private
sector what these opportunities are because there really is a
gap.
Mr. Campbell. Let me jump in again, if I may, and I do
understand. You are a master of so much. If you just do not
have at present these facts, I would be delighted if you would
pursue it. So that is a perfectly OK answer with me. But from
my limited knowledge what is lacking is not the interest of the
private sector. What is lacking is the World Bank willingness
to finance it and that is because the United States is not
prepared to back it at the World Bank and the reason is because
nobody bucks Egypt when it comes to the Nile. So I am putting a
fine point on it now. I believe that the problem is not
addressable by the information services much as I value them
and I grant that you are great to be developing them. The
problem is will in this or previous Administrations, Democrat
or Republican, to go to the World Bank and support Ethiopia in
this request.
On that subject, do you have any information?
Mr. Humphrey. I do not have any information and with your
permission I would like to get back to you.
Mr. Campbell. Would you be so kind. Mr. Chairman, I would
like to use this opportunity to ask Secretary Humphrey to push
this upward in the Energy Department so that maybe there is
some counter pressure to other Departments that might not be as
interested in supporting it. May I make that request?
Mr. Royce. You certainly may, Mr. Campbell. Assistant
Secretary, if you would respond in writing to Congressman
Campbell that would be most appreciated, the position of the
Department.
Mr. Campbell. And I would conclude by saying--I addressed
it in the question of availability of water, but it would fall
under your bailiwick because the hydroelectric potential is
magnificent as well, as you might guess.
The key point that I would make is it is a huge
environmental savings. It is no threat to the downstream water
users because of the tradeoff in evaporation. All that is
missing is the courage to stand in the World Bank, at least in
my humble opinion, so thank you for giving me the chance to put
that question to you and if you send that to our former
colleague, Mr. Richardson, I would be delighted to support his
efforts in any way.
Mr. Humphrey. Will do and we will definitely get back to
you.
Mr. Royce. Congresswoman Barbara Lee.
Ms. Lee. Thank you very much, Mr. Chairman, and I was very
pleased, Mr. Humphrey to hear you talk about the advocacy which
you have for the mentor protegee minority owned business owned
program.
Let me just ask you with regard to helping minority and
women owned businesses getting established in the energy
industry. Many of our businesses are transitioning from 8A
program in one sector and want to diversify and want to move
into other industries and given the fact that unless you are
really teamed with a major oil company in the energy business
you have little likelihood of being successful. So for those
companies does the mentor protegee program specifically address
those companies which want to diversify or are you focusing
mainly on those companies, those few companies, really that
have the capacity already?
Mr. Humphrey. Thank you, Congresswoman. No, we are focusing
on all of the companies. We realize that it would be very, very
limited and, quite frankly, arguably the success would be
doomed from the start if we just looked at those small
disadvantaged minority, women owned businesses with energy
expertise, because they are few. But there are a lot of
companies out there that have tremendous technical capabilities
that are easily transitional to the energy sector. We have done
this truly in the gas sector here domestically. We have a
WAMBE, Woman and Minority Business Enterprise that they
protegee and mentor with multi-national corporations. We are
going to be talking to the multinational corporations about
extending this. As you go into Africa, take some of these small
businesses, take some of these minority businesses, take some
of these women owned businesses, mentor them, be a protegee to
them and let us see what we can do to increase opportunities
because as Africa as we developed its energy infrastructure,
tremendous commercial opportunities exist. After all, the one
common denominator for every advanced society is a well built
energy infrastructure. That is the one common denominator.
Ms. Lee. Thank you very much. Mr. Chairman, let me just ask
if it is possible that we could get a little bit more
information on this? I would like to share it with my
colleagues, especially those in the Women's Caucus and the
Congressional Black Caucus and Hispanic Caucus so we can really
get a handle on this because it sounds very exciting to us and
we would like to get the word out.
Let me ask you with regard to the war in Angola and Unita.
How is the war affecting the United States from tapping fully
into Angola's oil reserves at this point?
Mr. Humphrey. One of the ways that it certainly is
affecting the U.S. and tapping into its complete oil
capabilities gets back into the infrastructure, the business
climate, what type of investment climate do you have? Because
of the war, a number of investors view that as a tremendous
high risk, that maybe because of the amount of money that they
are willing to invest, the war and the occasional sabotage that
occurs and the loss of life. It is not worth the risk.
What we need to do and what we are doing is we are working
very, very closely with the government. The government, in
fact, has begun to take some initiative. They have agreed to
elections, I believe in 2001. They are making fundamental
changes in their constitution. They are making economic
changes. They have agreed in their budget, in their fiscal
budget to begin to look at social programs, to address some of
those issues. But in large part, yes, it is having an impact
and until we can bring peace and democracy, you never will
realize its true potential.
More so, we do not know what may exist in some of those
territories that are controlled by Unita, that at this point
the possibility of exploration does not exist. So until we can
get into those areas, until we have peace in Angola, it will be
difficult for Angola to realize its true potential.
Ms. Lee. What percentage of oil comes from Angola?
Mr. Humphrey. I would have to check that.
Ms. Lee. Do you know approximately?
Mr. Humphrey. Last year it was 4 percent of the U.S. total
imports.
Mr. Royce. But in the next 10 years it is expected to
anticipate potentially Nigeria, so it has tremendous potential.
Ms. Lee. You said 4 percent Angola.
Mr. Humphrey. At the present time.
Ms. Lee. Present time, OK, but in the next 10 years we
expect it to surpass Nigeria?
Mr. Humphrey. Nigeria's production. So it could be 8
percent.
One of the things is that Nigeria has so much potential in
the gas sector and natural gas is the fastest growing source in
the world and certainly as we indicated with the West Africa
gas pipeline, Nigeria is now reducing the amount of flaring
that they are doing in the oil to recapture some of that gas.
Gas is going to take on, we believe, a larger percentage of the
energy resources that Nigeria produces, but again, if we can
get that investment climate, if we can end the war, and we also
have to get rid of those mines, just ending the war and getting
the investment climate, we do not know, Angola is one of the
most heavily mined countries in the world. Until we can address
those issues and really get out there and have some exploration
from our private sector companies, Angola will never truly
realize its potential.
We do not know how much they can do, but we know they can
do more.
Ms. Lee. Thank you very much.
Mr. Humphrey. Thank you.
Mr. Royce. Mr. Meeks.
Mr. Meeks. Thank you, Mr. Chairman. Mr. Secretary, I
apologize for not being here for the beginning of your remarks
and I hope that the questions that I have you did not--I am not
asking repetitive questions, but in light of the situation in
Angola, I do not think it is by accident, for example, that we
are having this hearing. I thank Mr. Chairman for it, because
of what is going on this country now. Recently when Secretary
Richardson was before us one of the questions that I asked him
at that time was have we explored other nations that are not a
part of OPEC in getting them to increase their pumping out of
oil and he said he had.
In looking at Africa, not only Nigeria, but Angola and it
looks like it has a chance to pump out more and you hear about
Tanzania and Sudan and Somalia, Madagascar, I think that it has
an opportunity to change. How even we look at Africa period
with reference to our own interest dealing with petroleum.
So I am wondering if we are looking at a general policy
that will basically give OPEC some competition coming straight
out I think OPEC does 40 percent of the oil now so therefore
that leaves another 60 percent that is needed and there is no
real competition where the continent of Africa can form that
kind of competition. I am wondering if there is a general
policy that the Department of Energy is looking at so that we
can fortify, in essence, some of the economies in Africa, but
as well as make sure there is some competition to OPEC.
Mr. Humphrey. Thank you, Mr. Meeks. The general policy,
what we are trying to do is first and foremost develop the
energy infrastructure of the countries of Africa and that
includes if they have resources, whether it is oil or whether
it is gas, we want to fully develop that.
We also realize that if they have those resources that
exporting those resources is the one sure fire way they have of
gaining access to hard currencies which can make a difference
in the lives of their people.
Secretary Richardson has been talking to a number of
leaders around the world, including Africa, who are not members
of OPEC, but who have the capabilities to produce oil. We think
that this is also critical because it is a national security
issue. We have to have a diverse supply of energy. We really
learned a harsh lesson back in the 1970's when we were just
totally dependent on energy supplies from the Middle East and
it was stopped. We cannot afford to have that again. It is in
our interest to have the diversity of energy supplies. It is in
our national security interests, but it is also in the
interests of the Africa countries.
One of the interesting facts is that we always talk about
trade and energy between the United States or Western Europe
and Africa. It is interesting that there is a tremendous
opportunity for trade and energy amongst the African countries.
They are not doing that, but this again, trading energy, gives
them badly needed resources to develop their country. But yes,
we are looking at as a general policy enhancing their
capabilities and that gets toward again, I know I have said it
once and I keep saying it because it is key, putting in an
infrastructure that is investment friendly, sanctity of
contracts, transparencies, streamlined bidding process, because
companies are interested in Africa because it is one of the
last great markets and to date, we do not really know what its
true potential is. We only know that it has a tremendous
potential.
Mr. Meeks. We know that there are new oil discoveries and
they are continuing to be found off the West Coast--in the West
of Africa. Are our companies, are American companies involved
with these new discoveries? What are they doing? Are they
around? I know the French is looking. What are we doing as to
these new discoveries?
Mr. Humphrey. A number of U.S. companies are heavily
involved throughout Africa, not just West, but Central and East
as well and a number of exploration contracts have been signed.
There is some exploration going on in Uganda because carbon
deposits have been located in Uganda. In Tanzania. Some more
going on in Botswana. So yes, a number of U.S. companies are
heavily involved in these exploration activities. I could not
give you a definitive number to categorize what the totality of
the investment dollars are, but I can assure you there are a
number of U.S. companies involved and continuing to get
involved.
Mr. Meeks. Let just ask a last question and it deals with
Equatorial Guinea where we know that there has been, their
elections are just passed, there has been some questions of
fraud, etcetera, but there also has been some new found oil
there. I am wondering how would you see, or how do you see this
new discovery. Is it going to help the government? Is it going
to help some of the human rights issues and questions that are
there with this new found wealth that the country now has
because I know most of the people live in poverty. How do you
see it making a difference and are we involved or any of the
U.S. companies involved with discoveries there?
Mr. Humphrey. Thank you, first and foremost it has the
capability of making a difference in the lives of the
Equatorial Guineans. We had the pleasure of meeting with the
Minister of Energy from Equatorial Guinea and his delegation
when he was in Tucson. We had bilateral discussions with him as
well.
One of the keys is the government of the Equatorial Guinea
themselves, whether or not they are going to hold true and take
whatever resources that they get from these discoveries and
invest them in the citizens, invest them in the islands or as
we have seen in some countries in the past when corruption
comes in, these resources never make it to the people and
benefit the people. So we are working with the government of
Equatorial Guinea to make certain that there is investment in
the human capital of their country that goes along with
investment in the resource capital.
Yes, U.S. firms are involved and there is tremendous,
tremendous opportunities there in Equatorial Guinea and we can
hope and we will continue to push that there be some fair
distribution of resources, that it gets back to the
communities, to the people so that these assets are not just
taken out of the shores of Equatorial Guinea and shipped
somewhere to Western Europe, but there is a corresponding
commitment to the people.
Mr. Meeks. Thank you.
Mr. Humphrey. Thank you.
Mr. Royce. Assistant Secretary Humphrey, we want to thank
you very much for your testimony today.
Mr. Humphrey. Thank you, Mr. Royce.
Mr. Royce. And Mr. Payne has a question for you.
Mr. Payne. Not a question, just a statement. Tell the
Secretary of Energy that if he is going to have another
ministerial meeting of African ministers of energy that I know
he likes Tucson, Arizona and the West, but we do want those
African ministers to know that there are other people around
too, so tell him he can come to New York, Atlanta, New Orleans,
Los Angeles.
Mr. Royce. Let the record show that Newark, New Jersey----
Mr. Payne. Mr. Chairman, the record might show that, but
having spent many, many years on the Hill, I know the power of
the gavel, so California looks pretty good to me.
Mr. Royce. Again, thanks for your testimony.
Mr. Humphrey. Thank you, Mr. Chairman, thank you, Members.
Mr. Royce. Before we go to our last panel I would just like
to note that we have a statement from the Chevron Corporation
and without objection it will be submitted for the record and
now we will turn to our second panel.
I am going to ask Mr. J. Robinson West, Mr. Robin West,
Chairman of the Board and founder of the Petroleum Finance
Company to come forward. He advises Chief Executives of leading
international and national oil companies on corporate and
international gas and power strategy, on acquisitions and on
investor relations. Mr. West received his undergraduate at
University of North Carolina at Chapel Hill and a J.D. at
Temple University. Mr. West is a member of the Pennsylvania
Bar. Prior to founding the Petroleum Finance Corporation in
1984, Mr. West served in the Reagan Administration as Assistant
Secretary of the Interior for Policy, Budget and
Administration. Between 1977 and 1980 he was the first Vice
President of Blithe, Eastman, Dillan and Company, an investment
banking firm and Mr. West served in the Ford Administration as
the Deputy Assistant Secretary of Defense for International
Economic Affairs and on the White House staff from 1974 to
1976.
We thank you for joining us today, Mr. West. If you could
proceed with your testimony and if you want to abbreviate and
just--we have got your written testimony for the record.
STATEMENT OF J. ROBINSON WEST, CHAIRMAN, THE PETROLEUM FINANCE
COMPANY
Mr. West. Mr. Chairman, what I would like to do with your
permission is to go through some of these slides quite quickly.
I do not work from written testimony generally, I work from
slides.
A couple of points on West Africa which is what I want to
talk about, not all of Africa. The first point is that there is
a lot of discussion about oil in the Middle East and oil in the
Caspian, but the fact of the matter is that West Africa is
very, very significant to world oil markets for several
reasons. First, as one of my slides will show, there is a lot
more oil in West Africa than there is in the Caspian. Also
there is a long history of industry investment in West Africa.
In the Middle East, there is a lot more oil, but there is very
little access on the part of the industry to the Middle East.
West Africa is an area of enormous importance to the industry.
Second, the kind of crude oil that comes from West Africa
is different than from many other places. It is light, sweet
crude and is among the most widely traded crude oils in the
world. So West Africa, even though you do not hear too much
about it in public, it is very important to the industry.
Can we have the first slide? Why is it that Africa is
attracting so much interest right now to the industry now?
First, a lot of big discoveries made possible by new
technology, breakthrough technologies in ultra-deep water.
There are enormous reserves that are being discovered,
totalling in excess of 5 billion barrels. The governments, the
host countries such as Nigeria and Angola, Equatorial Guinea,
and others, need the revenues. The government's track record
with foreign oil companies over time is very good. For
companies that know how to deal with the governments, they know
how to manage the risk. So West Africa is an area of great
importance to the industry.
The second slide I think is important to keep in mind too
in terms of reserves and production. You will see that West
Africa has more oil than say Europe, United States, less than
Russia, but a great deal more than Central Asia. The other
point, however, is that you will see the rate of production
that oil is produced at a much lower production rate, given the
reserves, than for example, in Europe and the United States. So
that we believe there is a lot of prospectivity and that
production is going to increase a great deal.
Mr. Royce. If I could stop you, is there a graph of the
Persian Gulf in there?
Mr. West. No, it is not on here.
Mr. Royce. What would it be in billion barrels?
Mr. West. It would be hundreds of billions of barrels.
Mr. Royce. Hundreds of billions.
Mr. West. But remember from the standpoint of the industry,
(a) there is no industry access in Saudi Arabia, virtually none
in Kuwait. In Iran, it is very modest. It does not exist in
Iraq, Qatari, Abu Dhabi, Dubai, and Oman is really in the only
Gulf places where there is any access. So it is important--it
is a unique role that Africa plays.
If I could go to the next slide, it is also important to
remember that there is oil production in other places in places
other than Nigeria and Angola that includes the Congo,
Equatorial Guinea, Gabon and Cameroon. This gives you the idea
of not only the production, but also the expected production.
These are based on our estimates.
Going to the next slide, there was--some discussion here
about volumes. These are our estimates of the impact of deep
water developments in both Angola and in Nigeria. You will see
that in the year 1999 that there is about--Angola is producing
approximately 600,000 barrels of oil per day. This is going to
rise very substantially. It will more than double by 2010.
Nigeria is producing close to 2 million barrels and this is
going to rise very substantially also, close to 3 million
barrels. The question which was asked about on-shore
production. If the situation in Nigeria clears up and it is
stable, that we estimate there will be another 400,000 barrels
of production of oil that would come from on-shore production.
Likewise, in Angola, nobody really has any idea. It is largely
unexplored. It is physically dangerous. There are a lot of
mines. Oil production in Angola began on-shore, but there is
very modest.
The next slide is oil investment needed to lift per capital
GDP. As we will show in later slides, oil is very, very
important to the economies of this country. PPP is Purchasing
Power Per Capital. This is not Purchasing Power for GDP. We
have adjusted it so the number comes out a little more than it
would if it was flat GDP. But what is really quite striking is
if you take the surge in production in Angola that we
anticipate and you take the population of Angola which is about
12 million which is relatively small, is that the ground oil
production can transform Angola. If the war can end, Angola can
become a very vital, strong country, a really unique country in
West Africa.
If you go to the next slide, again, we see production
surging and the yellow here is the potential from ultra-deep
water. At this point are just estimates.
The next slide is to give you an idea of other heavily
populated oil producing countries such as Algeria and
Indonesia. What you see is that Nigeria and Angola are going to
take a much more important role, that they are going to take a
bigger place at the table in the international oil business.
The challenges ahead for the governments of West Africa,
are that they need to create a secure environment for foreign
investment. They must build strong political institutions. They
have got to create the necessary conditions for sustained
economic growth and development. For the industry to invest as
Deputy Assistant Secretary Humphrey pointed out, there has got
to be a legal infrastructure on which the capital can flow and
we are talking about enormous amounts of capital.
Where is this money going to come from? There is really
only one place it can come from. It can only come from the
international companies. This shows the balance sheet of the
industry. On the bottom axis is the credit rating. On the
vertical axis is the reserves. You can see that governments
have a lot of oil, but the high credit ratings, they come from
the international companies. So the only way that the potential
of West Africa is going to be unlocked is in partnership with
these companies that have strong balance sheets.
In terms of competition in West Africa, the governments are
going to need the balance sheet and the technology of the big
companies, but the industry is restructuring and this could
affect West Africa. However, that being said, there are a
number of very large, strong companies such as Chevron and
Exxon Mobil which are interested in West Africa. There is high
above-ground risk, political problems however, as well as
increasing operational costs, particularly on-shore in both
Nigeria and Angola.
Big ticket, major capital projects, this is really a
business only for very large companies which is too bad. If you
have smaller companies, then more prospects will be developed.
If peace can come to Angola and stability can come to Nigeria,
you will see a lot more competition.
The question was asked are American companies involved? You
can see that Exxon which had no deep water licenses in 1991,
now has 21 in 1999. It is a very, very important part of Exxon
Mobil's future. They have invested and they have more than $10
billion of capital exposed.
Likewise, in the next slide if you look at Chevron in West
Africa and its role in West Africa, the graph on the left is
reserves and production in 1998. You can see that Chevron has
reserves of a little under 1.5 billion barrels in Net
production to the company, is a little over 100,000 barrels.
But if you look on the other axis you can see that the vertical
axis is production cost and the horizontal axis is net income
per barrel. Are people making money in West Africa? The answer
is yes. So that West Africa is a very important part of
companies' portfolios. They have a very good relationship and
it is mutually beneficial to both countries.
Now if you look at the economies of these countries, it is
pretty sobering. Oil has a key role to play. If you look at
trends in fiscal accounts, the blue line is revenues, the red
line is expenditures and the green bar is the difference. You
can see that Angola is permanently running deficits. Where does
the money come from? To a large extent oil. You can see it fell
in 1998, which was just a function of price. The other source
is primarily diamonds. You look at the composition of
expenditures, you can see that defense and interest expenses
are important parts. I should point out that the chart begins
at 40 percent, so it is not quite as bad as it looks. But you
can see that they have got very, substantial structural
problems in the Angolan economy. The only way out of this is
going to be oil. You can see that crude exports represent a
vast preponderance of the foreign exchange reserves and that
oil investment is critical to the country's economy going
forward.
For Angola, the need for oil sector revenues will increase
with growing budget requirements. The oil business has got to
be encouraged in Angola and Angola has got to encourage the oil
business, but this is a partnership that I think both the
companies and the country are eager to encourage.
Finally, in terms of Nigeria, if you look at the economy as
a whole you will see that the blue line, which crashes in 1998,
again is a function of price. This is an economy that is
entirely leveraged to oil, when oil goes down, everything else
goes down.
I would like to go to the next slide which shows that
petroleum is the key to stabilizing finances. Again, the gray
is expenditures. The blue is revenue. The red line is WTI which
is the price of crude oil and the black is the balance. You can
see that when oil prices go up, generally the government can
run a balanced budget, but when oil prices fall, the government
goes substantially into deficit.
The last chart, I think is quite important here and that is
the balance of payments, the real money in Nigeria. You can see
that you have got foreign investment is gray and other flows
which is really flight capital and if you look at the red line,
you can see when oil prices were high, the blue line went up
substantially. That means the money moved out of the country.
This is an unsustainable situation for the Nigerian economy.
Debt rescheduling relief will be insufficient to solve
Nigeria's balance of payments problems. That is not enough.
That being said, that rescheduling is very important to it.
So in conclusion, we believe that the outlook in Nigeria
there is a new political structure. The old tensions are a
problem, but the energy sector remains the main economic driver
and really the critical source for foreign investment.
The other question, Mr. Chairman, if you want me to go into
briefly on gas, what I would really like to do is simply say if
you look at the gas, go to the second chart here, what you will
see is with growing production there has been an effort to
utilize the flared gas. Shell has an LNG plant, Chevron is in
gas to liquids and the West African gas program, but the
problem of production is growing. They are absorbing, in
effect, the existing gas, but as production grows more gas will
be available and this is a very, very difficult challenge for
them to manage.
I conclude there.[The statement of Mr. West appears in the
appendix.]
Mr. Royce. Thank you for a very excellent presentation. I
am going to make a copy of your notes there and send that to
the Members.
Let me ask you about a question concerning China. Angola
and China recently signed a letter of intent on joint
construction of a refinery. The China National Petroleum
Corporation also involved a controversial operation in Sudan.
Is China involved in any other African nations' energy sector
and how should we view China's energy activities in Africa, in
your view?
Mr. West. I do not think they are involved in any
significant activities in Africa at this point. They are, for
example, in Khazakstan. They have a significant investment. The
Chinese are in the process of floating Petro China, a new part
of their national oil company. China is very concerned about
energy demand. If their economy is to grow they are going to
have to import more and more energy. Again, one of the key
factors, to remember about Africa is that it produces light,
sweet crude and this requires the least investment in
refineries. This is the best kind of crude you can get and a
lot of the crude from West Africa flows into the Asian market
including China. So I think the Chinese are going to be
watching Africa, but they are watching the whole world and this
is one of the areas where their economy is going to move.
Mr. Royce. Let me ask you about Elf Aquitaine, if I could.
They have been reviewed traditionally as a tool of foreign
policy for France in Africa. Elf has been identified by press
accounts as having played a major role in the overthrow of
Congo Brassaville's government a few years ago. Going back 30
years in support of the Biafran secessionist movement in
Nigeria which led to civil war in Nigeria, Elf recently merged
with the French oil company, Total Fina, and how do you see the
new Elf Total Fina acting in Africa? Do you think the company's
business practices in Africa are going to differ from the
practices of American oil companies in Africa?
Mr. West. I think there are really two questions. One, will
Elf change its behavior now that it is part of Total? I think
there has been a huge series of scandals, some of the most
significant figures in France in the last 10 years have been
dragged into this. Chancellor Kohl in Germany was involved in
what was known as L'Affaire Elf. That being said, I think that
the management of Total is not interested in being a political
pawn as they used to be.
By the same token, Total has demonstrated its move into
Myanmar. It moved behind Conoco in Iran. They play by different
rules. It is perfectly legal, but it is by different rules and
they do it quite publicly. The old Elf did a lot of things
under the table.
Mr. Royce. In your presentation you state that the
governments in West Africa need to create a secure environment
for foreign investment. What are the specific challenges for
these governments and how much progress has been made over the
last several years?
Mr. West. If I may say I think that to increase investment
you do need a secure environment, particularly in the gas
business. The gas business is entirely different than the oil
business. People have to (a) be able to pay for the gas. There
has to be a market for the gas. Oil can be exported, and given
its physical characteristics, it can be moved all over the
world. Gas cannot. So there has got to be a legal regime, you
have got to be able to know how it is going to work. You have
got to have contracts which obligate the buyer. You have to
know you are going to get paid real money for it.
But that being said I think I should point out that the
competition between the major oil companies to compete in West
Africa in deep water off-shore Nigeria and Angola is intense.
If, you look, for example, at government revenues in Angola,
the foreign investment is largely bonus bids from the oil
companies. In terms of the oil business, there is a pretty
secure, substantial course of dealing right now. It is more
risky, when you get either on-shore or in gas, then there are
substantial problems, commercial and physical security.
Mr. Royce. I want to thank you, Mr. West, for your
testimony and fine presentation. I am going to turn over the
chairing of the Committee at this time to Mr. Payne who will
continue because I have another appointment. So thank you very
much.
Mr. Payne. [Presiding] Thank you very much, Mr. Chairman.
Let me thank you for calling this very important meeting. I
think there is going to be a vote in about 10 to 12 minutes
also, so we might try to speed through.
I really appreciate your comments and we are talking about
trying to increase the production in Nigeria. I think one of
the problems when you find oil is that everybody just wants the
oil to be the answer. Other sectors that could, be the answer,
such as agriculture, and other kinds of industries that could
really move forward are forgotten and everybody is depending
simply on the oil, and I know your country is only interested
in oil, but is there any discussion ever to when you are just
giving advice that it is all right to get all the oil you can,
but like Nigeria is a great example, import, vegetables. I mean
it makes no sense. It is one of the most fertile countries in
the world and so do you feel that is the responsibility of your
people or that is out of your hands?
Mr. West. I think a lot of people who look at the oil
industry now recognize that oil can be both a blessing and a
curse for a country for exactly what you are saying, that it is
easy money and it is controlled often by governments. I have
often heard the formula for corruption is if you have power
without accountability equals corruption. In the oil sector
that happens. I think that if you look now that the way the oil
companies operated even 10 years ago and the way they operate
now that they are spending more and more money.
I think you have to be realistic. A place like Nigeria is a
huge country and to ask the oil companies to bear the burden on
all of this is simply unrealistic. Can they be good partners?
Are there ways they can be imaginative? Oil companies have--
they do not have just big balance sheets. They have access.
They have some very talented people and I would encourage them
to try and build that human capital. I think the next
generation of oil executives really are trying to do that. In
the past, they did not, but the spirit of what you are saying I
agree with. I think one has to be realistic as to just how much
they can do.
Mr. Payne. Right, as has been mentioned, you have heard me
mention Chevron before, when they were involved in Nigeria with
the former dictator, of course, they have been improving since
that. Shell years ago, Elf, Talisman, now. Let me just, I guess
time is going to run out. So I will just ask about the question
of----
Mr. West. Can I make one point?
Mr. Payne. Sure, go right ahead.
Mr. West. You mentioned Chevron. I believe there is a
hospital in Angola Chevron has rebuilt three different times. I
mean you have got to be fair to these guys. They have made some
not insignificant investments here.
Mr. Payne. Yes, that is true. I have heard about that
hospital. One of the other things though we need to deal with
and that is once again some organizations are now taking,
looking at them, but this question about transparency. There is
a lot of corruption and usually the corrupted is the one that
gets all of the bad publicity, but you have to--I do not know
if there is such a word, but you have to have a corrupter, you
know or a corruptees or corrupt whatever. The ones who are
doing the corrupting, and when do we start to seriously not
only in this industry, but all the rest, when we do start
seriously talking about the wasted money when as a matter of
fact in Germany it is a tax deductible item. You just put down
how much graft you paid and it goes in the whole business
account. Others are not as blatant but it is understood
practice.
How do we ever change that cycle of corruption from the
western countries that are offering the money and then so that
it can filter down to some of these very poor countries that it
is very enticing when these offers are made?
Mr. West. Mr. Payne, I agree entirely. I think corruption
is a terrible blight. I think in fairness to American companies
now, large international American companies are extremely
sensitive to this issue and they just do not do it.
Now if money is stolen from the government once the money
is received that is beyond the control of the government,
excuse me, of the company.
Mr. Payne. Right.
Mr. West. I think that the big international companies are
very sensitive to this because they realize that the board and
management can be criminally liable and they are very sensitive
about going to jail.
I think the question is whether other countries play by our
roles and the answer is they do not and I think there are
efforts now to try and impose our standards on other countries
and companies of those countries. I personally, I think this is
going to happen over time. I think American companies deserve
some credit because American companies at times have had to
leave the table, if there is the perception or looks like
corruption, they just will not go near it now and I think it is
wise.
Mr. Payne. I agree and I am going to yield to my
colleagues. It is being discussed now I think in the European
Parliament when they were here a year or so ago, meeting in the
U.S. I raised the question and I do not know if they are going
to invite me to their meeting in Europe, but we did raise the
question that this corruption of these countries have to be
addressed and there is this transparency, international and
others that are doing that.
Let me yield to Ms. Lee from California. She has questions.
Ms. Lee. Thank you very much. Let me just ask you in terms
of the environmental consequences of oil production, how do you
advise your companies with regard to the responsibility that
oil companies have in terms of environmental degradation? For
instance, look at Nigeria in the Delta region. Specifically,
the initiatives that were or are being developed now to address
that and what could have prevented that, if anything, based on
how you see corporate, U.S. corporate responsibility in this
area?
Mr. West. I think that there are really two questions. The
question is in terms of new projects and projects going
forward, one executive was asked how do you, if there are not
environmental laws in a country, what standard do you apply? He
said we apply the same standards we do in the United States.
They recognize--there is a cost of doing business around the
world as a world class company and they simply have to play in
a certain league.
So going forward, I think you will find and in recent
years, the equipment is state-of-the-art and they do not cut
corners.
Where life gets complicated is in the historic projects and
things like the Delta and you have situations where the
companies can argue, look, we met our legal standards in these
countries which they usually did, but the standard either was
so low or nonexistent and I think it is a problem that people
have got to kind of work together. There is no obvious answer
and it is a gray area. I think companies recognize they have
responsibility, but the countries do too and find a way that
you can do it on the most efficient least cost basis and in
some place like the Delta the cleaning up the environment is a
visible sign, and outward and visible sign of a lot of other
problems and it is not a discrete problem.
Ms. Lee. Thank you very much.
Mr. Payne. Thank you. The gentleman from New York?
Mr. Meeks. Thank you, Mr. Chair. Let me just ask a quick
question. The African Growth and Opportunity Act is something
that once passed, it increased incentive for our companies to
do investment in Africa. I am just wondering and curious, your
opinion. Do you think that the passage of that bill will give
incentives to U.S. companies to invest in Africa's energy
infrastructure?
Mr. West. Yes, I think, you put your finger on the right
word. Invest in the energy infrastructure. I think in terms of
these enormous oil and gas projects, I do not think it makes
much difference, the investment was taking place, the structure
was in place. They know how to do it. I think in terms of power
projects and gas and it is the infrastructure within the
countries, I do think it can make a difference.
Mr. Meeks. I yield back to the Chair.
Mr. Payne. All right, thank you very much. Thank you very
much, Mr. West and to Mr. Humphrey for that very important
testimony. We appreciate we know we have a lot of work to do,
but we will move on. I do not want to get too used to this
gavel, but at this time the meeting is adjourned.
Thank you.
[Whereupon, at 3:43 p.m., the Subcommittee was adjourned.]
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A P P E N D I X
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