African Economic Health: Key to U.S. Energy Security

By George L. Kirkland, President
ChevronTexaco Overseas Petroleum Inc.

Washington, D.C., April 13, 2004

I'm very grateful for the chance to speak. Our topic — security of energy supplies — is of vital concern to my company. It's also of vital concern to our nation. And I'm convinced Africa, and our government's policies toward Africa, will play crucial roles in improving that security — now and in the future.

The key to U.S. energy security lies in the diversity of its supplies. And now more than ever Africa is central to that diversity.

African imports help ensure America's sources of crude remain diversified. Today, according to U.S. government estimates, Africa accounts for about one in six barrels of U.S. oil imports. Over the next decade, that figure is expected to rise to one in four barrels.

Africa represents one of the world's brightest prospects as a source for new oil and gas. To appreciate Africa's energy contribution to America, picture life here without it. Without African crude oil, each year the U.S. would need an additional 10 billion gallons of gasoline. That's about enough fuel for fourteen and a half million cars and trucks, or more than the total number of registered vehicles in the state of New York. We'd also have nearly 300 million fewer barrels of crude oil for heating, electricity generation and manufacturing.

So for our own vital interests, I believe the U.S. government must continue to view Africa as a region of strategic importance. To insure continued growth and stability of these African energy supplies, U.S. government policies must be supportive of broad-based African economic development. They must help create an enabling environment for building African capacity, in individuals, communities and institutions. We all must recognize that economic growth is the key to African social and political progress.

Ultimately, I believe, a stable African energy industry is fundamental to America's energy security. By itself, proximity to U.S. markets gives Africa's oil and gas an advantage over other sources of supply.

My industry, of course, is investing heavily in Africa's principal theaters of energy activity: its established oil and gas reserves, its vast deepwater potential and its exciting new prospects for natural gas. ChevronTexaco, for example, with our partners, plans to invest $20 billion in African projects over the next five years. Let's take a moment to look at each of these areas.

Africa's existing resources, principally on- or near-shore oil fields, have been going strong for years. Because of their proven value, they'll continue to draw a big share of our industry's capital and technology. These areas include Angola's Block 0, the Niger Delta in Nigeria, the Democrative Republic of Congo and Republic of Congo and others. Our industry believes this solid core of conventional operations will continue to pay dividends to Africa today while we build deepwater and natural gas for tomorrow.

Deepwater Africa is destined to become one of the world's most important offshore oil provinces. Investments in this frontier area are expected to top $5 billion this year, "and the figure could soon double from there," according to the consulting firm Douglas-Westwood. By 2008, for example, ChevronTexaco intends to produce 250,000 barrels per day at Nigeria's deepwater Agbami Field. By decade's end, we expect to build on our discoveries in Angola's Block 14 with developments that add more than 200,000 new barrels of daily production.

As for natural gas, for years Africa's natural gas has been a resource looking for a market. That's changing in a big way, as over the next 20 years natural gas replaces coal as the world's second most utilized fuel.

In the U.S., natural gas demand provides yet another reason why Africa is destined to play a bigger part in our energy security. While U.S. natural gas demand is expected to increase nearly 50 percent by 2020, traditional North American supply sources will be able to meet only 75 percent of the nation's long-term needs . Indeed, demand for imported gas is expected to surpass that of Japan — today's leading importer — within 10 years.

Liquefaction will globalize natural gas. It ensures a market for "stranded" reserves like those offshore West Africa. Indeed, Nigeria, with onshore and offshore gas reserves, arguably boasts the world's fastest growing liquefied natural gas (LNG) business. Other African countries — notably Angola, Algeria, Equatorial Guinea and Egypt — are considering or expanding natural gas and LNG capacity.

My point is that Africa's rapidly expanding natural gas development, and America's rapidly expanding natural gas demand, offer additional, powerful reasons to strengthen U.S. relationships with Africa.

I believe our government should pursue three complementary objectives to make certain America receives adequate supplies of African oil and gas. These are: physical security of African oil and gas assets and facilities; open markets; and good governance. All of these will help drive that economic development I talked about earlier.

I'll use my own company to illustrate the first point. In the Niger Delta, we've currently shut-in more than 140,000 barrels a day of production because of security problems at our pipelines, terminals and other facilities. That's more than 70 percent of the entire daily crude output for the state of Oklahoma. In addition, Nigeria at times loses tens of thousands of barrels a day to outright theft — so-called illegal oil bunkering. Each year, bunkering puts millions of dollars into the pockets of racketeers.

The U.S. government can help by assisting African governments in promoting the rule of law, by supporting African law enforcement with training and equipment, and by helping law enforcement officials respond humanely to civil unrest. A good example was a recent $2 million grant by the U.S. to train Nigerian police in handling unrest and confronting organized crime, especially money laundering.

A second U.S. objective should be to continue and expand policies that encourage open trade. Freer trade doesn't just benefit the petroleum business; it helps all of African enterprise, including manufacturing, agriculture, textiles, and many others.

Although it's only three years old, the African Growth and Opportunity Act (AGOA) offers a good example of such policies. Basically, AGOA greatly expands duty-free entry for goods from African nations in return for civil reform. The results have been impressive.

In 2002, the latest year for which data is available, U.S. imports under AGOA rose by 10 percent, to $9 billion, and U.S. investment climbed nearly 6 percent to $10.2 billion. So the good news is that AGOA is working. Thirty-seven of 48 Sub-Saharan African countries are now eligible under the Act. "AGOA II" revisions liberalized its provisions, especially for apparel goods. I urge Congress to back Sen. Lugar's expanded "AGOA III" legislation that would extend the law until 2015.

By nurturing commercial relationships with the U.S. and by promoting economic growth for eligible African countries, AGOA signals America's willingness to reach out in ways that improve the lives of many Africans. Initiatives like AGOA also expand Africa's economic diversity and increase the stakes held by our African trading partners. I'm a firm believer that, in terms of economic success, nothing is a bigger motivator than having "skin in the game."

Consider the recent case of another African nation: Libya. Libya, in opening a dialogue with the U.S., has recognized its own need for greater direct foreign investment. I believe economics helped drive Libya to choose investment over isolation.

The result? Light is shining through a crack in the door of U.S. sanctions. Indeed, some experts believe that, with American expertise and capital, Libya could restore its oil production to 30-year-old levels — something north of 3 million barrels a day. Bottom-line: renewed relations can mean greater stability and economic growth for Libya, and greater energy security for the U.S.

Lastly, as a third objective, the U.S. government should continue to support good governance and transparency in African countries. Like open trade and physical security of assets, good governance and transparency strengthen the foundation for economic growth. Within developing nations, they level the playing field for local enterprise. And internationally, they build investor confidence.

I'm proud my company helped draft the Voluntary Principles on Security and Human Rights in 2001, and that we joined U.K. President Tony Blair in launching the Extractive Industries Transparency Initiative (EITI) in 2003.

Last December, I'm happy to report, Nigeria became the first country to officially pledge its participation in EITI. That was welcome news to the petroleum industry. ChevronTexaco praised President Obasanjo for that commitment to transparent government. I'm also heartened by the G8 countries' 2003 declaration — supporting greater transparency by governments and companies.

Secure assets, open trade and good governance; these are three areas where America's political leaders can help Africa's leaders make their nations stronger, and our own energy supplies more secure. There's every reason to hope for additional payoffs as well, namely, improved international stability, greater understanding and increased trust.

Thank you.

Updated: April 2004