Editor's Column on the Eye of the Horn of African Affairs

IGAD Breaking News (HAN) January 1, 2006.

Somaliland

Ethiopia

Eritrea

Djibouti

Kenya

Somalia

Sudan

Uganda

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Somalia: Energy-hungry China is talking to develop energy sector

Nairobi (HAN) January 1, 2006, - The Western diplomats based in Kenya and Addis Ababa  have said that now Somalia may become more politically stable, government officials from energy-hungry China have been talking to the current president of Somalia, Abdulahi Yusuf about the possibility of helping develop the country's energy sector. Abdulahi Yusuf denied this. "It's not true," he said. "Nobody talked to us and asked us about oil in Somalia."

Asked to comment on China's relationship with Somalia, the foreign ministry said in July: "The Chinese side is willing to take an active part in Somalia's economic reconstruction and explore the possibilities of all kinds of cooperation with the Somali side."

With soaring demand from China's burgeoning economy, a key factor in global oil markets, and Indian consumer markets, oil producers operate close to maximum capacity. The Paris-based International Energy Agency predicted in December that oil demand will increase 7.8 percent in 2006, mostly due to China's growth in demand.

Despite the successful acquisitions around the world, China lost -- or rather withdrew from -- a bidding war over Unocal, which Chevron secured for $17-plus billion.

India folded on a multibillion dollar project in Nigeria after India's Cabinet Committee on Economic Affairs turned down a $2 billion proposal from state-run Oil and Natural Gas Corp. to acquire a 45 percent stake in a Nigerian oil and gas field, giving Chinese firms an upper hand. Competition between India and China could grow fiercer in 2006 as both countries aim to meet soaring demand.

China has also not shied away from investing in countries the United States has poor relations with such as Sudan and Iran. Sen. Joseph Lieberman, D-Conn., warned this year about potential U.S. military conflict with China, if the two sides do not work together.

Somalia's oil and gas potential attracted attention from Western major oil producers before the country collapsed in chaos in 1991, and diplomats say Asian firms have shown recent interest amid efforts to stabilise the Horn of Africa country. Somalia lies across the Gulf of Aden from the Arabian peninsula and next to Ethiopia's Somali National Regional State, which has proven reserves of natural gas & Oil.

The President of Somalia, Abdulahi Yusuf, trying to build an effective central government following his election by lawmakers at peace talks last year, told: "Any company that is interested in the natural resources of Somalia can come (to talk) to the government, no matter from which country."
"After all, we will look after our interest. Let them compete, and the best company will win," he said during a visit to Nairobi en route to Saudi Arabia to discuss possible aid for Somalia.

Somalia has no proven oil reserves and only 200 bn cf of proven natural gas reserves, according to the US Energy Information Administration. However, companies including Total, Amoco, Chevron and Conoco and Phillips, which have since merged into ConocoPhillips, held exploration concessions in northern Somalia in the 1980s.
The firms declared force majeure following the collapse of the central government in 1991. Force majeure is a clause in a contract exempting the parties from their obligations under the agreement as a result of conditions beyond their control.

Former government officials said they were negotiating energy deals with about 12 foreign companies in the late 1980s, but the contacts ended when the overthrow of former dictator Mohammed Siad Barre in 1991 triggered a civil war. Hundreds of thousands of Somalis have died from famine, disease and violence since then. Analysts say the war has left a complex legal legacy. Some of the old exploration concessions were in a part of northern Somalia that is now within the territory of Somaliland, which declared independence from the rest of Somalia in 1991.

Somaliland, which is not recognized internationally, is also seeking to develop its energy sector but must try to avoid conflict with the earlier accords signed by the internationally recognized pre-war Somali government based in Mogadishu. Asked whether he was in a position to decide what to do with the previous oil exploration agreements, Yusuf replied that he needed more information before he could address the issue:
"I never read these contracts," he said. "I don't know if they are contracts previously agreed with the late Somali government or not. I have to see documents. If these companies have documents, they have to show us."

Industry analysts foresee a rise in the volume of energy deals in 2006 -- partially due to a growing struggle to secure increasingly scarce energy resources around the globe. Experts predict fewer mergers such as Exxon's $80 billion merger with Mobil will occur in the future, while smaller but influential deals will be predominant, especially with major energy players such as China, Japan and India. Smaller acquisitions and mergers will most likely be the common theme in 2006.

Ethiopia, Somalia, Kenya Will be the Next Great Oil Province

Nairobi (HAN) January 1, 2006, - Tom Windle, who explored some of Africa's west coast sites for Amoco, believes Africa's potential has barely been recognized. The regional geologist says that East Africa is the most significant potential oilfield worldwide.

A top When Conoco's Mogadishu office became the de facto US embassy before the Marines landed in Somalia; it was not a war on terror, but supposedly a "humanitarian mission". Protecting oil concessions to Conoco and other US corporations was a key factor behind this invasion, after major oil finds in Somalia. The president of the company's subsidiary in Somalia served as the US government's volunteer "facilitator" before and during the US invasion and occupation.

The influential Sunday Times described British geologist Jeremy Leggett’s first book “The Carbon War” as “the best book yet on the politics of global warming.” His latest “Half Gone” endeavors “to prove the case for two big arguments.” Leggett contends that “the oil topping point, otherwise known as the peak of production, will be reached in the 2006-2010 window and when the market realizes this, severe economic trauma will ensue. Second, global warming is a real, present, and fast-growing danger.”

Tom says that although there are prospects for further oilfields in West Africa, it was in the East and the Horn of Africa where the potential is the greatest.

"If you really want to know where I think the future of Africa is, it's the east coast," he told the Times. "If someone came to me and said, 'Here's a billion dollars, I want you to open up a new frontier basin,' I would say, 'Right, the East African margin; In my opinion the East African margin (from Sudan, through Ethiopia and Somalia down to Kenya) will be the next great oil province." It's a view shared by Stewart Williams, the consultant from Wood Mackenzie who said that East Africa is now "emerging" after years of being ignored.

Big companies are now attempting to "book reserves" in the region under the most favourable terms they can and they have found willing takers in East African governments, anxious to see investment as well as hopeful that any new oil deposits will bring huge economic benefits.

A number of companies are now involved in exploring the possibility of oil finds in East Africa including Exxon Mobil, Woodside Petroleum and Tullow Oil, which earlier this month recorded a 660 per cent increase in its profits for the first half of 2005.

The British company has invested in trying to explore four potential oil fields in Uganda.

Tullow Oil chief executive Aidan Heavey put his firm's exceptional performance down both to the increase in oil prices and its strategy of investing heavily in potential new oilfields in Africa and Asia.

The company has already seen considerable success with its African venture after interesting discoveries in Gabon and, despite the fact that no oil wells have been drilled in Uganda since the 1940s, is hopeful that its four licences agreed with Kampala - three of which are new - will bear fruit.

Mr Heavey said that the outlook for the rest of the year for the company remained "exciting" with "high impact" exploration wells planned for both Uganda and Mauritania.

The company has also decided that as a result of its success it will stick to the current strategy of deals and exploration rather than involvement in refineries.

"You've got to know what you are good at and stick to it," Mr Heavey told the Guardian newspaper.

Tullow has doubled in size thanks to its purchase of Energy Africa last year.

Africa currently produces around 11 per cent of the world's oil and over five per cent of natural gas.

It is home to nearly 10 per cent of proven world oil reserves totalling some 112 billion barrels.

HAN Note: "diplomats have said that now Somalia may become more politically stable, government officials from energy-hungry China have been talking to Yusuf about the possibility of helping develop the country's energy sector."

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