Dragon at the fount of Africa

Fresh off important visits to the U.S., Saudi Arabia and Morocco, Chinese President Hu Jintao is expected to arrive in Nigeria later this week to meet with Nigerian President Olusegun Obasanjo and several key legislators to discuss bilateral relations and issues of common interest. During his visit, President Hu will also deliver a much anticipated speech to the Nigerian parliament on China’s policy in Africa. The trip is designed to reinforce what has quickly become one of Africa’s most dynamic strategic partnerships.

Two-way trade has greatly expanded reaching US$2.83 billion in 2005, up nearly 30 percent from 2004. Chinese foreign minister Li Zhaoxing noted earlier this month, "Remarkable progress has been made in China-Nigeria economic and trade cooperation." Cooperation in areas such as agriculture, communications, power generation and transportation have accelerated, with Nigeria’s non-oil exports to China totaling an estimated US$500 million in 2005. Although these achievements are indeed impressive, the future of Sino-Nigerian relations rests in the continued development of bilateral energy cooperation.

Like the U.S. and other Western countries, China is determined to diversify its energy supplies away from the volatile Middle East region where it currently gets 60 percent of its oil, to areas in Africa, South America and even North America. Currently, China gets a quarter of its oil from Africa and is looking to increase that number substantially over the next several years.

According to the Oil and Gas Journal (OGJ), Nigeria has nearly 36 billion barrels of proven oil reserves, making it the largest oil producer in Africa and the tenth largest producer of crude in the world. The Nigerian National Petroleum Corporation (NNPC), which manages the country’s state-owned oil industry, expects oil production to reach 40 billion barrels by 2010 through a combination of domestic and foreign investments. Oil production averaged 2.6 million barrels per day (bb/d) in 2005 and Nigeria’s President Obasanjo has said publicly that he would like to increase that number to 3 million bb/d in 2006 and 4 million bb/d by 2010. With domestic oil consumption growing at 7.5 percent per year and economic expansion reaching an amazing 10.2 percent in the first quarter of 2006, resource-rich Nigeria is a natural partner for an energy-conscience Beijing.

In 2005, Nigeria signed an important US$800 million agreement with state-owned PetroChina to supply 30,000 barrels of oil a day to mainland China. In 2006, China National Overseas Oil Corp (CNNOC) invested US$2.3 billion for a 45 percent stake in the country’s Akpo field allowing the company to increase its daily oil production by 15 percent. CNOOC chief Fu Chengyu said the transaction was an important for the company to continue its global expansion. "The deal is perfectly aligned with CNOOC’s long-term strategy of achieving growth through the exploration and development of offshore fields and achieving geographic diversification of the company’s portfolio," Fu said. The investment was the largest for a state-controlled energy enterprise since China National Petroleum Corp’s (CNPC) US$4.2 billion deal for Asia’s PetroKazakhstan.

In addition to oil reserves, Nigeria holds approximately 185 trillion cubic feet (Tcf) of proven natural gas reserves, making the country the largest natural gas holder in Africa and the seventh largest in the world. State-controlled NNPC estimates it will need approximately US$15 billion to meet its plans to increase production and exports by 2010.

In a move that will help Nigeria attract much needed foreign investment, the Obasanjo government announced this month that it would pay off its remaining multi-billion debt to the Paris Club, a group of lenders including the U.K., Russia and Germany, becoming the first African nation to settle with its lenders. The announcement is part of a larger plan by President Obasanjo for increased transparency. The combination of economic reforms and high oil prices have propelled the Nigerian economy forward, giving a important boost to Africa’s most populous country ravaged by years of domestic strife and the effects of military dictatorship.

But difficulties remain on the horizon that could temporarily disrupt Sino-Nigerian bilateral relations. Although the country’s economy has improved dramatically under President Obasanjo, it lacks diversity, with 95 percent to all government revenues generated from oil. Any unexpected disruption in energy exports could translate into serious problems for Abuja and foreign investors.

Moreover, vandalism has become worse over the past few months with attacks on Royal Dutch Shell’s pipeline in the Opobo Channel in December and subsequent attacks on the Brass Creek fields. Shell has estimated that 455,000 bb/d of its oil production has been shut down as a result of the attacks. Kidnappings of expatriate oil workers in the Niger Delta region by the Movement for the Emancipation of the Niger Delta (MEND) earlier this year have also increased concerns surrounding the security of the county’s energy infrastructure.

Problems aside, the bilateral relationship still holds tremendous promise for both countries. All told, China is considering approximately US$7 billion in various investments in the West African nation. "They [Chinese] understand our environment and that’s why they want to invest. We will continue to appeal to them to come and invest," noted Joe Anichebe, spokesman for BPE, Nigeria’s agency in-charge of privatization.

Sino-Nigerian relations have become closer as a result of China’s need for energy and Nigeria’s need for investment. As a result, the budding relationship will likely stimulate more intense rivalries between countries for access to energy resources on the continent. For the time being, however, President Hu is determined to look beyond potential conflicts; instead concentrating his diplomatic efforts on Nigeria with the hope that any short-term discomfort will be offset by long-term economic and energy commitments.

This article originally appeared in TCS Daily.