Chapter VI – India—Africa: Plea for Energy Partnership – India: The Emerging Energy Player

Chapter VI

India—Africa: Plea for Energy Partnership

Africa is emerging as a strategic source of hydrocarbon in the global energy security regime. The importance given to the African sources needs to be appreciated in the context of changing geopolitics of energy since September 11.1 African hydrocarbon is being discovered to diversify the sourcing of oil and gas. The oil companies too are finding it to be a good investment. From the Gulf of Guinea to Angola and Nigeria, the region is said to be set for an oil boom. India too is looking for the African oil to hedge against risk. In the India-Nigeria Joint Commission meeting the then external affairs minister underlined that the oil deal with Nigeria ‘is central to achieving national energy security through a diversified programme. We wish to acquire a strategic balance in the procurement policy of hydrocarbon.’2 India has been importing oil from African countries such as Nigeria, Angola, Congo, Egypt, Gabon, Libya Equatorial Guinea, and Cameroon. In fact, Nigeria has been the second and the third largest supplier of oil. It has been argued in this chapter that while India may pursue a proactive policy in its search for energy to meet the growing demand, it ought to be recognized that the Indian approach cannot be that of exploiting the market but of promoting the processes, making African oil contribute towards nation building. The point is made because there is a strong possibility that scramble for the African hydrocarbon might trigger a conflict and deprive its gains to the society to which the resources belong ultimately. The chapter would also outline the emerging profile of Indian presence in the African hydrocarbon sector.

African Hydrocarbon: The Emerging Profile

Africa with proven oil reserves of 101.8 billion barrels accounts for 8.9 per cent of the total world reserves. Its current oil production is at 8.9 mb/d. The R/P (reserve production ratio) ratio suggests that reserves will last for more than three decades. The regional profile, however, needs to be seen in the context of wide variations within the region from 7.5 to 66.3 years. Out of 54 countries in the African continent, hydrocarbon reserves of significant size are confined to only 10 countries. In terms of distribution, North Africa has the largest share followed by west, southern and central Africa. East Africa has yet to discover the fortune. As Table 6.1 shows, the proven oil reserves of Africa have gone up from 58.2 to 101.8 billion barrels in 20 years between 1983 and 2003. The big players in the region are Libya, Nigeria and Algeria. Countries like Angola, Gabon, and Sudan are upcoming promising producers. The golden triangle of the Gulf of Guinea is comprising the deep-water areas of Nigeria, Equatorial Guinea and Sao Tome, and Principe is rated as the most dynamic emerging source for Africa.3

Africa has over 40 types of crude oil. Their quality is rated high. The oil production in Africa is expected to increase from 8.9 mb/d in 2003 to 12.05 mb/d in 2010, 13.9 mb/d by 2015 and 16.24 mb/d by 2030.4 It is clear from the table that the five largest oil-producing countries currently in Africa—Algeria, Angola, Egypt, Libya and Nigeria—account for 80 per cent of Africa’s oil output. The table also suggests that Nigeria, Angola, Libya, Algeria and Equatorial Guinea will be Africa’s top five producers by 2030. Gabon and Egypt are declining in importance, while Sudan is moving into the big league. Sudanese output as Table 6.2 shows will be rising from 199,000 b/d in 2001 to 207,000 b/d in 2002, 229,000 b/d in 2005, 367,000 b/d in 2010 and 526,000 b/d in 2020.


Table 6.1 Proven Oil Reserves in Africa

Source: BP Statistical Review of World Energy 2004.


Table 6.2 African Oil Production: EIA Forecasts (In mb/d)

Production includes crude oil (including lease condensates), natural gas liquids, other hydrogen hydrocarbons for refinery feedstock, refinery gains, alcohol and liquids produced from coal and other sources.

Source: US Department of Energy, Energy Information Administration, International Energy Outlook 2002.


Angola, Cameroon, Chad, Congo, Equatorial Guinea, Gabon, and Ivory Coast are the beneficiaries of the exploration activities, hence contributory to the enhanced production from the continent. ‘Angola is expected to become one mb/d producer. Given the recent excellent exploration results, Angola could produce volumes up to 3.4 mb/d well into the later years of the forecast period. The other West African producers with offshore tracts are expected to increase output by up to 750,000 b/d for the duration of the forecast.’5 Among the North African countries, Egypt and Tunisia are rated as low-growth areas because their oilfields are ageing. The other potential countries include Eritrea, Mauritania, Sao Tome and Principe, Somalia, and South Africa, but they are going to be significant producers only after 2010.6 Trends indicate, ‘the Gulf of Guinea region, covering West and central Africa, is generally viewed by the oil industry as the world’s premier “hotspot,” soon to become the leading deep-water offshore oil production centre. Almost every month an industry conference in Houston, London or an African oil capital extols the opportunities to be found in this “New El Dorado”.’7 Petroleum Intelligence Weekly assessment is that ‘Exxon Mobil is going to double its output from West Africa over the next four years, and it is counting on the region to provide about one quarter of its global oil production. Exxon Mobil is looking up to Nigeria, Angola, Equatorial Guinea, and Chad to increase oil production to at least 0.680 mb/d, but there is a potential for up to 0.807 mb/d by 2006–07 when Exxon’s global output should exceed three mb/d.’8

The importance of the West and the central African oil is more of an incremental supplier, ‘the region will add two to three mb/d of oil to the global market in the next five years. This will represent one in five new barrels of oil brought into the world market—that is, fully 20 per cent of the new worldwide production capacity.’9 In terms of exports, it is West Africa that has a larger global share estimated at 7.9 per cent compared to 5.9 per cent of North Africa in 2003. In terms of volume, West African exports have gone up from 2.6 mb/d in 1993 to 3.13 mb/d in 2003, and in case of North Africa, it was from 2.68 to 2.71 mb/d. It is in the last couple of years that the West African oil started trading at a much faster pace, for instance, between 2002 and 2003, the North African exports registered a rise by 3.6 per cent while the West African oil exports were up by 15.4 per cent. From strategic salience, it is important that West African oil moves to the American market in larger proportion than the North African oil, that goes to Europe. In 2003, exports from West Africa to the United States was 1.4 mb/d, while North Africa sent 0.4 mb/d. However, in the European market, North Africa exported 1.83 mb/d and West Africa only 0.73 mb/d.

African oil acquired significance with the OPEC policy in 1988 to restrain the production to maintain the oil prices at $22–28 per barrel. This gave the non-OPEC suppliers a chance to capture the market. It is argued that the strength of the region lies in ‘relatively low labour and infrastructure costs, an almost 50 per cent discovery rate and, most significantly, the prospect of relative strategic stability. All this action makes Africa one of the hottest places for oil and gas exploration in the world and US companies are spearheading this rush for African energy supplies.’10 Besides much of the oil is beneath the Atlantic or near the West African coast, which makes it simpler to transport it to the United States than oil from the Persian Gulf or the Caspian Sea.11 It is pointed out that the following factors have contributed in enhancing the strategic importance of African oil:12

  • The large amounts of oil discovered in the region and the scarcity of big new oil prospects elsewhere.
  • The development of technology allowing the extraction of oil from fields as deep as 8,000 feet.
  • The increasing volatility of the Middle East.
  • Oil from the Gulf of Guinea is typically of high quality and is low in sulphur, which is suitable for the stringent refined product requirements and for refining centres in the United States. As such, it provides especially large profit margins.
  • Fields are close to the US markets, making oil easily transportable over open sea lanes.
  • The bulk of new discoveries are found offshore, reducing, in the eyes of the companies, potentially explosive interactions with the local population and the possible social turmoil onshore. This lowers the political risk.
  • Africa’s oil markets are generally wide open to foreign participation. In contrast, foreign companies are locked out of many other countries, for example Saudi Arabia, Kuwait and Mexico, where large reserves are controlled by the national oil companies, offering limited or no participation opportunities for foreign companies. State-run national oil companies control more than two-thirds of the world oil reserves.
  • Only Nigeria among Africa’s oil exporters is a member of OPEC, which sets limits on member-country production levels.

However, it may be underlined here that ‘extracting oil from the ocean is much more expensive than extracting it from the ground. Saudi Arabian oil, for example, is still profitable if sold for $2–5 a barrel, while deep-water oil must fetch $14–16 to be profitable.’13 But September 11 has added a new dimension to Western energy security concerns. The deterioration in US-Saudi special relations further enhanced the strategic importance of the African hydrocarbon. In the changed context, Africa is seen not as much an alternative as a source to contribute in diversification of hydrocarbon supplies. It is conceived as an emerging vital component in the global energy security chain. This was loudly declared by the US administration. ‘Energy from Africa plays an increasingly important role in our energy security,’ informed the US Energy Secretary Spencer Abraham to the House International Relations Committee.14

Africa is richly endowed with gas resources and is a net exporter of it. The estimates put the gas potential at 13.78 tcm. Table 6.3 shows that reserves have grown up by 100 per cent. Nearly half of it is non-associated in nature.


Table 6.3 Proven Reserves of Natural Gas in Africa (In tcm)

Source: BP Statistical Review of World Energy, 2004.


Algeria, Nigeria and Libya have the bulk of African gas and they are the leading producers and exporters (see Table 6.4). In 2002, LNG exports from these three countries accounted for about 23 per cent of the natural gas traded in the world and 52 per cent of Africa’s natural gas production. More than 85 per cent of Africa’s gas exports went to Western Europe, with some LNG exports also going to the united States. Many countries in Africa have significant untapped production and export potential, and with Western European demand rising, international energy companies are rapidly expanding investment in the region.15 According to one estimate, in the next three years, the export capacity is likely to go up by 88 per cent, making more than half the output of the United Kingdom, the largest producer of Europe.16

Sub-Sahara may not be very rich, yet it has reserves of a respectable size, estimated at 4,765 bcm.17 These reserves ‘are either located close to oilfields along the Atlantic seaboard or they lie stranded across the continent, scattered along a 6,000-km long bow that stretches from offshore Namibia to Ethiopia. Associated gas is almost exclusively located in the oil provinces along the Gulf of Guinea, from Angola to Cote d’Ivoire, mostly offshore.’18 Gas production still has to catch up with the size of reserves. The production has been limited primarily due to market logistics and inadequate infrastructure. Consequently, the bulk of it has been flared. The World Bank has launched the Africa Gas Initiative to overcome the structural problems. The programme aims to:19


Table 6.4 Natural Gas Production in Africa (In bcm)

Source: BP Statistical Review of World Energy, 2004.

  • Put an end to gas flaring
  • Develop indigenous natural gas resources for local markets and for exports
  • Reap more economic benefits from gas substitution, reduced imports or increased exports of oil products
  • Improve environmental conditions at both local and global levels
  • Make clean commercial energy more accessible to the poor

A few major projects include:20

  • The Nigerian LNG Project
  • Export of Nigerian gas to neighbouring countries
  • Development of gas from the Pande fields in Mozambique
  • A gas-to-electricity scheme in Côte d’Ivoire
  • Utilizing gas from the Songo-Songo fields in Tanzania for electric power
  • Development of the Kudu gas field in Namibia

External Players in the African Market

Africa requires foreign capital and technology to harness its energy potentials. In fact, the continent has been lamenting for neglect from the international community. With the new stakes discovered by the external players in the African energy the prospects have brightened. companies and energy importers from the united States, and Europe to Asia are in the African energy market. According to the Cheney report, America will import nearly two of every three barrels of oil (it consumes)—a condition of increased dependency on foreign powers that do not always have America’s interest at heart, hence it is keen to secure energy from Africa. Currently, Africa meets 15 per cent of American imports and it is expected that new offshore discoveries would enable West Africa meet as much as 25 per cent of the American imports by 2015. Industry sources estimated that it could be achieved by 2005 (see Table 6.5). Nigeria, Angola, Algeria, Gabon, and South Africa are the leading suppliers from Africa. Recognizing its energy interest, American government has been pursuing a proactive diplomacy with a clear objective of engaging Africa into its energy network. ‘The oil stakes in Africa are rising,’ said J. Stephen Morrison, Director of the Africa Programme at the Centre for Strategic and International Studies, a Washington-based policy group. ‘The question is: to what degree can growth in production be accelerated, and to what degree is our political posture toward these countries important to the flow of oil?’ ‘There has also been discussion in Congress and the Pentagon about increasing military exchanges with West African countries and perhaps establishing a military base in the region, possibly on Sao Tome, an island nation in the Gulf of Guinea.’21 Press reports confirm ‘the tiny island nation of Sao Tome and Principe, off the West African coast, has agreed to host a US naval base to protect its oil interests.’22 It is significant that initiatives to promote common understanding on security of oil wells are likely to further militarize the African energy regimes.23


Table 6.5 US Crude Oil Imports in 2001

Country Imports (thousand barrels) US Imports (%)
Congo (Brazzaville)
Congo (Kinshasa)
Cote d’Ivoire
Equatorial Guinea
Africa Total
World Total

Source: ‘Debating Oil Development in Africa,’ ACAS Bulletin, Association of concerned African Scholars, Fall 2002, No. 64,


The United States has substantial investment in the energy sector of Africa. Table 6.6 shows that it accounts as high as 73 per cent of its investment in Africa. Among the major recipients are Algeria, Angola, Egypt, and Equatorial Guinea. However, a more diversified profile is going to emerge as the offshore hydrocarbon exploration is high on the priority of US multinationals. Chevron alone has invested $5 billion in Africa and is going to invest another $20 billion over the next five years.25 Exxon Mobil and Chevron Texaco, and ‘independents’ like Devon, Amerada Hess, Marathon and Unocal, have major interests in the protection of thousands of US employees and a stake in the promotion of a stable investment climate and respect for the rule of law. US energy investment in Africa may account for over 100,000 US-based jobs concentrated in Louisiana, Texas, and California.26


Table 6.6 US Direct Investment in Africa in 2001

Source: ‘Debating Oil Development in Africa,’ ACAS Bulletin, Association of Concerned African Scholars, Fall 2002, No. 64,

Note: D, suppressed. In Nigeria total investment is less than that in the petroleum industry. In 2000, in Cameroon, US investment was $266 million ($265 in petroleum). In 2000, in Gabon, 99 per cent of investment was in petroleum, a figure likely to have increased.


Recognizing the strategic importance of the African oil, American think tanks like the Corporate Council on Africa and Africa Oil Policy Initiative Group are strongly recommending the US policymakers to pay more attention to the oil potential of the region.28

‘In view of Africa’s increasing strategic importance to the United States, the time has come to re-define Africa as a region of vital strategic interest to the United States. In exchange for access to African oilfields and re-deployment of US military assets to the Horn of Africa, the United States will facilitate Africa’s economic growth and development by supporting critically needed investment in transportation and infrastructure and forgiving bilateral debt,’ said Congressman Jefferson.

‘Defining Africa as a continent of strategic interest to the United States is a win-win proposition for both sides. US investment in African information and transportation infrastructure, coupled with debt relief, will serve as a catalyst for jump-starting Africa’s economies as well as providing a rather substantial carrot to improve governance. The United States will have access to what may become the world’s largest reserves of petroleum and a security arrangement that will meet our national security objectives without further provoking potentially destabilizing political and religious elements in the Gulf that are opposed to the presence of foreign troops,’ concluded Congressman Jefferson.29

With Africa being designated as the emerging source for energy, the American government has recognized West and central Africa as priority zones in global counter-terrorism efforts, as evinced most overtly by the recent, sudden projection southwards of the US European Command. ‘The US European Command, mandated to reconfigure the deployment of US assets to the south in Africa and eastward in Europe, has begun expanding activities in West and central Africa. This has taken the form of the Pan Sahel initiative intended to build the counter-terrorism capacities of Chad, Niger, Mali, and Mauritania through training and the provision of equipment. A number of other access agreements have been concluded (Ghana, Senegal, Gabon, Algeria, and Morocco) or are under discussion (Angola, Sao Tome and Principe and Nigeria).’30

Europe, too, is actively defining its energy ties with Africa. The EU as a unit is the net importer of energy (see Table 6.7). It meets only 24 per cent of oil and 57 per cent of natural gas of its requirements with indigenous sources. In 2003, Africa exported 128 mt of oil to Europe, bulk of it 90.6 mt came from North Africa.31 According to European Union Energy Outlook 2020, the region will be importing two-thirds of its requirement by 2020. Currently, Germany, Italy and France are the largest net importers of energy.

The energy security imperatives are guiding the EU to further augment its supplies from Africa. This was eloquently made clear by the energy minister of the United Kingdom in the keynote address at the First Africa Oil, Gas and Infrastructure Conference held in February 2004, who underlined that with the United Kingdom going to be the net importer of oil and gas in the next six years, Britain would be looking towards African hydrocarbon. Hence, it recognizes the continent as an area of strategic and commercial significance to ensure the energy security of the country.32

Asia, too, is becoming increasingly dependent on external suppliers. The growing demand for energy has, in fact, made Asia search desperately for oil supplies. Its reserves show a decline from 44.8 million barrels in 1992 to 38.7 million barrels in 2001. The net import of oil for the region in 2001 was calculated at 12.6 mb/d, making the region’s dependence on imports 62 per cent compared to less than 50 per cent in 1990.33 Asia is the fastest growing market. China and Japan are the second and third largest consumers of imported energy. India, too, is catching up fast. Asian exporters like Malaysia and Indonesia too are going to become the net importers of energy.


Table 6.7 Africa Oil External Stakes

Africa Supplies Share of Oil Imports (%)
USA and Canada

Source: ‘Africa: The New Surge for African Oil and Gas,’


Table 6.8 Asian Crude Oil Demand (Percentage Share)

Country 2000 2030

Source: ‘Results from Supply Demand Forecast for World, Asia and Asian Countries,’ IEEJ,


Indeed, Asia is the new energy player in the coming decade. Though the Persian Gulf will remain the principal source of oil supplies, the Asian countries are actively engaged in diversifying their import market. Hydrocarbons are gradually emerging as an important link between Asia and Africa. African countries too are keen to engage Asian partners to gain strength in marketing their crude and gas. It meets 22 and 29 per cent of the imports of China and India, respectively. These two countries, along with others like Malaysia, Korea, and Japan, are investing in the oilfields too.

Among the Asian players, China appears to be the most significant (see Tables 6.8 and 6.9). Facing stagnation in domestic production, China is increasingly becoming dependent on external supplies. It is aiming to have stakes on overseas energy fields. The ‘go out’ strategy, according to Tan Zhuzhou, President of the China Petroleum and Chemistry Industry Association (CPCIA), ‘involves Chinese firms proactively going out to other parts of the world such as Africa and South America and applying their technical expertise and financial resources to the exploitation of oil resources there. This will enable us to secure multiple sources, avoid the risks of over-dependency on any one source and reduce the effects of price fluctuations. In this way, given abundant overseas oil production, the impact of high oil prices on the domestic economy can be offset or buffered to a considerable extent, which will be conducive to the development of the domestic petrochemical industry.’34


Table 6.9 Asian Crude-Oil Dependence

Source: ‘Asia Has the Most to Fear from a War in Iraq,’ Petroleum Intelligence Weekly, 8 February 2003.

World Bank, Oil Companies and Investments

The World Bank is actively engaged in hydrocarbon projects in Africa. Since the hydrocarbon potential of the region requires massive investment, particularly in the development of infrastructure, the Bank has been lending on priority basis. One of the leading investment projects in Africa in recent times, which became controversial as well, has been the $3.7 billion oil pipeline project from Chad to Cameroon in West Africa.35

The oil companies are the principal agents in harnessing the African oil. The huge capital investment and the high technology required to bring oil from wells to market hinges upon their policy and attitude. Some of these oil companies are too large for the small state to conduct negotiations. In sub-Sahara, African Elf of France and the Anglo-Dutch have the dominant presence. With the former merging with Total, it is the latter that now commands the sub-Sahara oil business. Shell is influential in Nigeria and Chevron Texaco in Angola. However, in the new exploration activities, the American companies are quite active. Exxon Mobil, Chevron Texaco, Amerada Hess, Vanco, Ocean and Marathon are planning for large investments. Chevron Texaco announced in 2002 that it had invested $5 billion in the past five years in African oil and would spend $20 billion more in the next five years. Similarly, Exxon Mobil intends to spend $15 billion in Angola in the next four years, and $25 billion across Africa during the next decade. Apparently, competition is intensifying with an aggressive profile of the US companies and is seen as erosion of influence by the French companies. ‘Many of the West African countries whose oil is now being opened up under the auspices of the US companies are former French colonies, and many are members of the “Franc Zone” or Communauté Financière Africaine (CFA). Until recently, France viewed these countries as its own sphere of influence. But it lacks the huge amounts of capital needed to mount any challenge to the US companies.’African oil has even attracted companies from Asia—Petronas from Malaysia and CNPC are there notably in Chad and Sudan. It is observed that ‘A division of labour has been developed in Africa between the “super majors” on the one hand and smaller independent companies that employ a higher risk business model on the other. These independents enter “frontier” countries and sign exploration contracts in hopes of a major find. Once commercially viable, the rights to the field are often sold or shared with larger companies that have access to the necessary capital and technology.’36

The growing stakes of the oil companies can be seen by the fact that their activities are moving beyond the Gulf of Guinea like Gambia, Senegal, Ghana, Gabon and Guinia Bissau. In East Africa, Exxon Mobil has stakes in Mauritania. Sudan is emerging as an attractive site. Besides, exploration is on in countries like Kenya, Tanzania and uganda. In southern Africa, the oil map includes offshores of Madagascar and South Africa.

India and Africa: Partners in Energy Development

India has a distinct place in the African continent. Apart from a rich historical past, the two have been sharing a world view on anti-colonialism, against apartheid and on non-alignment. In nation building too, there have been efforts to empower each other, particularly in the development processes. Under the technical cooperation among the developing countries and economic cooperation among developing countries (TCDC/ECDC) framework, attempts were made to factor economic autonomy in bilateral relations. In recent times, the two have been finding community of interest on many issues like the agreement on agriculture, trade-related intellectual property rights (TRIPS) or the Singapore issues at WTO. To give a new thrust to its Africa ties, India has launched ‘Focus Africa 2002–07’ programme. It is an attempt to promote a sustained relationship in a functional framework at a bilateral and regional level between India and the individual countries of sub-Saharan Africa. Its thrust is to share experience in the development of infrastructure and capacity building. This framework would utilize our core strength of strong democratic values, steady economic growth, large pool of scientific and technical manpower and a diversified experience in development.37

Growing reliance on hydrocarbon imports too has been finding reflection in India’s relations with Africa. Engaged in the process of developing its overseas energy policy and strategy, India apparently intends to define its energy ties with Africa in the wider context of cooperation. In the Indian framework, Africa is not merely a market. With energy gaining priority in African development agenda, the African governments are equally keen to diversify their energy ties. Thus, there is a very obvious synergy of interest between the two. In its strategy for overseas equity participation, India places high significance on Africa. ‘Africa is our major destination for equity participation in the oil and gas sector as countries like Libya, Sudan, Algeria, Angola, Nigeria and many other small republics of Africa having considerable oil and gas reserves.’38 OVL is looking for participation in West Africa for exploration and production of oil. Reportedly, OVL is planning to pick up a substantial stake in two exploration and production fields in a West African country and has initiated talks with an European company. It is planning to pick up a 50 per cent stake in one of the fields.39 OVL has planned an investment of over $2 billion in acquiring 50 per cent stake of a global oil major in a highly prospective offshore exploration block on the West African coast.

Africa has been an important source of oil supply to India. The quality of African crude suits the parameters of Indian refineries as well. As Table 6.10 shows, India has been importing oil from eight African countries though in different quantities. Nigeria has been the leading oil supplier to India sometimes even surpassing Saudi Arabia, the largest supplier to India.


Table 6.10 Leading African Crude Supplier to India (In mmt)

Source: Integrated Energy Policy, Report of the Expert Committee, Planning Commission, Government of India, New Delhi.


In the year 1999–2000, Nigeria was the largest crude supplier constituting more than 27 per cent of the oil imports (see Table 6.11). Crude oil and oil products constitute more than 90 per cent of India’s imports from Nigeria. India has proposed to buy six mt of crude from Nigeria annually at the official selling price. This could save $25 million on middlemen margin. NNPC has agreed in principle to supply high-quality sweet crude. In 1999–2000, Nigeria provided 15.4 mmt of the total requirement of sweet oil.40 This was bought through a term contract signed on 30 August 2000 for importing 40,000 barrels of crude oil per day at the official selling price for a period of one year to begin with. The importance of the deal lies with the fact that India could get the preferred grade oil, most suitable to Indian refineries. India values its special energy links with Nigeria as a vital component for its energy security. It has been making all efforts to renew the deal, which expired in September 2001.

Nigeria is reported ‘to have offered to renew the old term contract’. The total amount of Forcados and Bonny Light crude required by India might not be possible for Nigeria to make available, but ‘they will supply Forcados and Bonny Light to the extent it is possible. The contract will be on the best-endeavour basis (see Table 6.11).’41 India will be swapping the other grades for crude suitable to its refineries. The contract for Forcados and Bonny Light crude is expected from October 2004 to September 2005.42 Following the visit of Inter- Ministerial Task Force from India in November 2005, an MoU was signed for $6 billion oil-for-infrastructure deal, which includes supply of 45,000 barrel of oil daily for 25 years.


Table 6.11 India-Nigeria Oil Trade

Year Quantity (mmt) value (In US$ million)

Source: Indian High Commission, Nigeria,


Apparently, availability has been the constraining factor for the regular renewal of the contract. NNPC informed that it would try to allocate the desired grade in reviewing the term contract but it could happen only on best endeavour basis because its refineries also prefer the grades required by India. Moreover, the availability of their equity oil for export is limited. ‘Nigerian crude oils are available from equity producers like Shell, Total, and Chevron and Texaco. IOC plans to invite bids and negotiate with these parties to finalize a term contract.’43 Further, the logistics have been restricting the flows as the transport cost forbids larger volume of trade; however, efforts are reportedly made to mitigate this ‘by working out an arrangement with US-based shipping firms. Sources point out that empty American oil tankers on their way to the Persian Gulf can pick up Nigerian crude and transport it to India on a concession.’44

India is reportedly working hard for ‘seeking equity in an oilfield, discount on crude supplies to the proposed refinery and permission to enter petro retail business in the state—equity in a Nigerian oilfield would ensure steady supply to IOC and some cushion against international volatility besides steady feed for the new refinery. IOC imports both Escravos and Forcados grades of sweet crude produced by Shell International and Chevron Texaco from the oilfields in Edo.’45

India has been invited by the state of Edo to set up a grass-roots refinery.46 The Indian company, IOC has cleared the draft MoU. This will be the first crude-processing unit of IOC on foreign soil and the second major overseas investment plan to invest up to $2 billion in acquiring an exploration company. It will be a joint venture with the Edo government. The capacity of refinery and investment is at the final stages.47 Reportedly, ‘IOC, which has also bid for revamping of the existing refineries in Nigeria, wants to start marketing auto fuels in the African nation as well.’48 India has expressed its intent to participate in Nigeria’s disinvestments of refineries, particularly ‘in the 110,000 b/d Kaduna plant and the 150,000 b/d refinery in the eastern oil hub of Port Harcourt.’49 Nigeria has been finding it difficult to implement its privatization, and hence, the Indian offer has been well received. India emphasized its keenness to become a ‘partner with Nigeria in local content development as well as exchange of technology in power generation, aviation, oil and gas among other sectors of the economy.’50

India-Sudan Initiative

Sudan is emerging as a promising player in the global hydrocarbon market. Its growing reserves and the pace of production substantiate this. In 2001, Sudan was having oil reserves of 262 million barrels, but by January 2004, these were revised to be at 563 million barrels, a jump of more than twice in less than four years’ time. Similarly, the production has moved up from 270,000 b/d during 2003 to about 345,000 b/d in June 2004 and is likely to be at 500,000 b/d by the end of 2005.51 Looking at the importance of the country as an emerging oil exporter, OPEC in August 2001 granted it an observer status to attend its meetings.

The Indian decision to buy equity share in Sudanese oil enterprise is a critical component of its foreign energy policy. It is a well-conceived move to choose Sudan as a gateway to its entry in the African energy sector. Sudan has a distinct status in the African continent. Apart from its size, it plays an influential role in moulding the regional perspective. It has been facing US sanctions since November 1997. This certainly affected its development activities. The scope of sanctions was extended by the United States in February 2000 to include prohibition against the US citizens and companies conducting business with the Greater Nile Petroleum Operating Company (GNPOC). It is an international consortium of petroleum companies engaged in oil extraction. The US sanction has affected the investment climate in the country. The Indian decision to purchase share in GNOPC was a bold step. At the initial stage, India was considering insuring of the investment in Sudan to hedge against the political risk.52 Importantly, the petroleum and natural gas and external affairs ministries did not agree with the proposal, specially after peace protocols have been signed by Khartoum and the rebels. In fact, Sudan expressed its resentment against the move because the two countries have signed the Bilateral Investment Protection Agreement and this would be tantamount ‘to suggesting that Sudan is not conducive for foreign investment.’53 The external affairs ministry of the Indian government agreed with the position.

The Indian gesture was well received by Sudan that has been keen for Indian partnership for its own reasons. High visibility of Western oil companies in the oil sector is not compatible with Sudan’s national ambience. Sudan would not like its resources to be seen to be exploited by the Western companies alone. Moreover, there have been glaring charges against the MNCs for human rights violations. The plolicy is well reflected in the composition of the GNPOC. It constitutes CNPC China with 40 per cent share, Petronet of Malaysia with 30 per cent share, Sudapet of Sudan besides Arakis and others. India joined the consortium in March 2003 when it purchased the Canadian company Talisman’s share of 25 per cent. In August 2003, India further consolidated its presence by acquiring stakes in two Sudanese oil blocks 5A and 5B from OMV Aktiengesellschaft, an Austrian company. Investment of $969 million to acquire stakes in the Greater Nile oilfield and two exploration blocks is the second biggest Indian overseas investment after the $1.8 billion into Russia’s Sakhalin gas fields. The impact of investment has given new identity to India not only in Sudan but in the region itself. ‘The spin-off has proven more profitable than a few million tonnes of equity crude. Indian managers and workers at Greater Nile have not only won corporate battles against their Chinese and Malaysian partners, but have also put Indian goods back into focus of the locals. While Indian automobiles topped Sudan’s shopping list some time back, now it is oil technology and equipment. The latest example is a $200 million contract to domestic pipe maker PSL Ltd for a 785-km oil pipeline.’54 President Abdul Kalam’s visit to Khartoum in October 2003 gave further impetus to bilateral relations.55

The production in the Diffra field of Block 4 of GNOP has begun. ‘The first well in Block 4, DW-3 produced oil on 15 May 2004 followed by DW-1, DW-4 and Hamam-2. The fifth well Hamam-1 was commissioned on 24 May 2004. Oil production from Diffra has now been established and this field is currently producing nearly 20,400 b/d. First commercial production for Block 4 started on 30 May 2004. With this, additional oil production of GNOP has crossed 300,000 b/d mark. The company is expecting about 75,000 b/d from its share in the Sudan project in the current fiscal year, up from an average 65,000 b/d a year ago, due to significant improvements in the project’s crude production levels.56 The company has invested $200 million on exploration and development in GNOP. Cost considerations prevent Petronas and the CNPC from supplying their domestic markets. Instead, they sell the crude from the project at international prices. GNOP produces around 12 MTPA of crude. OVL with 25 per cent stake in the project is entitled for 3 MTPA. After paying royalties and other taxes/duties to the Sudanese government, the net take for OVL from GNOP is 1.2 mt (300,000 b/d). Currently, only a very small volume of this is being shipped to India, while the rest is sold to China and other countries.

Adjacent to the GNOP in 5A and 5B shore blocks, OVL has bought out 26.125 per cent stake for $115 million from Austria’s OMV These two exploration blocks are located in the Muglad Basin in southern Sudan. The first measures 20,917 km and has four previously drilled wells. It contains undeveloped Thar Jath field with probable oil reserves of 149.1 million barrels to over 2 billion barrels. Its operating rights are with Petronas of Malaysia with 68.875 per cent stake. Sudan’s national oil company Sudapet has the remaining 5 per cent. The second block is large in size measuring 20,119 sq. km. Petronas has 41 per cent, Sudapet 10 per cent, OMV 24.5 per cent and Swedish oil concern Lundin Petroleum AB 24.5 per cent stake in this block. From the perspective of making an entry into Africa, it is ‘an important acquisition—it consolidates Indian presence in oil-bearing region that continues to show high potential and also strengthens the position as a major player in the global oil and gas market.’57

India proposes to invest in the pipeline and refinery expansion project also. This is the only oil-producing property in its portfolio. A further boost was given to Indo-Sudan oil ties when an agreement was signed for the establishment of a pipeline for transporting petroleum materials from Khartoum refinery to Al-Khair port in Port Sudan and purchase of crude oil on 30 June 2004 between the Ministry of Energy and Mining of Sudan and the Indian company ONGC. The new 741 - km long pipeline with 12 inches diameter will be a significant addition to exportation of oil products to the international market. Expectations are that one more agreement for establishing a third pipeline with 32 inches diameter will be signed soon. The Indian private sector, too, is making moves to look for opportunities. Reliance reportedly may go for exploring ‘investment opportunities not just in oil but textiles, IT and telecom.’58

Angola: Another Market for India

Angola is another leading destination where the Indian companies are making efforts to gain place. Angola is the second largest oil producer in sub-Sahara. Currently, it is producing 923,000 b/d and the production is likely to be doubled by 2008. The bulk of oil is located in offshore. The United States is the leading market though Europe, Latin America and Asia are also importing oil from Angola.59 It could be a promising source for India. India is cultivating energy ties with Angola in diversifying and ‘broadening the regular basket with addition of three Angolan crude oils namely Cabinda, Nemba, and Girassol.’60 OVL has also signed a deal with Royal/Dutch Shell to buy its 50 per cent stake in the offshore block 18 for $623 million. According to one report, the development cost of the project calculated by BP for the proven 700,000–800,000 barrels reserves from the six existing discoveries is likely to be $3.5–4 billion. This means a cost of $4.5–5 per barrel, making ONGC’s total estimated acquisition and development cost to $6–6.5 per barrel. However, ‘with seventh discovery already been announced by BP, the block is expected to have an upside of about 300,000–400,000 barrels’.61 First production from the block 18 is targeted for 2007 and the expected peak production would be in excess of 200,000 b/d (10 mt). Of this, India’s entitlement will be five mt.62

The transaction was intended to be completed by the end of 2004, subject to the approval of the government of Angola and pre-emption rights of BP, which holds the remaining 50 per cent interest in the block. The transfer of Shell’s stake to OVL required BP and Sonangol to give up their right of first refusal in favour of OVL. Sonangol has reportedly blocked the move to achieve a better price by exercising its pre-emption right. China seems to be putting pressure because it is interested in the project. There are reports that a state-run Chinese oil player has also thrown its hat in the ring for the coveted asset. China, using oil-for-aid approach, offered an aid package of $4.2 billion against the Indian offer of $200 million for developing railways, and clinched the deal. New Delhi is intensifying diplomatic efforts to secure new deal. However, reports are that so far not much could have been achieved. India has been trying to initiate move for new blocks and asking for dates but reportedly ‘Angola has once again refused to give fresh dates for discussions on the new blocks they had offered. An official team from the ministry of external affairs and the ministry of petroleum and natural gas was scheduled to visit Angola in early February 2005 for discussions, but was postponed till March-end 2005. Sources said that the delegation was expected to leave for Angola by March-end 2005 for the final round of talks.’63

India is further consolidating its Africa energy ties by going to Ivory Coast’s oil and gas market. OVL has reached an agreement with the US-based Vanco Energy Company on 1 September 2004 to acquire 30 per cent participating interest in an exploratory block CI-112 in Ivory Coast. The block is spread over an area of 4,156 sq. km in San Pedro Basin. Its hydrocarbon resource potential is estimated to be in excess of one billion barrels. The acquisition will be completed after approval by the government. Reports suggest that OVL has negotiated acquisition of 40 per cent stake, but retained only 30 per cent after offering 10 per cent participating interest to OIL. The exploration period is up to 20 April 2005; during this period, work commitment of one exploratory well has to be completed. ‘OVL and OIL shall bear 39 per cent and 13 per cent, respectively, against their participating interest of 30 per cent and 10 per cent, respectively, in the cost incurred during exploratory phase comprising geological and geophysical work done in the past, drilling of one exploratory well and one appraisal well. In the event of successful discovery, both OVL and OIL will have recovery rights.’64

India Steps in Libya

Libya could be another promising country for India to build a dynamic energy partnership. The country is pushing a proactive oil regime to invite foreign companies following the lifting of the ban by the United States. Tripoli is opening its oilfields for international biddings and seeking over $3 billion investment for upgrading its six refineries that are ageing and operating roughly at half their capacity of 2.2 mb/d.65 Libya is keen for Indian participation. Indian proposal for a tech-for-oil deal was well received. ‘Tripoli sought bigger Indian participation in its oilfields bidding process, irrespective of whether tech-for-oil deal comes through or not.’66 Indian help is also sought to upgrade its 220,000 b/d Ras Lanuf and 8,400 b/d Brega refineries. Offer was also made for equity participation in Ras Lanuf refinery. Tripoli also wants India to help build a new 20,000 b/d refinery in Sebha, which would process crude from the nearby Murzuq field, and a 200,000 b/d export refinery in Misurata. Indian participation is also invited for bidding for rights to explore six to eight fields. India is looking for stakes on nomination basis at least in two oilfields out of eight oilfields planned for auction. OVL already has 49 per cent stake in two exploration blocks NC-188 and NC-189 in Libya.67 The first of the two blocks measures 6558 sq. km and is located about 250-km south of Tripoli in the Ghadames Basin. This is an upcoming area for E&P activities. So far, five exploratory wells have been drilled in the block area confirming presence of oil and gas. The second block is located nearly 800-km south-east of Tripoli in the Sirte Basin. It measures an area of 2,088 sq km of the Sirte Basin and has well- established infrastructure.

India made another major breakthrough in its African energy initiatives when GAIL acquired 15 per cent participating interest in National Gas Company (NATGAS) of Egypt. NATGAS is the largest private local distribution company for natural gas in Egypt with participating interests by Egypt Kuwait Holding Company, Shell Gas B.V, Petrogas, Jaicorp, and now GAIL (India). GAIL signed the deal with Egypt Kuwait Holding Company, Egypt at a price of $19 million. Egypt Kuwait Holding Company, owned by billionaire Nasser Al-Kharafi of Kuwait, is a leading investment company with significant holdings in strategic sectors ranging from natural gas distribution, float gas manufacturing, fertilizers and insurance to other industrial sectors. GAIL as part of its globalization strategy is exploring ‘African and West Asian countries and is keen to associate with Egypt Kuwait Holding Company and other players in cross-country gas pipeline projects in countries like Jordan and Lebanon.’ It has made an investment of $22 million in Egypt, the largest so far made by GAIL in any overseas market. ‘Egypt is a focus country for GAIL—this partnership shall also help grow other business areas in Egypt and its neighbouring countries.’68

In the emerging profile of India-Africa energy relations, Algeria is a missing link. Algeria is a significant oil and gas exporter. A member of OPEC, Algeria has proven oil reserves at 11.3 billion barrels, although ‘recoverable oil resources’ may range as high as 43 billion barrels. ‘Algeria should also see a sharp increase in crude oil exports over the next few years due to a rapid shift towards domestic natural gas consumption and planned increases in oil production by Sonatrach and its foreign partners. In December 2003, Energy Minister Khelil stated that he hoped to see a total of 54 wells drilled during 2004, up from 43 in 2003 and 29 in 2002.’69 Algeria also is a major natural gas exporter, its recoverable natural gas potentials estimated at 282 tcf.70 The government is keen to boost its gas exports. Sonatrach is pursuing proactive export policy. The present export attains the target of 85 bcm/year as against 60 bcm/year. Algeria is also ‘targeting an increase of oil output capacity to 2 mb/d by 2010 and wants to double proven reserves to 80 billion barrels in the next 5–10 years. Algeria already has major investments in its hydrocarbon sector and has signed more than 22 partnership deals with international companies.’71

Among new players, China from Asia is forging energy ties with Algeria. In December 2003, for the first time, China ventured in the field of oil and gas. CNPC after beating a number of international companies signed a contract with Sonatrach. Under the contract, CNPC will invest about $31 million in the next three years to prospect for oil and natural gas in Algeria. If it gets the yield, CNPC will be granted a certain share of the oil and gas.72 During the visit of Chinese President Hu Jintao in February 2004, the two countries signed a framework of energy agreement. Among the African countries, Algeria and Gabon are key oil exporters to China. ‘Chinese companies have been steadily increasing their presence in Algeria’s oil and gas sector: oil company Sinopec signed a $525 million contract in 2002 to develop the Zarzaitine oilfield in Algeria’s Sahara desert. The China National Oil and Gas Exploration and Development Company is contracted to build an oil refinery near Adrar. Furthermore, the CNPC signed a contract worth $350 million in July 2003 for oil importation from Algeria’73

South Africa is not an energy-exporting country. It is the largest energy consumer (coal and petroleum) and the second largest energy producer after Algeria, and a major coal producer and exporter. With a total refining capacity of 48,547 b/d, South Africa has the second largest refining capacity in Africa. It is the net importer and yet the two countries have been exploring the possibilities of cooperation in the hydrocarbon sector. India perceives that its ‘presence in the African region, alongside the regional superpower like South Africa, will give India a unique status and would help in getting preference, over other countries, in equity participation in the oil and gas opportunities in the region.’74 The two countries signed an agreement to promote cooperation in the field of hydrocarbons, by means of exchange of information pertaining to policies and strategies, priorities, institutional arrangements, regulatory frameworks, technology transfer, R&D and establishment of databanks and commercialization of hydrocarbon technologies.75

The agreement also provides for third-country projects in the fields of petroleum products and hydrocarbon exploration and production, refining and also storage, trading transportation and distribution of petroleum products, building and maintenance of industrial facilities in the hydrocarbon sector, gas-processing facilities, gas transmission and distribution network, CNG projects and gasification technologies.76

The Road Map

The synergy between hydrocarbon deficient India and energy surplus Africa makes an obvious case for partnership. However, energy deals are not merely economic in nature. Energy resources have strategic and geopolitical importance. Thus, despite the ascendancy of market, externalities play a crucial role in defining energy relationship. Political dividend and security concerns are important inputs in decision-making. Besides, the hydrocarbon market carries its own deviations and distortions. It has been a highly integrated industry with limited number of competitors. It requires active support from the state in overseas operations. Thus, energy policy of country participating in the global market gets intertwined with the foreign policy. Occasionally, it acquires a security dimension also when the issue of safe marine lanes become a factor. In the contemporary context when oil and gas are seen as a soft target, the issue of security has become more pronounced.

In case of hegemonic power like America, energy policy ‘is seldom only about energy’.77 Its parameters are defined by foreign policy objectives. But for a country like India, it is the emerging energy needs that demand cultivating ties with supplier countries. The search for energy becomes a foreign policy objective. As the new entrant, India faces the disadvantages of a latecomer, besides the limitation of its capabilities in terms of volume of investment and know-how. But the absence of historical baggage could be the source of strength as well.

In the context of the emerging African hydrocarbon, India has to create its own niche by developing a distinct paradigm of energy relationship. A market-driven relation might make the African supplier rich, but not necessarily contribute to their empowerment. Indian energy ties have to be embedded in the developmental framework. Africa needs to develop its energy resources for nation-building. The discontent of globalization provides the space to countries like India to step in. The Indian policy also has to take cognizance of competing interest in the market not only from America and Europe but from Asia, particularly China. The Chinese, of late, have been pursuing proactive diplomacy in the African continent. China has high goodwill in the region as well. But China as the emerging global power invites attention from the hegemonic powers. China does apprehend that the United States could exploit its energy dependence and may even implement ‘energy containment’ policy to weaken it.78 China might not take recourse to confrontationist posture in pursuing its energy interest in Africa, but on regional African affairs, China could put America on the defensive. The Chinese position on many global issues have been opposite to the American stand. India has been not so eloquent in putting forward its view. Thus, in African energy space, Indian presence might not be seen apprehensivly by America. Though most of the African states are developing their hydrocarbon sector with the American support, they are equally keen to blur its high visibility. In making the balancing of power in the African energy space, India becomes the relevant factor.

From the perspective of Africa, which might need $580 billion for the development of oil and gas in the next 30 years,79 it is equally necessary to create an investment climate where the foreign companies could feel confident. While this might put pressure on the African state to improve the status of governance, the possibilities of its drifting to military or security alliances making the continent military frontier cannot be ruled out.80 Reports are that the United States has offered military help to protect offshore oil.81

The deputy commander of the US European Command, General Charles Wald, met Nigeria’s Defence Minister Roland Oritsejafor and military chiefs in the capital Abuja on Monday. They discussed how the United States could help Nigeria, West Africa’s regional superpower and largest oil producer, to improve security for the oil industry throughout the region. ‘We talked with Nigerian military leaders about having a way that we could cooperate together in monitoring the waters of the Gulf of Guinea,’ Wald told reporters afterwards although he gave no further details. The British publication Jane’s Defence Weekly reported earlier this year that Washington wanted to re-launch the African Coastal Security Programme to improve the capability of the navy and coastguard services of African governments and combat piracy.

In the context where pressure of global power’s presence is going to be increasingly felt by the local governments in devising their hydrocarbon regime, India along with other developing countries could contribute in making a more competitive remunerative and developmental regime to ensure the security of the energy suppliers from Africa. It may be pointed out here that ‘since November 2002, there have been three large, somewhat overlapping, supply disruptions, namely, the loss of supply in Venezuela due to a general strike, the loss of supply from Iraq due to the US-led military action in that country and the partial loss of supply in Nigeria due to ethnic strife.’82 The fact that the Western energy policy towards Africa has been detrimental to their development has been further brought out by a report, Drilling into Debt: An Investigation into the Relationship Between Debt and Oil. It has argued that oil industry further perpetuates underdevelopment in oil-exporting countries. ‘Doubling a country’s annual production of crude oil will increase the size of its total external debt by 43 per cent as a share of its GDP, the report concludes, as well as increase debt-service burden by 31 per cent. For a country like Nigeria, which plans to increase production by 160 per cent, this means a rise in external debt of US$21 billion by 2010.’83 Clearly, it follows from the report that rent-based development strategy will not emancipate the African countries from debt, poverty and underdevelopment despite oil wealth. The alternative development strategy would call for going beyond the hydrocarbons. It is here that energy relations could play a vital role. India ought to promote along with other Asian oil importers an institutional framework to facilitate the recycling of African oil wealth in the development processes. India-Africa energy relations have to be sensitized to contributing towards societal resilience. The stakes are equally high for their mutual development.