Despite challengers, Western companies are eager to stay in Nigeria. (image: greenpeace.org.uk)

Somehow, Nigeria’s oil industry has somehow become even more complicated.

The race to control the world’s oil resources has heated up as China has ambitiously entered the contest to win leases in Nigeria, putting Western firms on notice. And, at the same time, the Nigerian government has discussed imposing new taxes and fees on companies seeking to renew their leases, according to an article in Sunday’s Wall Street Journal.

According to the Journal, China’s state-owned Cnooc oil company was approached by a Nigerian “middleman” who inquired if the company was interested in taking leases held by Western companies such as Chevron, Shell, and Exxon once they expire. Cnooc has allegedly declined this offer, fearing reprisals from the more established companies it may need to partner with in the future. China does have a presence in Nigeria, as it co-owns an offshore oil field with France’s Total SA.

China, due to its fast-growing economy, has a pressing need to obtain oil reserves. Through its state- owned firms, China has been purchasing oil assets from companies and other governments, as detailed here on HeatingOil.com earlier in November.

This, along with proposed legislation that would increase the amount of royalties the government would receive from oil production totals, has pressured the major Western oil companies to sign renewal contracts before the Nigerian oil business changes. Exxon has already done so, inking 20-year extensions for three of its licenses. Shell and Chevron also hope to renew and are currently in discussions with the Nigerian government to do so.

In addition to the political jockeying, oil firms in Nigeria have also had to deal with security threats. Militants from the Niger Delta, home to the country’s oil reserves, have waged battle against the government amid claims that not enough money has gone back to the region. Militants associated with MEND, the Movement for Emancipation of the Niger Delta, have kidnapped oil company employees and have attacked oil pipelines and other key parts of the industry’s infrastructure. As a result, Nigeria—long Africa’s oil leader—now ranks behind Angola as Africa’s second leading producer.

In an attempt to mediate the situation, and very possibly to get in the good graces of both the government and MEND as it negotiates its renewal deal, Shell has launched a training and rehabilitation program for the area’s militants who have laid down their arms in the tenuous ceasefire.

What happens in Nigeria can have a direct impact on the lives of heating oil consumers. Threats to the country’s oil infrastructure often equates to questions about the world’s oil supply. And most times there are worries about the supply of oil, the market responds by hiking up prices.

Oil rigs dominate the view from Angola's beaches. (image: eiuenergy.wordpress.com)

by Nick Malinowski
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Large Potential, Large Problems

A potential economic powerhouse in Africa, Angola has surpassed Nigeria and become the continent’s biggest oil producer. The country benefits from billions of dollars in foreign development investments and relative political stability as the country emerges from the brutal chaos of its 27-year civil war, which ended nearly eight years ago, but corruption and inequality restrict these benefits to the privileged few. The Sub-Saharan African nation shipped out nearly 2 million barrels of crude a day in October 2009, and that capacity is continuing to expand as more and more international oil firms vie for offshore production blocks, turning their attention from Nigeria, whose oil industry faces attacks from militant groups, to the highly speculative deepwater wells off the Angolan coast.

Some analysts have suggested that by 2011 Angola’s petroleum exports will rival Kuwait’s at about 2.6 million barrels a day; production has nearly tripled since 1997. The United States and China, among other foreign powers, have pumped resources into the former Portuguese colony to promote the efforts of their respective energy companies, yet most of the Angolan population still lives on less than two US dollars a day and the country remains near the bottom of nearly all development indicators. However, oil companies and governments worldwide have been buying in to the promise that Angola could be one of the last great untapped petroleum resource regions of the world.

Angola boasts rich deepwater petroleum and natural gas reserves, although onshore resources remain largely unexplored due to the political instability in the wake of the civil war. Oil production has increased ten-fold since the 1970s, propelled by discoveries that reach as far as 100 miles from the coast. Roughly three times the size of California, Angola boasts 9.5 billion barrels of proven petroleum reserves along with 272 billion cubic meters of natural gas reserves. It has the fourth most oil reserves of any country in Africa behind Libya (43.6 billion barrels), Nigeria (36.2 billion barrels), and Algeria (12.2 billion barrels). Though Angola’s reserves pale in comparison to these nations, it has bloomed into a key player in Africa’s oil industry and its top producer primarily by leaning heavily on its top two customers: the United States and China, which consume more than 90 percent of its output.

Headquarters of China's national oil company, CNOOC. (image: bloomberg.com)

China is fast becoming a major player to rival Big Oil, CNN reported on Monday.  Over the past several months, the government-controlled oil companies have been buying oil fields in Africa, South America, and the Middle East. If China continues wheeling and dealing at this pace, it will soon rival Western oil companies in influence and power.

Some of the most recent deals include the Chinese government oil companies loaning $10 billion to Russia’s Rosfeft, in exchange for a cut of the company’s production. They are also working with Petrobras, the Brazilian national company that is developing a huge offshore field. The China National Offshore Oil Corporation (CNOOC) and Sinopec are buying a $1.3 billion stake in offshore Angolan development rights from American oil company Marathon. Angola is currently Africa’s biggest oil producer.

There is also talk that CNOCC will take the majority share in Iraq’s Rumaila oilfield, which produces over one million barrels a day, away from British Petroleum (BP).

Greg Priddy, a global energy analyst at the Eurasia group, a political risk consultancy, says that thanks to the country’s huge trade surplus, China has money to burn. They don’t trust the free market and want more control over the world’s oil, he says. As the country’s voracious oil appetite continues to grow, its overall oil demand is expected to increase by 20 percent in the next six years. China already imports over half of its daily 8 million barrels. When oil prices do start to recover, China is expected to suck up any excess supply.

Although CNOOC’s daily oil production roughly equals Exxon Mobil’s, the Chinese companies lag behind Western companies in operational expertise such as deep water drilling or liquefying natural gas.

Most experts agree, however, that it’s simply a matter of time before the Chinese are competing with the biggest western oil firms.

Heating Oil Impact: As China’s presence on the world oil market looms larger, its huge contribution to global oil demand will most likely help drive up long-term prices of all petroleum products, including heating oil.