Russia is a vast country that is exceptionally rich in mineral resources. Therefore, a fairly commonly held view is that prospecting for minerals outside Russia, for example, in Africa, is not a sensible proposition. Does this viewpoint reflect the way things really stand?
In the next 10 years and beyond, mining will remain Russia’s main source of financing its effort to modernize and upgrade the economy, maintain social stability and national security. You have to understand the extent of Russia’s dependence on oil, or rather oil and gas exports, and realize how unacceptable this dependence is from the standpoint of national security. What if Africa turns out to be a major competitor in this business?
The Russian mineral complex faces mounting problems. The operational efficiency of the allocated reserves is low: Out of 14 major minerals, only the oil, gas, uranium and diamond reserves are exploited at a level of over 50%. However, the scope of exploration and prospecting work in Russia has shrunk drastically as compared to early 1990s.
The future output’s cost of production may be crucially important for an emerging market economy. The projected oil reserves on the Arctic Ocean shelf may be as vast as those in the Saudi Arabia. However, it costs only $4 to $6 to produce a barrel of oil in the Persian Gulf. How much will it cost to produce oil lying beneath the ice? What if we find – we may have done so already – some rare metal in the tundra thousands of miles away from the civilisation? What kind of costs will be involved in its production?
We have to start thinking about international cooperation in natural resources development, in particular, with African countries. Africa is enormously rich in natural resources, including the ones we need, such as gold and platinum (platinoids). For many decades, Africa, namely, the South African Republic has enjoyed the status of a recognized leader in precious metal production. Prices on gold fell a few years back, but ever since the onset of the financial and economic crisis the gold reserves of entire nations and wealthy individuals increased substantially, sending gold prices up, followed by a rise in production. The gold mines that had been considered unprofitable earlier re-opened. South Africa has retained its leadership in gold exports, while India remains the largest importer. Last year, China became the world’s largest gold producer.
Large volumes of proven reserves, high-grade gold ore, fair geological, mining, and climatic conditions, the infrastructure available in some African counties and cheap labor secure high profitability of mineral production and enrichment in Africa. Russian businesses, both public and private, have clearly shown an interest in developing the most promising African deposits. The construction of nuclear power plants, both in Russia and abroad, is one of the few areas where Russia still has a competitive advantage internationally. However, such plants run on enriched uranium, and Russia doesn’t have enough of it. Therefore, Russia is obviously interested in uranium production in Africa, Canada or Australia.
As for oil and gas resources, Russia is an international leader in hydrocarbon production, but not in the volume of available oil reserves. It is generally accepted that there will be no alternative to hydrocarbons as the main energy source for the next few decades. When evaluating the potential of hydrocarbon production in Africa one should consider the following factors: The continent is not yet past its oil production peak; the environmental and other requirements for the transnational oil and gas corporations are less strict than in other parts of the world; oil and gas transportation from the fields in Africa is more convenient and cheaper than from Central Asia; and the political risks are less pronounced there than in the Middle East.
Where does Africa stand in terms of oil and gas production and exports? The African continent is home to 15% of the global population but it uses only 3% of the global energy. African countries produce almost 12% of the world’s fuels (calculated as consumed energy), and this number is likely to go up.
Western countries have long realized the importance of the African oil and gas reserves amid global hydrocarbon shortages and have sharply increased their investments in this industry. According to the leading transnational companies, oil production in Africa, including the shelf zone, might grow by about 6% annually over the next 10 to 15 years. It is expected that the African offshore areas will account for 30% of investment in the offshore oil and gas production by 2030. The United States has established the AFRICOM Command specifically for exercising control over the transportation routes and monitoring general situation in that part of the world.
The largest oil reserves are now located in Libya, Algiers, Nigeria, Angola and Sudan, followed by Egypt, Equatorial Guinea, the Republic of the Congo, Gabon, Chad, Tunisia, Cameroon and the Democratic Republic of Congo. More oil fields were discovered in Uganda and Ethiopia. According to BP’s open-source data, 9.7 million barrels of oil were produced in Africa daily in 2009. The key producers included Angola, Nigeria, Algeria, Libya, Egypt, Sudan, Equatorial Guinea, the Republic of Congo, the Democratic Republic of Congo, Gabon, Chad, Tunisia, and Cameroon. African countries produce about 485 million barrels a year, or about as much as Russia.
Undoubtedly, U.S. and European transnational oil companies produce more oil than anybody else. However, another juggernaut, China, has made its appearance on the continent. In 2010, China’s GDP was higher than Japan’s, making it the world’s second largest economy with gold reserves standing at $2.8 trillion. It is safe to assume that China will try to buy as much of the African mineral resources as it possibly can.
Chinese oil imports from Africa amounted to about 63 million metric tons in 2009, while the United States imported 107 million tons and Europe 124 million tons. Angola is the number one oil supplier to China, leaving behind even the Saudi Arabia and Iran, followed by Sudan and the Equatorial Guinea. China buys two-thirds of Sudan’s oil exports and invests in exploration, production, refining and hydrocarbon transportation in Sudan now that Western companies have left it. The Chinese completely ignore sanctions against Khartoum imposed by the West. Chinese oil companies operate in Angola, Nigeria, the Republic of Congo, Algeria, Côte d'Ivoire, Namibia and Ethiopia.
Chinese presence in Africa has many faces and includes the provision of grants and loans; rail and highway construction; construction of power plants, housing construction, shopping malls, schools, and hospitals; arms supplies; tens of thousands of Africans studying in China; regular summits and mutual visits at the highest government level. There are more Chinese restaurants than McDonald’s in Africa. Many African states are celebrating their 50th anniversary of independence these days. The Chinese have invested $100 million in building the African Union’s headquarters in Addis Ababa, Ethiopia, and are completing the construction quickly. The buildings of foreign ministries and parliaments in many African countries came as a gift from China. Roads, bridges and airfields are usually built on credit. In exchange, China gets access to the African riches. The Africans don’t mind, although the negotiations are not always perfectly smooth.
Key gas producers in Africa are Algeria, Egypt, Libya and Nigeria. Europe imported about 78 billion cubic meters of gas in 2009. In 2006, Russia accounted for 35% of Europe’s imports, whereas Africa’s share was 21%. In 2009, the numbers were 30.7% and 18%, respectively. Three more gas pipelines from North Africa to Europe are under construction; there are plans to build a Trans-Saharan gas pipeline. Once the crisis is over, North African gas producers may step up their cooperation even more. With new exporters appearing on the Egyptian and Libyan markets, additional 46 billion cubic meters of gas will be supplied to the European markets annually, which will unavoidably exacerbate the competition. It is entirely possible that with time Algeria, Egypt and Libya will build an unofficial alliance backed by a trans-North African gas pipeline, the idea for building which has been in the air for quite a while. North Africa will probably position itself on the European market as a natural gas supplier capable of exceeding Norway’s export capabilities and even challenge Russia’s export potential. The countries of Tropical Africa are also making inroads into this market. Nigeria increased its supply of gas to Spain and Portugal by 3.7 billion cubic meters after it had commissioned the third production line at the LNG plant. There are plans to build the fourth and the fifth line. Angola will soon join the African LNG exporters’ club with a plant capable of producing 5.6 billion cubic meters of gas annually being built there.
Although the Nigerian and Angolan projects have not yet gone live, it is quite possible that after 2010 aggregate gas supplies from North and West Africa to Europe will be up another 65-70 bn cubic meters and will stand at 140-150 bn cubic meters annually. The demand by the main South European importers – Italy, Spain, and Portugal – is not expected to grow by more than 55 bn cubic meters. Therefore, African gas will become available for Central European customers and jeopardize Russia’s plans, whose implementation has been postponed due to the systemic crisis. However, Russia has not ditched these plans altogether.
So far, the competition between Russia and the African countries on the European gas market has affected mostly the Northern Mediterranean regions. In addition to that, both Africa and Russia have stronger competitors in the Middle East (Qatar) and other parts of the world.
In the near future, Africa will likely consolidate its role as one of the last extensively developed hydrocarbon sources, and even see it grow. The leading global economies vying for the African oil and gas resources will exacerbate rivalries between three major players: the European Union, the United States and China. China will steadily increase its presence on the African continent and try to oust the West as a consumer of African natural resources. Other contenders can count on playing only insignificant roles in these processes.
Russia’s role in carving up the African “hydrocarbon pie” will be limited in the next ten years. In a number of areas, such as gas production and building oil and gas transport infrastructure, Russia is a strong competitor to the West and China. However, the African sales figures for the trouble-free pre-crisis 2008, including trade with Russia, give a more realistic outlook.
The European Union is Africa’s largest trading partner. The United States is slightly outpacing China, but a slowdown occurred during the crisis-ridden 2009 and 2010. Over the past 20 years, trade between China and Africa increased by 30 times; between the United States and Africa by 7 to 8 times; Europe by 3.5 times, and Russia’s trade with Africa increased 3 times.
The trends can be clearly seen.
Despite all its problems, Africa is developing faster than the rest of the world. It’s important that Russia finds a place of its own in mutually advantageous cooperation with the African countries.