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Should Africa drill for deep water oil offshore?

Posted on Monday, 4 October 2010 12:28

After US oil major Chevron bought a 70% interest in three deepwater exploration blocks off Libera in early September, Liberian President Ellen Johnson Sirleaf warned that her country would not fall victim to the oil curse.

New oil discoveries in the Gulf of Guinea and exploration off the coast of Libya are raising questions over the economic and environmental sustainability of offshore drilling.

Join in the debate below on whether Africa should keep on drilling for its offshore oil reserves.

YES: “Africa risks losing out”

Samuel D. Smoots, Managing Partner, AfriDev Capital Partners

The reactions and implications of the Horizon Deep Water oil spill have resulted in a variety of efforts and considerations regarding the best approach to regulating the oil industry. The setting of a six month moratorium on drilling in deep waters off the coast of Louisiana by the Obama Administration has caused a ripple effect across the U.S., from Florida to Alaska, and from West Africa to Brazil.

Communities in Louisiana opposed the ban due to the economic impact of the loss of jobs from drilling companies moving rigs to West Africa and Brazil rather than leaving them idle in the Gulf of Mexico. Environmentalists applaud the moratorium as the crude oil oozes through the marshes and wetlands of the Gulf Coast destroying fragile ecosystems and livelihoods.

The short answer to the question whether African countries should allow deep offshore drilling is yes.

Africa needs billions of dollars of annual investment to achieve substantive and sustainable economic development. More than $20bn in development will occur in the Gulf of Guinea over the next decade with a significant amount occurring in deep offshore.

An equally important question is how to finance investments in African refineries rather than re-importing their oil as refined products? Akin to that question is how to finance the gas flare-out in Nigeria and other countries that emit tons of carbon into the atmosphere daily.

The recent passage of local content laws in Nigeria, Equatorial Guinea and Angola will help achieve these development benchmarks by building the capacity of indigenous oil service companies.

The price of oil will obviously impact the determination of commercial viability for deep water offshore development activities as well as the financial obligations of national oil companies for their share of the joint production-agreement.

Africa, particularly the communities in the Niger Delta, has already had its share of oil spills. New regulations limiting deep offshore drilling would only be as effective as the monitoring. Africa would also risk losing out on investments to other regions with less regulation.

NO: “There is only one way to go”

Olivia Langhoff, Director Greenpeace Africa

Offshore drilling is highly risky. We are calling for a ban on all new offshore exploration and a transition to clean energy. If you take all of the social impacts, the ecological impacts and include that in the costing, then it’s quite clear that there is only one way to go and that is investing in a green economy based on renewables.

Oil drilling is not cheap, but it benefits from direct and indirect subsidies. The costs involved are indirect costs that are not included in the real cost analysis of the oil sector. Countries have a very limited capacity to enforce and monitor operations. If it then does come to a spill, it’s very rare in Africa that the companies responsible can be held accountable for any kind of clean up.

This a real opportunity for Africa, specifically in providing an economic environment where you are encouraging investment and manufacturing of alternative energies. Africa could also benefit very much from a decentralised energy supply.

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