The scramble for Africa's oil and gas reserves continues. US, European and Asian companies have been flocking to the capitals of Algeria, Libya, Nigeria, Angola, Egypt and even Sudan in recent months. Yet the battle for energy resources on the African continent still appears to be in its early stages.

Leading oil sector analysts have warned of growing conflict between Western and Asian countries as they seek to outbid each other for key hydrocarbon assets in Africa. These forecasts have been largely based on the expectation that China will become the major player in nontraditional oil and gas producing regions on the continent. As the growth of China's economy surges ahead and its energy requirements rise in tandem, West Africa, Libya, Sudan and even South Africa have become key areas that Beijing has targeted in its global crusade for crude oil, natural gas and even refining assets and petrochemical products.

In the latest country analysis report on China published by the Energy Information Administration (EIA) of the US Department of Energy in July 2004, it was noted that China was the world's second largest consumer of petroleum products in 2003. The country moved into second place -- overtaking Japan for the first time -- behind the US, with total demand of 5.56 million barrels per day. China's oil demand is projected by the EIA to reach 12.8 million bpd by 2025, with net imports of 9.4 million bpd, which will impact significantly on world oil trends. As the source of around 40% of global oil demand growth over the past four years, Chinese demand for crude is already a key factor in world oil markets. In terms of its drive into Africa, recent reports in the South African press have noted that China has increased its economic and diplomatic involvement in Southern African countries, notably Angola and South Africa itself. These two states have been identified by Beijing as having suitable resources to satisfy partly its expanding need for energy products.

In 2001, around 25% of Angola's crude oil exports went to China. In contrast to most oil deals in Africa that involve foreign investors and are based on production-sharing agreements (PSAs), market contracts or international finance agreements, China has largely invested in the Angolan oil sector via a series of soft loans it has granted to Luanda. In April this year, another soft loan agreement was reached between the two countries in which the equivalent of 10,000 bpd of crude oil was tied to a US$2 billion loan to be repaid over 17 years at 1.5% interest. Analysts, such as Jakkie Cilliers of the Institute for Security Studies (ISS) in South Africa, believe China is more likely to grant loans than make donations to African countries which would push Chinese companies to the forefront in terms of oil sector participation in Africa in the coming decade. Angola and other African nations are likely to welcome Chinese loans given that there are no political conditions attached to them.

Cilliers stated in a recent interview that his impression of China "is very much that politics follows economic development" and that current "Chinese political and geo-strategic expansion is following [China's] absolutely phenomenal economic growth."

Although China has already secured ties with oil producers in Southern Africa such as Angola, its involvement in the region is expected to expand after the launch in 2005 of the New Asian/African Strategic Partnership. The programme has been set up to improve trade and investment opportunities between the Southern African region and Asian countries.

One of the leading countries which is expected to profit from this new arrangement is South Africa. Overall trade and bilateral investments between China and South Africa remain minimal, yet the latter's technology in the energy sector and Sasol's strong refining and gasification infrastructure will be vital to China's future development. In terms of technological expertise, China is looking at South African coal liquefaction methods which seek to form oil from coal. In August Sasol, South Africa's chief producer of oil from coal, signed a letter of intent with China to investigate the feasibility of establishing two coal liquefaction plants in the Asian state -- one in Shaanxi province and the other in the Ningxia autonomous region -- at a cost of around US$6 billion. China has coal reserves of around 1 trillion tonnes.

The potential for increased foreign direct investment in these African states, and the solutions they offer China's booming oil demand, makes closer co-operation between the countries involved inevitable. Yet Western governments, security analysts and geostrategic energy policy makers are becoming more worried about the burgeoning energy links between Beijing and several African regimes. Trade between Africa and China has increased by nearly 50% this year compared to 2003, which is significantly greater than the growth in Chinese trade with any other area in the world over the same period. The London-based Africa Confidential newsletter recently published fears that doing business with China will make African governments more corrupt. China is paying with large sums of advanced credit or loans for infrastructure development, making it more difficult to ensure that oil revenues benefit the people of the countries that produce the oil.

IAGS' Gal Luft stated his belief that the "Chinese way of doing business" in the oil industry could reverse progress that has been made in terms of fighting corruption on the continent and delivering benefits to ordinary Africans. "The Chinese are much more prone to doing business in a way that today Europeans and Americans do not accept -- paying bribes and all kinds of bonuses under the table. These are things that have been rampant throughout Africa, particularly in Nigeria, Angola and Equatorial Guinea and to a certain extent Chad and Gabon," he said. In recent interviews, China's deputy foreign minister, Zhou Wenzhong, said that China will pursue its oil interests in Africa without political restrictions or concerns. He was quoted by the Chinese press as saying that the country tries "to separate business from politics." The state-owned China National Petroleum Corp. (CNPC) is currently developing oil projects in Chad, which has diplomatic ties with Taiwan. Chinese oil companies are also signing contracts in West Africa's other key oil producers, such as Nigeria, Equatorial-Guinea, Congo-Brazzaville and Gabon. Other countries like Ivory Coast, Mauritania and Niger have also been identified as future areas for cooperation by Beijing. Contracts between the Chinese authorities and many of these countries have already been signed, although few have generated any significant publicity.

However, during Chinese President Hu Jintao's visit to Gabon, one new deal was made public. State-run Chinese concern Sinopec, Total Gabon and the Gabonese government signed several agreements which guarantee China a steady flow of Gabonese oil. Yet, despite the developments listed above, analysts believe that the overall impact of Chinese companies in Africa will be limited because they do not have the financial power or technology to access the continent's biggest oil fields, which are offshore. "A lot of the new oil that is being brought online is being developed in deep offshore waters and a lot of those fields are only capable of being exploited by western companies both because of their access to proprietary technology as well as the large amounts of financial capital that are needed to exploit those fields," stated Ian Gary, an oil specialist with US-based aid group, Catholic Relief Services.

Dr. Cyril Widdershoven is an IAGS associate fellow. This article was originally published in NewsBase Afroil Monitor.

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