[Senate Hearing 108-713]
[From the U.S. Government Printing Office]



                                                        S. Hrg. 108-713

           THE GULF OF GUINEA AND U.S. STRATEGIC ENERGY POLICY

=======================================================================

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON INTERNATIONAL ECONOMIC
                   POLICY, EXPORT AND TRADE PROMOTION

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                              JULY 15, 2004

                               __________

       Printed for the use of the Committee on Foreign Relations


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                                 senate


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                     COMMITTEE ON FOREIGN RELATIONS

                  RICHARD G. LUGAR, Indiana, Chairman

CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia               CHRISTOPHER J. DODD, Connecticut
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
MICHAEL B. ENZI, Wyoming             RUSSELL D. FEINGOLD, Wisconsin
GEORGE V. VOINOVICH, Ohio            BARBARA BOXER, California
LAMAR ALEXANDER, Tennessee           BILL NELSON, Florida
NORM COLEMAN, Minnesota              JOHN D. ROCKEFELLER IV, West 
JOHN E. SUNUNU, New Hampshire            Virginia
                                     JON S. CORZINE, New Jersey

                 Kenneth A. Myers, Jr., Staff Director
              Antony J. Blinken, Democratic Staff Director

                                 ------                                

                 SUBCOMMITTEE ON INTERNATIONAL ECONOMIC
                   POLICY, EXPORT AND TRADE PROMOTION

                    CHUCK HAGEL, Nebraska, Chairman

LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
MICHAEL B. ENZI, Wyoming             JOHN D. ROCKEFELLER IV, West 
LAMAR ALEXANDER, Tennessee               Virginia
NORM COLEMAN, Minnesota              JON S. CORZINE, New Jersey
                                     CHRISTOPHER J. DODD, Connecticut

                                  (ii)

  
?

                            C O N T E N T S

                              ----------                              
                                                                   Page

Brodman, Mr. John R., Deputy Assistant Secretary of Energy for 
  International Energy Policy, Office of Policy and International 
  Affairs, U.S. Department of Energy, Washington, DC.............     9
    Prepared statement...........................................    13

Goldwyn, Mr. David L., Founder, Goldwyn International Strategies, 
  LLC, Washington, DC............................................    28
    Prepared statement...........................................    33

Hagel, Hon. Chuck, U.S. Senator from Nebraska, opening statement.     1

Morrison, J. Stephen, Ph.D., Director of Africa Programs, Center 
  for Strategic and International Studies, Washington, DC........    37
    Prepared statement...........................................    39

Simon, Mr. Paul, Deputy Assistant Secretary of State for Energy, 
  Sanctions and Commodity Policy, Economic and Business Affairs 
  Bureau, U.S. Department of State, Washington, DC...............     2
    Prepared statement...........................................     4

                                 (iii)

  

 
          THE GULF OF GUINEA AND U.S. STRATEGIC ENERGY POLICY

                              ----------                              


                        THURSDAY, JULY 15, 2004

                           U.S. Senate,    
     Subcommittee on International Economic
                Policy, Export and Trade Promotion,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1:04 p.m. in 
room SD-419, Dirksen Senate Office Building, Hon. Chuck Hagel 
(chairman of the subcommittee), presiding.
    Present: Senator Hagel.


                opening statement of senator chuck hagel


    Senator Hagel. The committee will come to order. Good 
afternoon. Today's hearing is the fourth in a series this 
subcommittee has held to examine United States strategic energy 
policy. Previous hearings have examined U.S. energy security 
policy in Central Asia, Latin America, and the Middle East.
    Energy security is vital to the United States economy. 
Economic growth depends upon stable, reliable sources of energy 
at reasonable prices. In the near term, U.S. energy 
independence is not a reality. Currently the United States 
imports almost 60 percent of its oil. This reliance on foreign 
oil will continue well into the 21st century.
    The U.S. must have a comprehensive strategic energy policy 
that seeks to diversify our foreign sources of oil and natural 
gas while at the same time strengthening our relationships in 
these energy-producing regions. U.S. strategic energy policy 
must be linked to our overall foreign policy initiatives. 
Economic development, trade and investment and the stability 
and security of energy-producing regions are all 
interconnected.
    The focus of today's hearing is on West Africa and the Gulf 
of Guinea. Today the U.S. imports 12 to 15 percent of its oil 
from West and Central Africa. This region will grow in 
strategic importance for U.S. energy security interests. The 
Gulf of Guinea has several strategic advantages for the United 
States in terms of geography, market access, conditions, and 
the quality of its crude oil. By 2020 the United States is 
expected to import almost 25 percent of its crude oil needs 
from this region.
    As the Gulf of Guinea grows in strategic importance, it 
will require even greater attention by the U.S. and its allies. 
Nigeria, Angola, Equatorial Guinea, Sao Tome, Chad, and 
Cameroon are among the countries in the region with significant 
oil and natural gas stakes and will require an intensified 
focus by U.S. policymakers to ensure that our national security 
interests are met. This policy must seek to maintain reliable 
access to energy sources while working to create conditions 
that bring political and economic stability to the region.
    Although possessing significant oil and natural gas 
reserves, West African nations continue to struggle with 
endemic poverty, corruption, and ethnic strife. Some of the 
conflict in the region is due to disputes surrounding the 
distribution of oil revenues. Nigeria, the largest oil producer 
in the region, with significant offshore reserves, endured 16 
years of military rule under a democratic government--until a 
democratic government came to power in 1999. Angola, the 
region's second largest oil producer, has only recently begun 
to recover from 28 years of civil war.
    The countries in the Gulf of Guinea region must move more 
aggressively to address corruption, rule of law, and good 
governance to ensure long-term political and economic 
stability. U.S. programs, such as the African Growth and 
Opportunity Act, as well as the Millennium Challenge Account, 
are two important new initiatives that will help improve 
economic and political conditions in Africa.
    Today we will examine the current conditions in the Gulf of 
Guinea and how U.S. foreign policy and energy policy is 
responding to those conditions. Does the United States have a 
comprehensive strategic policy for West Africa? Is energy 
security being adequate addressed in our foreign policy 
objectives? Are we allocating the necessary resources to deal 
with regional stability and security issues in the Gulf of 
Guinea? These are just some of the questions we seek to answer 
today.
    The witnesses for our first panel are: Deputy Assistant 
Secretary of State Paul Simons and Deputy Assistant Secretary 
of Energy John Brodman. On our second panel we will hear from 
David Goldwyn, founder of Goldwyn International Strategies, and 
Mr. Stephen Morrison, Director for Africa for the Center for 
Strategic and International Studies.
    Gentlemen, we welcome you. We are grateful for your time, 
both panels. We are privileged to have four individuals who 
know a great deal about the area of the world that we are going 
to delve into this afternoon. We very much appreciate your time 
and your investment of your efforts in putting together your 
testimony and the opportunity to exchange some thoughts as you 
complete your testimony.
    So with that, I would just say all of your testimony in its 
completion will be inserted into the record. You are free to 
give that testimony any way you like.
    So let us begin with you, Deputy Assistant Secretary 
Simons.

 STATEMENT OF PAUL SIMONS, DEPUTY ASSISTANT SECRETARY OF STATE 
   FOR ENERGY, SANCTIONS AND COMMODITY POLICY, ECONOMIC AND 
       BUSINESS AFFAIRS BUREAU, U.S. DEPARTMENT OF STATE

    Mr. Simons. Thank you, Mr. Chairman. Thank you for the 
opportunity to testify this afternoon on the very important 
issue of U.S. energy security and West Africa. I would ask that 
my full testimony be entered into the record and I would like 
to present just a few brief comments in my oral statement.
    I would like to focus on three points. First, West Africa 
is very much an important region of the world in terms of 
energy security for the United States and for commercial 
opportunities. It will continue to play an important role as a 
significant contributor to the diversity of supply that was 
outlined in the President's April 2001 energy policy. We 
recognize Nigeria's role in particular as a major energy 
supplier and as the anchor of West Africa. Nigeria in recent 
years has grown to become the fifth largest supplier of crude 
oil to the U.S., contributing something more than a million 
barrels a day, about 10 percent of our total imports. It is 
expected to become an increasing supplier of crude oil as well 
as an important supplier of LNG in the coming years.
    Angola also now produces over a million barrels of oil a 
day, a figure that we anticipate will increase substantially in 
the coming years as new fields are brought on. Already we are 
importing more than 350,000 barrels a day of Angola's 
production here into the United States.
    Equatorial Guinea, as you mentioned, Mr. Chairman, is also 
emerging as a major producer, and in 2003 oil began to flow for 
the first time through the $3.7 billion Chad-Cameroon pipeline, 
the largest single private U.S. investment in Africa.
    So we have important energy security as well as commercial 
interests in promoting a stable environment for oil production 
in West Africa.
    The second point--which has also been highlighted by the 
committee as well as in the recent CSIS report, which we very 
much welcome--is that the U.S. has a strong interest in 
supporting oil producing countries to channel receipts from 
energy development into poverty reduction and solid and 
sustainable economic development that benefits their 
populations. The key here of course is transparency.
    The administration has demonstrated a clear commitment to 
encouraging reforms needed to improve investment climates and 
to create transparent systems. As President Bush highlighted at 
the Sea Island Summit, we are committed both to taking our own 
important steps to help fight corruption as well as to support 
the efforts of developing countries. I would specifically note 
that this year our G-8 leaders followed up on the commitments 
made in Evian the prior year to pilot efforts, to support 
transparency compacts that we were able to put together in June 
at Sea Island with four countries, to promote transparent 
budget, procurement, and concession-letting policies.
    These compacts, which involve an important element of 
political contribution on the part of the developing countries, 
will help open up government processes, will help reveal to 
citizens and others the sources and uses of public resources, 
and will also help establish a clearer and more level playing 
field for business.
    The G-8 initiative focuses on host government commitments 
and leadership to fight corruption. It is not only driven by 
the G-8 side. There is a very important element of host 
government buy-in, which is something unique to this compact 
process. It covers procurement processes, and concession-
letting. It recognizes that the government commitments to 
transparency and good governance are central to ensuring sound 
and accountable uses of energy sector resources.
    My third point is to highlight the fact that the government 
of Nigeria was one of the four countries that was involved in 
the pilot programs and the Nigerian commitments at Sea Island 
we believe demonstrate this government's full ownership of its 
reform program. It is neither imposed by the international 
community nor dependent on external actors for its success.
    We are deeply engaged in transparency and good governance 
activities in Nigeria. We believe that the initial commitment 
that the Nigerians have made--and I would draw your attention 
to the full text of the Nigeria transparency compact, which is 
really quite an impressive document. They have agreed to move 
ahead with full disclosure of fiscal activity of the 
government. They put their budget, including the energy portion 
of it, out on the Internet. They are launching an effort 
beginning in September to divulge the balance on petroleum 
proceeds, the inflows and the outflows into the petroleum 
account. They are also disclosing much more information on how 
they award contracts.
    So it really is a landmark effort and initiative by the 
government of Nigeria. Hopefully, this will serve as a model 
for other oil-producing countries as well as other developing 
countries as they move forward to develop full ownership of the 
transparency process.
    Let me conclude by saying that improving transparency in 
the oil and gas sectors of the major African producers, we 
believe, is a win-win situation. We believe the fact that 
Nigerians have bought into this through the G-8 shows that they 
recognize that for their own political stability they need to 
turn the corner on this transparency issue.
    There have been some ups and downs in Nigeria. We think we 
have a high degree of political commitment on the part of the 
current Nigerian government. Finance Minister Ngozi has taken 
some personal risks in putting this program together. 
Presidential Adviser Obe Ekaswali also has been very heavily 
involved. It was really their initiative to get themselves on 
the agenda at Sea Island.
    When we take a look at the history of how countries have 
been involved in the corruption and transparency fight, one of 
the real missing elements has been host government buy-in. So 
we are hopeful that this transparency compact process can lead 
the way to creating a more stable situation for these energy 
producers, in particular in West Africa. And we are very 
pleased at the efforts by the Government of Nigeria to get this 
launched.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Simons follows:]

                   Prepared Statement of Paul Simons

    Mr. Chairman, distinguished Committee members, I am pleased to be 
here today with the Department of Energy to discuss the important role 
of West Africa in our energy security. The region is important both in 
an energy security sense and for the commercial opportunities in the 
region for U.S. firms. As I will outline in my testimony, West Africa 
will continue to play an important role as a significant contributor to 
the diversity of supply called for in our energy policy.
    The President's National Energy Policy issued in May 2001 noted the 
importance of Africa to global energy production. As Under Secretary 
Larson testified in April 2003 and Acting Energy Office Director 
McManus testified in October 2003, we approach international energy 
policy recognizing that imports supply roughly half of our energy 
needs. Some of our trading partners are even more dependent on oil 
imports. The reality is that a disruption anywhere affects all market 
participants.
    Energy investments are costly, risky and require long term 
commitments. For that reason, neither companies nor importing countries 
can afford to have all of their eggs in one basket. Recognizing this 
reality, our energy policy seeks to encourage in countries around the 
world like-minded free market policies toward energy and investment, 
emphasizing the expansion and diversification of energy supplies.
    A key component of our effort to diversify energy supplies is to 
support greater stability and security among existing suppliers. West 
African energy suppliers have traditionally been quite reliable 
resources for the world market. Recent trends, however, have threatened 
the international reputation of some West African countries as reliable 
suppliers. When one-third of Nigeria's oil production was shut-in 
during March and April of 2003 because of violence in the Niger Delta, 
oil markets were faced with an additional, unanticipated supply 
disruption in the wake of the Venezuela oil strike and activities in 
Iraq.
    In response to these concerns we have increased on-going efforts to 
foster transparent, accountable governance in the political and 
economic systems of the region. These efforts are focused on increasing 
political support for democratic principles and institutions. At the 
Group of Eight Summit at Sea Island, President Bush brought together G-
8 leaders with the heads of four countries to announce wide ranging 
compacts to support transparency and good governance. The transparency 
compacts announced at Sea Island demonstrate the tremendous progress in 
this area since the G-8 announced the action plan on ``Fighting 
Corruption and Improving Transparency'' at the 2003 G-8 Summit in 
Evian, France. I will return to discuss these efforts in greater detail 
later in my testimony. First, I will outline briefly the energy picture 
in the Gulf of Guinea region.

                                NIGERIA

    The Administration recognizes Nigeria's role as a major energy 
supplier and the anchor of West Africa. Nigeria has been the fifth 
largest supplier of crude oil to the U.S., contributing more than one 
million barrels per day (bid) so far this year, some 10 percent of U.S. 
crude oil imports. Approximately 65 percent of Nigerian crude oil 
production is light and sweet, making it particularly suited for U.S. 
refineries since it yields high volumes of gasoline. Nigeria has the 
potential to increase its crude oil production significantly in the 
next few years as recent deep-water discoveries come on stream.
    Nigeria is an increasingly important supplier in the global 
Liquefied Natural Gas (LNG) market with an estimated 124 trillion cubic 
feet (Tcf) of proven natural gas reserves (9th largest in the world). 
However, due to a lack of infrastructure, Nigeria currently flares much 
of the natural gas it produces and re-injects some to enhance oil 
recovery. Nigeria really began to develop its gas resources with the 
September 1999 inauguration of the $3.8 billion LNG facility on Bonny 
Island. This facility is slated to expand to more than double its 
current capacity in the near future. Plans for additional LNG 
facilities are being developed, including several projects that will 
involve U.S.-based firms.
    Nigeria's oil producing Niger Delta remains politically volatile, 
with intermittent communal violence and labor disputes disrupting 
production in some areas. Ethnic violence involving well-armed 
militants, and the Nigerian military, forced oil companies to shut-in 
some 800,000 b/d during parts of March and April of 2003. Although 
overall production has returned to previous levels, we remain in close 
contact with the Nigerian government, the local communities, and the 
firms operating in the Niger Delta region as they work to address 
recurring problems.
    ``Bunkering,'' or stealing, crude oil from pipelines in the Niger 
Delta remains a critical concern. While it is difficult to accurately 
determine the extent of bunkering, estimates are that between 75,000 
and 150,000 bid of crude oil are stolen daily. This oil makes its way 
through illicit channels to markets with the substantial earnings 
funding various illicit activities in the Delta, including the 
introduction by local militias of increasingly sophisticated weapons 
into the region. The Nigerian government recognizes the critical nature 
of this problem, especially the effect it has had on the level of 
violence. The government is working to reduce bunkering, but more must 
be done.
    An important incident in April exemplified the continuing violence 
that plagues the Delta region. Armed bandits attacked a boat carrying a 
team to inspect a ChevronTexaco facility shut in by the violence over a 
year ago. Two American citizen contractors and five Nigerians were 
killed in the attack. While we do not believe that the attackers 
specifically targeted Americans or ChevronTexaco contractors, the 
attack demonstrated the unresolved security issues that remain in the 
Delta.
    The Nigerian government is working to address the security issues 
in the Niger Delta. In August of 2003 approximately 4000 military 
personnel deployed to the region, upgrading security around some oil 
facilities. These forces have not, however, actively engaged the well-
armed militant groups remaining in the region. Our Mission in Nigeria 
remains committed to supporting democracy, economic reform, and poverty 
alleviation. The government of Nigeria has shown recently that it is 
willing to take an active role in rooting out corruption and enhancing 
transparency. Below, I will describe its recent actions to achieve a 
transparency compact with the G-8 at Sea Island.

                                 ANGOLA

    The Angolan petroleum industry now produces around one million b/d, 
a figure that will increase substantially in the coming years as new 
fields are brought on-line. During 2003 more than 350,000 b/d of 
Angola's production came to the U.S. Currently production off-shore of 
the northern province of Cabinda accounts for most of Angola's oil 
exports. ChevronTexaco is the largest operator in Angola. We continue 
to engage the Angolan government on the humanitarian situation in 
Cabinda province, which remains plagued by a separatist insurgency. 
Although we consider Cabinda an integral part of Angolan territory, we 
have urged the Angolan military and rebel groups to take necessary 
steps to protect internationally recognized human rights in the Cabinda 
region and seek a peaceful solution to their disputes.
    Production from the Cabinda fields will be eclipsed by deepwater 
production further south in the Kwanza Basin scheduled to come on-line 
in the coming years. ExxonMobil, BP, Total, Norsk Hydro, and Agip have 
all made significant discoveries in this area that are under 
development.
    Angolan President dos Santos visited the U.S. in May of this year. 
In his meetings with the President and with Secretary Powell, we 
reaffirmed our message of the importance of transparency and 
accountability. We encouraged Angola to adopt and implement a new 
staff-monitored IMF program as a fundamental step to build confidence 
in Angola's commitment to reform. President dos Santos expressed his 
personal interest in developing a transparency compact with the G-8. 
Such a compact would require Angola to meet the high standards already 
set by the current four compact countries, including outlining in 
detail the steps to be taken to realize a government-wide commitment to 
transparent budget, procurement and concession-letting processes. This 
would be a challenging but critical step to enhance the impact of 
developing Angola's own available resources.
    Democratic consolidation is a critical step to national 
reconciliation and long-term domestic stability in Angola. We were 
pleased by President dos Santos' commitment during his Washington trip 
to hold parliamentary and presidential elections not later than 2006. 
The United States is prepared to provide necessary assistance to ensure 
that these first post-war elections are free, fair, and credible. 
During President dos Santos' visit the Government of Angola announced 
that ChevronTexaco's concession to operate block 0 has been extended 
from 2010 to 2030. Block 0 currently produces about 400,000 b/d and is 
currently the most productive concession block in Angola. As part of 
the extension announcement the Angolan government took the positive 
first step in publicly announcing terms of the agreement, which 
included a $210 million signature bonus, and an $80 million social 
bonus. Public announcement of the bonuses signaled a new attitude 
toward disclosure, and we are working to reinforce these positive 
trends.
    Our Embassy is actively working with the Angolan government to 
support the development of a comprehensive domestic energy strategy. 
The State Department is following on this effort by providing $200,000 
in Economic Support Funding to the Department of Energy to support the 
energy strategy effort with Angola. As part of our efforts we are 
working with the U.K. to offer the energy expertise and analysis of the 
International Energy Agency to the Government of Angola to aid it in 
developing alternatives.

                 OTHER GULF OF GUINEA ENERGY PRODUCERS

    Equatorial Guinea is emerging as a major oil producer in the Gulf 
of Guinea. ChevronTexaco, ExxonMobil, Marathon Oil, Amerada Hess and 
Devon Energy are some of the U.S. firms with investments in 
exploration, production, and service activities in Equatorial Guinea. 
Equatorial Guinea already produces more than 300,000 b/d and has the 
potential to reach levels of more than 450,000 b/d in the coming years. 
We re-opened the U.S. Embassy in Malabo in October of 2003 to enhance 
our dialogue with the government and signal our commitment to broad 
engagement with Equatorial Guinea. During a recent meeting with 
President Obiang, Secretary Powell reiterated the need for Equatorial 
Guinea to harness the revenues from energy production for the benefit 
of its entire population. Despite growing oil wealth, Equatorial Guinea 
suffers from widespread poverty, which will require substantial 
improvements in governance. We are now working to promote and assist 
this needed change with the government of Equatorial Guinea, NGOs and 
U.S. firms.
    In 2003 oil began flowing in 2003 through the $3.7 billion Chad-
Cameroon Pipeline, the largest single private U.S. investment in 
Africa, led by ExxonMobil, with the participation of ChevronTexaco. By 
the end of this year Chad is expected to be producing approximately 
225,000 b/d. The pipeline is a good example of sustained cooperative 
efforts among various entities--governments, international financial 
institutions, the oil consortium developing the project, NGOs and civil 
society--to balance economic benefits, transparency, and humanitarian 
and environmental concerns. Our Ambassador in Chad is deeply engaged 
with the government to ensure that the unique capacity building and 
transparency measures incorporated into this project are implemented 
fully.
    While these unique circumstances mean that some aspects of the 
Chad-Cameroon project may not translate directly to other projects, 
many invaluable lessons are being learned. Chad's Revenue Management 
College, an independent body that assures that oil wealth is used to 
benefit the citizens of Chad, is now operating and will soon begin the 
process of disbursing the initial revenues from oil production. The 
College is a unique feature of this project that we worked closely with 
the World Bank to see put in place. Its aim is to ensure transparent 
use of Chad's oil revenues to alleviate poverty and to enhance its 
economic development.
    Some concerns remain regarding adequate administrative capacity and 
oversight of the use of pipeline revenues in Chad, but the project has 
established channels for discussion and resolution of problems that are 
inclusive and sensitive to impacts on local populations. We continue to 
work actively to support the Revenue College process to ensure that 
Chad's oil revenues are handled in accordance with the country's 
commitments.
    Sao Tome and Principe, though it currently has no oil and gas 
production, has great promise as a producer in the Gulf of Guinea. Sao 
Tome's petroleum reserves span both its own Exclusive Economic Zone 
(EEZ) and a Joint Development Zone (JDZ) with Nigeria. ChevronTexaco 
and ExxonMobil will lead the exploration and development of the most 
sought after concession in the JDZ. We are reassured by the continued 
public commitment of officials at the highest levels in Sao Tome and 
Nigeria to maintain a high standard of transparency in the oversight of 
the JDZ. This commitment was demonstrated by the Abuja Joint 
Declaration, signed on June 26 by Presidents Menezes and Obasanjo, 
which deals with their Joint Development Zone. In this Declaration, 
they pledged that ``(a)ll payments to the Joint Development Authority 
by oil companies shall be made public on an individual company basis, 
quarterly and annually, by the Joint Development Zone and by the 
companies.'' Among additional commitments, they agreed that ``(t)he use 
of funds received by our respective governments from activities within 
the Joint Development Zone shall be monitored and audited, with such 
audits being made public in accordance with the laws of our respective 
states.''

           VOLUNTARY PRINCIPLES ON SECURITY AND HUMAN RIGHTS

    Security issues are a concern in several of the countries in the 
Gulf of Guinea region. The U.S. Government is active as a convener in a 
process to improve policies and procedures to ensure security while at 
the same time incorporating proper protections for human rights. In 
cooperation with the UK, Norwegian and Dutch governments, the Voluntary 
Principles on Security and Human Rights brings together oil and mining 
companies from the U.S. and Europe, with leading human rights NGOs and 
corporate social responsibility organizations. Not only in Africa, but 
across the world, we are using our good offices to support this effort 
as companies continue to integrate these principles into their 
operations and security agreements with host governments on the ground.
    The Voluntary Principles process fosters dialogue among 
governments, companies and NGOs, encouraging all partners to improve 
the implementation of the very best human rights practices as employees 
and equipment are protected in difficult operating environments. Our 
goal is for NGOs to share their expertise in these fields and to give 
honest feedback to the companies so as to foster a real commitment by 
all concerned to the best possible human rights standards. The process 
is designed to provide practical guidance to strengthen human rights 
safeguards in company security arrangements in the extractive sector. 
We encourage companies to improve relations with local communities 
through dialogue and to uphold the rule of law.

                      TRANSPARENCY AND GOVERNANCE

    As has been noted before in hearings before this subcommittee, the 
U.S. has a strong interest in supporting oil-producing countries that 
channel receipts from energy development into poverty reduction and 
solid and sustainable economic development that benefits their 
populations. Democratization and the development of accountable 
governing institutions are particularly important in reducing 
corruption and oil-related conflicts and promoting supply stability 
from oil and gas producers around the world, especially in Africa.
    Many African energy resources are located offshore in deep and 
ultra-deep water locations that require tremendous capital resources to 
produce. As a result, foreign investment and technology are crucial to 
continued expansion of energy production across the Gulf of Guinea. 
Those countries that can demonstrate a stable rule of law and 
predictable investment climate will have the best opportunity to 
attract the investments needed to develop their petroleum resources.
    This past February, the IMF and World Bank hosted a conference in 
Libreville, Gabon, on transparency in the oil sector. The conference 
brought together government and private sector participants from across 
West Africa to discuss governance in extractive industries. Our 
Economic Counselor from Lagos participated in the conference to 
highlight the U.S. commitment to support African countries working to 
fight corruption and enhance transparency.

              COMMITMENTS AND ANNOUNCEMENTS AT SEA ISLAND

    The Administration has demonstrated a clear commitment to 
encouraging the reforms needed to improve investment climates. As 
President Bush highlighted at the Sea Island Summit, we are committed 
both to taking our own important steps to help fight corruption 
worldwide, as well as to supporting the efforts of developing 
countries. Specifically this year, G-8 leaders launched transparency 
compacts with four countries to promote transparent budget, procurement 
and concession-letting policies. These compacts will help to open up 
government processes and reveal to citizens and others the source and 
uses of public resources, while helping to establish a cleaner and more 
level playing field for business. Countries with these attributes make 
better hosts to the very large investments needed to develop energy 
resources, they make more reliable contributors to our own energy 
security, and they are more able to promote broad-based lasting 
development progress as a foundation for political stability.
    The G-8 initiative focuses on host government commitments and 
leadership to fight corruption, and to enhance transparency, on both 
the revenue and expenditure sides. The initiative covers procurement 
processes and concession letting because these are also important 
channels through which resources are used and controlled. Our approach 
recognizes that government commitment to transparency and good 
governance is central to ensuring sound and accountable use of energy 
sector resources.
    The governments of Nigeria, Peru, Nicaragua, and Georgia were the 
first to make the political commitment, in the form of a compact 
agreement between the G-8 and each of these pilot countries. These 
compacts were announced at Sea Island along with the Sea Island 
Declaration on transparency and anti-corruption.
    Pilot governments have specified, in concrete terms, what they 
intend to do to bring greater transparency and accountability to the 
management of public resources. Participating G-8 countries will 
support them by providing bilateral technical assistance resources and 
political support. With each compact partner, participants will develop 
an action plan tailored to the country's specific circumstances and 
priorities and that sets forth our joint efforts to achieve measurable 
improvements. Participating G-8 governments will work with partner 
countries to enlist the support and engagement of private companies, 
organizations and civil society, as well as the international financial 
institutions.
    For pilot countries rich in oil, natural gas, and mineral resources 
like Nigeria, the compacts will pay particular attention to the 
transparency of revenue flows and payments originating in these 
sectors, while protecting the necessary confidentiality of business 
operations. Our philosophy is that, to be effective, this approach must 
focus primarily on how governments allocate and use the resources 
associated with these key sectors. In most cases, their own state-owned 
enterprises have active control over much of the activity in these 
sectors. We hope that more countries will follow the leadership and 
commitment of the first four pilots, and that these pilots will provide 
models and a demonstration effect for the countries to follow.

                     NIGERIA'S TRANSPARENCY COMPACT

    In Nigeria, President Obasanjo and members of his cabinet are 
moving forward with important actions to advance transparency and 
anticorruption efforts. Nigeria's commitment at the Sea Island Summit 
demonstrates the government's full ownership over its reform program; 
it is neither imposed by the international community nor dependent on 
external actors for its success. The U.S. is already deeply engaged in 
transparency and good governance activities in Nigeria. USAID is 
providing technical assistance to Nigeria's Federal Budget Office, as 
well as working with key civil society and private sector organizations 
to build their capacity to participate in the development and review of 
Nigeria's budget. USAID is also funding an exchange program among oil-
affected communities in Angola, Nigeria, and Sao Tome to assist them in 
developing strategies for positive transformation by using concrete 
examples of good practice. We are supporting World Bank and IMF efforts 
to help build capacity and provide technical assistance on governance, 
transparency and budgeting. Improving transparency in the oil and gas 
sectors of major African producers is very much a win-win situation and 
a crucial element in our drive to ensure our energy, security. 
President Bush personally welcomed Nigeria's leadership in this area 
last month at Sea Island.

                  THE GULF OF GUINEA REGION OF AFRICA




    Senator Hagel. Mr. Simons, thank you.
    Mr. Brodman.

  STATEMENT OF JOHN R. BRODMAN, DEPUTY ASSISTANT SECRETARY OF 
 ENERGY FOR INTERNATIONAL ENERGY POLICY, OFFICE OF POLICY AND 
        INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF ENERGY

    Mr. Brodman. Thank you, Mr. Chairman. I am pleased to be 
here to discuss the important role of West Africa in our energy 
security. The Department of Energy fully supports the 
subcommittee's undertaking of this series of hearings on energy 
security, begun by you last year, and we stand prepared to 
cooperate with you in efforts aimed at improving the security 
of our energy supplies.
    I testified before this subcommittee on the importance of 
Latin America and Africa to our energy security in October 2003 
and the points that I raised in that earlier testimony still 
stand. My remarks today can be viewed as a followup and an 
update to that earlier testimony, with a specific focus on 
Africa and in particular on West Africa.
    For our purposes today, I have defined West Africa as the 
regional grouping of countries from Mauritania to Angola and 
inwards to include Chad and the two Congos. This group includes 
six significant current oil-producing countries, namely 
Nigeria, Angola, Gabon, Congo Brazzaville, Equatorial Guinea, 
and Chad, and other countries with smaller amounts of current 
production, namely Cameroon, Ghana, Cote d'Ivoire, and Congo 
Kinshasa. It also includes a number of frontier oil provinces 
that may become hot exploration areas during the coming decade, 
and here I am referring to Mauritania, Senegal, Sierra Leone, 
Sao Tome and Principe, The Gambia, Liberia, Togo, Benin and 
Niger.
    Now, just a brief word about our energy policy. From an 
energy security point of view, U.S. Government energy policy 
has a role to play in assuring that our energy supplies 
represent a diverse set of energy resources from a diverse set 
of energy suppliers. President Bush's National Energy Plan, 
issued in May 2001, embodies these fundamental principles and 
recommends actions that will help achieve these objectives.
    The plan also recognizes that the United States cannot 
address its energy concerns alone, that our energy security is 
intricately linked to international markets as a result of our 
increasing dependence on external sources of supply.
    The National Energy Plan specifically noted the importance 
of Africa to U.S. energy security and to global energy 
production, and it provided specific recommendations for 
strengthening our engagement, promoting favorable investment 
climates, and encouraging transparency, good governance, and 
the responsible use of revenues from natural resource 
development to support sustainable social and economic 
development in Africa.
    In my earlier testimony I noted that our policy of 
diversifying supplies relies on commercial investments in 
energy projects. We do not tell our companies where to invest 
or where to buy oil and gas. It is up to them to weigh all the 
factors involved and to make their own decisions. I noted that 
there are a considerable number of obstacles to realizing 
successful development of commercial trade and investment flows 
directly related to economic, political, and security risks and 
that many of the new sources of supply, such as those in 
Africa, are more dispersed geographically, are often located in 
undeveloped and conflicted regions, and they often carry very 
high recovery, transportation, and infrastructure costs.
    I also outlined new risks from so-called nontraditional and 
often internal sources of conflict, such as corruption, the 
lack of rule of law, political instability, ethnic and 
religious conflicts, and other so-called governance issues. I 
noted that the capabilities of energy companies and financial 
institutions to handle these risks in order to allow energy 
development projects to become economically viable is itself a 
tremendous challenge.
    I noted our concern about the negative impacts that an 
unfavorable business climate can have on the resource 
development process. Nowhere is this more true than in Africa. 
An unfavorable business climate may keep needed resources 
locked away from development for a long time.
    I concluded my earlier testimony by indicating a need to 
remain engaged on sustainable development issues with African 
producers in order to minimize many of these new internal 
threats to stability and in order to promote, protect, and 
defend our security of supply and our own security in 
commercial trade, energy trade, and development relationships.
    These points are still valid and, while that is so, my 
testimony today will focus more on the role of West Africa in 
global energy markets and on the prospects for continued 
development of oil and gas in the region. My colleague from the 
State Department, Paul Simons, has already spoken about many of 
these policies and programs that we have under way in West 
Africa to promote transparency, stability, and good governance.
    Africa as a whole is currently producing nearly 9 million 
barrels of oil a day, with approximately 4.7 million barrels 
per day coming from West Africa. African oil production 
currently accounts for about 11 percent of the world's total 
oil supply and Africa for the first 5 months of the year 2004, 
Africa was supplying approximately 18 percent of U.S. net oil 
imports, which is a considerable jump over what it was just 
last year and the year prior to that.
    At the present time, Nigeria, Algeria, and Angola are among 
the top ten suppliers of oil to the United States and, as you 
noted, Mr. Chairman, our dependence on oil from Africa is 
expected to rise in the future. Estimates of Africa's proven 
oil reserves vary considerably from source to source, but most 
sources indicate that African proven oil reserves in the range 
of approximately 7 to 10 percent of the world's total, or 
roughly some 80 to 110 billion barrels.
    Estimates of Africa's undiscovered oil resources and of its 
undiscovered producible reserves vary even more widely, but 
most estimates support the expectation that Africa as a whole 
and West Africa in particular have a reserve base that is 
capable of supporting increased oil production for years to 
come.
    Several recent studies undertaken by the U.S. Department of 
Energy and others conclude that sizable but untested resource 
potential exists in many African and West African countries. In 
the right circumstances--and that is an important phrase when 
it comes to Africa--in the right circumstances, African oil 
production could rise by 4 to 6 million barrels a day in the 
next 10 to 15 years. In these scenarios, West Africa's five key 
producing countries--Nigeria, Angola, Gabon, the Republic of 
Congo Brazzaville, and Equatorial Guinea--could see their 
combined production rise by 2 to 3 million barrels per day in 
the next 5 to 10 years and by 3 to 5 million barrels per day in 
the next 10 to 15 years. The revenues from this oil resource 
development in West Africa alone are likely to amount to over 
$50 billion a year in each and every one of those years.
    West Africa's frontier oil countries, such as Senegal, 
Sierra Leone, and San Tome and Principle in the joint 
development zone and other countries, could also become hot 
exploration areas in the next decade. While their potential is 
very promising, it is too early to determine with any certainty 
what the timing and magnitude of future production from these 
countries is likely to be.
    While under almost any scenario Africa will become an 
increasingly important supplier to the world's energy markets 
in the next decade, continued success will greatly depend on 
the continued favorableness of deep water geology and continued 
investment. Continued investment will depend on political and 
economic stability, on the existence of transparent regulatory 
regimes, and on a continuation of competitive fiscal terms 
capable of attracting international capital.
    Turning to natural gas for a moment, as natural gas becomes 
monetized in Africa and in West Africa it can also play a 
larger role in economic development. Africa currently holds 
approximately 8 to 10 percent of the world's proven reserves of 
natural gas and is responsible for a little over 5 percent of 
world gas production. This figure on world gas production does 
not include the gas that is currently being flared or 
reinjected in Africa.
    Many countries in Africa and in West Africa have 
significant untapped production and export potential and, with 
world gas demand rising, many international companies are 
rapidly expanding their investments in African gas development 
projects.
    While development of gas is under way in several countries, 
there are many other countries in Africa that are still 
struggling with the basic principles of gas commercialization 
and with its economic and regulatory links to the power and 
other sectors for domestic consumption. As you know, many of 
these countries have very little, very limited technical and 
managerial capability to see these regulatory institutions put 
in place in a conducive manner that will support gas 
development.
    The U.S. consumes more than 24 trillion cubic feet of 
natural gas a year and our dependence on natural gas and 
imported LNG is expected to rise. Much of this additional gas 
to supply the U.S. market could come from West Africa.
    To sum things up, Mr. Chairman, given its reserve base, it 
is unlikely that Africa or West Africa will ever take the place 
of the Middle East in its importance to the world's oil and gas 
markets, but it will nevertheless continue to be an important 
source of additional supplies to the United States and the 
world market.
    We have learned from experience that it is the additional 
or marginal barrels that have a significant impact on 
developments in the marketplace, and Africa has the potential 
to be an important source of the marginal barrels and 
incremental supplies of gas for years to come. West Africa is 
one of the world's fastest growing sources of oil and gas and 
is now the location of significant new investments by many of 
the United States and international major oil companies. West 
Africa is also a part of the Atlantic Basin, relatively close 
to the main markets in the United States. It is also the source 
of light sweet crude oil so critical for U.S. refining needs 
and it as such represents a key replacement for declining North 
Sea production, in the United Kingdom primarily, but beginning 
more slowly in Norway as well.
    Mr. Chairman, the rest of my prepared testimony provides a 
synopsis of recent developments in the oil and gas sectors of 
the key West African producers, and I would like to submit my 
entire testimony for the record. But in the interest of time, I 
will forgo the country by country detail.
    I want to thank you very much for the opportunity to 
testify before this committee today and I welcome any questions 
that you or the committee may have. Thank you.
    [The prepared statement of Mr. Brodman follows:]

                 Prepared Statement of John R. Brodman

    Mr. Chairman, and Members of the Subcommittee. I am pleased to be 
here today to discuss the important role of West Africa in U.S. and 
global energy security. The DOE fully supports the Subcommittee's 
undertaking of this series of hearings on energy security, begun last 
year, and we stand prepared to cooperate fully with you in efforts 
aimed at improving the security of our energy supplies.
    I testified before this Subcommittee on the importance of Latin 
America and Africa to U.S. and global energy security in October 2003, 
and the points I raised in that earlier testimony still stand. My 
remarks today can be viewed as a follow-up and an update to that 
earlier testimony, with a specific focus on Africa and, in particular, 
West Africa.
    For our purposes today, I have defined West Africa as the regional 
grouping of countries from Mauritania to Angola, and inwards to include 
Chad and the two Congos. This group includes six significant, current 
oil producing countries (Nigeria, Angola, Gabon, Congo Brazzaville, 
Equatorial Guinea, Chad), other countries with smaller amounts of 
current production (Cameroon, Ghana, Cote d'Ivoire, Congo Kinshasa), a 
number of frontier oil provinces that may become ``hot'' exploration 
areas during the coming decade (Mauritania, Senegal, Sierra Leone, and 
Sao Tome and Principe), and others that are currently, or soon hope to 
be, exploring for oil and gas (The Gambia, Liberia, Togo, Benin, and 
Niger).

                 U.S. ENERGY POLICY AND ENERGY SECURITY

    From an energy security point of view, U.S. Government energy 
policy has a role to play in assuring that our energy supplies 
represent a diverse set of energy resources from a diverse set of 
energy suppliers. President Bush's National Energy Plan, issued in May 
2001, embodies these fundamental principles and recommends actions that 
will help achieve these objectives. The Plan also recognizes that the 
United States cannot address its energy concerns alone, that our energy 
security is intricately linked to international markets as a result of 
our increasing dependence on external sources of supply.
    In recognizing these challenges, the National Energy Plan calls for 
strengthening global alliances through such important mechanisms as our 
existing bilateral relationships with key countries and regions around 
the world, and through our participation in multilateral international 
energy organizations. The National Energy Plan specifically noted the 
importance of Africa to U.S. energy security and to global energy 
production, and it provided specific recommendations for strengthening 
our engagement, promoting favorable investment climates, and 
encouraging transparency, good governance and the responsible use of 
natural resource revenues to support sustainable social and economic 
development in Africa.
    In my earlier testimony, I noted that our policy of diversifying 
supplies relies on commercial investment in energy projects. As I 
stated before this subcommittee last year, we don't tell our companies 
where to invest or where to buy oil and gas. It is up to them to weigh 
all the factors involved and to make their own decisions. I also noted 
that there are a considerable number of obstacles to realizing 
successful development of commercial trade and investment flows, 
directly related to economic, political, and security risks. I noted 
that many new sources of supply are more dispersed geographically, are 
often located in undeveloped and conflicted regions, and they often 
carry very high recovery, transportation and infrastructure costs.
    I also outlined new risks from non-traditional, and often internal 
sources of conflict such as corruption, the lack of ``rule of law,'' 
political instability, ethnic and religious conflicts and other so-
called governance issues. I stated that the capabilities of energy 
companies and financial institutions to handle these risks, in order to 
allow energy development projects to become economically viable, is 
itself a potential source of worry for our energy security.
    I noted that I was less concerned about the technical capabilities 
of the companies, but more concerned about the impact that an 
unfavorable business climate can have on the resource development 
process. Continued investment will depend on political and economic 
stability, on the existence of transparent regulatory regimes, and on a 
continuation of competitive fiscal terms capable of attracting 
international capital, and nowhere is this truer than in Africa. An 
unfavorable business climate may keep needed resources locked away from 
development for a long time. I concluded my earlier testimony by 
indicating a need to remain engaged on sustainable development issues 
with Africa producers in order to minimize many of these new internal 
threats to stability, and to promote, protect and defend our security 
of supply, and our own security in commercial energy trade and 
development relationships.
    While these points are still valid, my testimony today will focus 
more on the role of West Africa in global energy markets, and on the 
prospects for continued development of oil and gas in the region. My 
colleague from the Department of State will talk about many of the 
policies and programs we have underway in West Africa to promote 
transparency, stability, and good governance.

                        THE IMPORTANCE OF AFRICA

    Africa as a whole is currently producing nearly nine million 
barrels of oil per day, with approximately 4.7 million barrels per day 
coming from West Africa. African oil production currently accounts for 
approximately 11 percent of the world's oil supply. Africa currently 
supplies approximately 18 percent of U.S. net oil imports, and both, 
Nigeria and Angola are currently among the top 10 suppliers of oil to 
the United States. U.S. dependence on oil from Africa is expected to 
rise in the future as new fields are brought on line.
    Estimates of Africa's proven oil reserves vary considerably from 
source to source, but most sources indicate that Africa proven oil 
reserves are in the range of approximately 7 to 9 percent of the 
world's total, or 80 to 100 billion barrels. Estimates of Africa's 
undiscovered oil resources, and of its undiscovered, producible 
reserves vary even more widely, but most estimates support the 
expectation that Africa as a whole, and West Africa in particular, have 
a reserve base that is capable of supporting increased oil production 
for years to come.
    Several recent studies undertaken by the USDOE and others conclude 
that sizable but untested resource potential exists in many African and 
West African countries. With continuation of deep water and ultra deep 
water discoveries, with optimization of overall resource development 
and production, and with sufficient levels of investment in exploration 
and development and in maintaining production from mature fields, 
African oil production could rise by 4-6 mmbd in the next 10 to 15 
years.
    In these scenarios, West Africa's 5 key producing countries 
(Nigeria, Angola, Gabon, Republic of Congo-B, and Equatorial Guinea) 
could see their combined production rise by 2 to 3 million barrels per 
day in the next 5 to 10 years, and by 3 to 5 million barrels per day in 
the next 10 to 15 years. West Africa's frontier oil countries, such as 
Senegal, Sierra Leone, and Sao Tome and Principe in the Joint 
Development Zone, and other countries, could also become ``hot'' 
exploration areas in the next decade. While their potential is very 
promising, it is too early to determine with any certainty what the 
timing and magnitude of future production from these countries is 
likely to be.
    While under almost any scenario, Africa will become an increasingly 
important supplier to the world's energy markets in the next decade, 
continued success will greatly depend on the continued favorableness of 
deep water geology and continued investment. Continued investment will 
depend on political and economic stability, on the existence of 
transparent regulatory regimes, and on a continuation of competitive 
fiscal terms capable of attracting international capital.
    As natural gas becomes monetized in Africa and in West Africa, it 
can also play a larger role in economic development. Africa currently 
holds approximately 8 percent of the world's proven reserves of natural 
gas, and is responsible for a little over 5 percent of world gas 
production (note: this figure does not include gas flared or 
reinjected). Many countries in Africa and in West Africa have 
significant untapped production and export potential, and with world 
gas demand rising, many international companies are rapidly expanding 
their investments in African gas development projects.
    The U.S. Department of Energy (USDOE) is working with various 
African countries and international organizations in Africa to promote 
the development and utilization of natural gas resources, which, in 
turn, will directly contribute to the reduction of gas flaring and 
venting, increase revenues to the state, and help provide efficient, 
reliable energy for sustainable development.
    Development of natural gas is well underway in several countries, 
but many countries are still struggling with the basic principles of 
gas commercialization and its economic and regulatory links to the 
power and other sectors for domestic consumption.
    West Africa is also a part of the Atlantic Basin, and relatively 
close to the main markets in the U.S. West Africa is also the source of 
light, sweet crude oil critical for U.S. refining needs, and a key 
replacement for declining North Sea oil production.
    The U.S. consumes more than 24 trillion cubic feet of natural gas 
per year. Our dependence on natural gas and imported LNG is expected to 
rise, and much of that could come from West Africa.
    Given its reserve base, it is unlikely that Africa or West Africa 
will ever take the place of the Middle East in its importance to the 
world's oil and gas markets, but it will nevertheless continue to be an 
important source of additional supplies to the U.S. and world market. 
We have learned from experience that the additional or marginal barrels 
can have a significant impact on developments in the marketplace, and 
West Africa has the potential to be an important source of the marginal 
barrels for years to come.
    West Africa is one of the world's fastest growing sources of oil 
and gas and is now the location of significant new investments by many 
of the U.S. and international major oil companies. The following brief 
synopsis of recent developments by country is indicative of the 
activity underway.
    Chad began producing oil for the first time in July 2003, and is 
currently producing 110,000 barrels per day (bpd). The U.S. is now 
receiving approximately 34,000 bpd of oil from Chad that did not exist 
a little over a year ago. The realization of oil production in Chad was 
made possible by the construction of the $3.7 billion, 650-mile Chad-
Cameroon oil pipeline project, led by ExxonMobil.
    Nigeria, an OPEC member, has proven oil reserves of nearly 40 
billion barrels, and currently produces approximately 2.5 million 
barrels per day. Nigeria's goal is to raise its production capacity to 
4 million barrels of oil per day by 2010. Nigeria has also emerged as a 
major exporter of liquefied natural gas (LNG) in recent years (it is 
now the second largest LNG exporter on the African continent and the 
fifth largest in the world), and it has the world's 9th largest 
reserves of natural gas and the largest reserves in sub-Sahara Africa.
    Angola, a non-OPEC member, is the second largest sub-Saharan oil 
exporter to the U.S., currently producing 1.07 million barrels per day. 
Angola's total proven oil resources are estimated to be between 5 and 9 
billion barrels, and rising with new discoveries. Angola's stated goal 
is to increase oil production to 2 million barrels per day by 2008. 
Angola is also planning the development of an LNG project for export.
    On May 13th, at the Angolan Embassy in Washington, Sonangol 
(Angolan national oil company), ChevronTexaco (lead), Total and ENI 
signed an extension agreement to further the development of one of 
Angola's most prolific offshore oil production areas, Block 0. This 
agreement has been negotiated in an open and transparent manner and 
includes disclosure terms for the signing bonus. The disclosure terms 
for the signing bonus represent significant progress for transparency 
and meaningful reform in revenue oversight and will engender greater 
goodwill in the international community.
    Equatorial Guinea's oil production is currently about 360,000 
barrels per day. It is a non-OPEC producer and has total proven oil 
reserves conservatively estimated at 1.2 billion barrels. Major oil 
companies operating in Equatorial Guinea are Marathon Oil, ExxonMobil, 
AmeradaHess, and ChevronTexaco. The U.S. reopened its Embassy in 
Equatorial Guinea in October 2003. President Obiang recently visited 
the U.S. and met with Secretary Abraham at the Department to discuss 
bilateral energy issues. Equatorial Guinea also has considerable 
natural gas potential and is planning the development of a LNG project 
for export.
    Gabon is West Africa's fourth largest oil producer, currently 
producing about 250,000 barrels per day. While Gabon's oil production 
has decreased somewhat in recent years, it has recently taken steps to 
improve the investment climate and attract more interest. It also 
recently settled a territorial dispute with Equatorial Guinea that will 
allow exploration and development to proceed in previously disputed 
offshore area.
    Republic of Congo (Brazzaville) is currently producing about 
243,000 barrels per day. The majority of its crude oil production is 
located offshore, and is considered to have significant potential.
    Sao Tome and Principe--Since the attempted coup of one year ago in 
Sao Tome and Principe, there has been a reconciliation process underway 
which thus far has remained peaceful. As part of this process, there 
has been a series of public town hall style meetings to allow a wide 
range of Sao Tomean society to debate national direction and the 
priorities for future oil revenues. Commitments have been made by the 
Governments of Sao Tome and Principe and Nigeria to ensure openness and 
transparency in the bidding process on oil blocks in the offshore Joint 
Development Zone (JDZ) shared by the two countries. On June 26, 2004, 
President de Menezes of Sao Tome and President Obasanjo of Nigeria 
signed the Abuja Declaration which states that oil payments made by 
companies to the Joint Development Authority (JDA) will be made public 
quarterly and annually by the JDA and that use of JDZ funds received by 
the two governments will be monitored and audited, with the audits made 
public.

                                CLOSING

    Mr. Chairman, that completes my overview of West African oil and 
gas developments, and I believe that my statement covers all the topics 
you have proposed for today's hearing. Thank you for the opportunity to 
testify before you today. I welcome any questions that the committee 
might have.

    Attachments: Chart on African Oil and Gas Production; Table on U.S. 
Petroleum imports from Africa.

 Net Imports of Oil (Crude & Products) into the U.S. By African Country

                      (JANUARY THROUGH APRIL 2004)


------------------------------------------------------------------------
                                                Daily Average (Thousand
                   Country                             Barrels)
------------------------------------------------------------------------
                                  OPEC

Algeria                                         400
Nigeria                                        1130

                                Non-OPEC

Angola                                          309
Cameroon                                         30
Congo (B)                                        13
Congo (K)                                         6
Egypt                                             5
Gabon                                           134
Ivory Coast                                       2
Tunisia                                           1

  Total African Imports                        2030

  Total U.S. Imports                          11405

  Percentage of Total Net Imports               17.8
------------------------------------------------------------------------
Source: EIA Petroleum Supply Monthly, June 2004.





    Senator Hagel. Mr. Brodman, thank you. As I stated at the 
beginning of the hearing, each of your full texts of your 
testimony will be included for the record.
    Mr. Brodman, you mentioned in your statement a number of 
criteria that will be and of course are critically important to 
the development of these energy resources in Africa. One of 
those of course is investment. Would you go a little deeper 
into that as to what your sense of the level of foreign direct 
investment into energy development in these areas? Obviously, 
the other criteria that you mentioned affect investment--
security, stability. But how would you rate the investment so 
far, what we anticipate it to be as to the potential of 
developing those areas as you have noted in your statement?
    Mr. Brodman. Mr. Chairman, I do not have exact figures in 
front of me about the cumulative investments that have been 
made by I guess both public and private oil companies in the 
development of oil and gas resources in the West African 
countries that we are focusing on here today. But I would 
venture a guess that it is probably somewhere in the 
neighborhood of $50 to $75 billion that has been invested 
already.
    I have also seen figures that suggest that the investments 
that will go into West African oil and gas development over the 
next 10 years are of a similar, similar magnitude. So we are 
looking at West Africa as being literally one of the most 
important investment plays and investment outlets for both the 
international major oil companies and many of the large 
independent oil companies as well.
    Now, as you know, investment is very fickle and it will 
tend to go to the places where risks are lower and rates of 
return are higher. In many of the so-called frontier West 
African oil provinces, there is so far no proven track record 
as to how the companies' investments will in fact be handled 
over time. I think there is a certain amount of reluctance on 
the part of any large investor to be the first, especially when 
many of the countries lack the kind of institutions, I think, 
and technical and managerial capacity to deal with large-scale 
investments by multinational investors.
    So I think for many of the frontier areas there will be a 
need for considerable institution-building before we really see 
investments take off. In many of the current producing areas 
where the companies have had a track record of operating for 
many years, there is still a need to improve transparency and 
the rule of law. In many places in West Africa, many countries 
will oftentimes change the tax code, change the rules governing 
foreign exchange earnings and the ability of companies to 
repatriate their profits, and things like that, without much 
consultation. We have in several cases seen investments slow 
down as a result.
    So it is a constant--I think it is a constant--there has to 
be some constant vigilance and constant efforts on our part to 
work with these countries to help them and the rest of the 
international community understand that a stable, open and 
transparent investment environment is the key ingredient that 
will be needed if we expect to see these resources develop in a 
timely manner.
    Senator Hagel. Of the numbers that you noted--and I 
recognize you do not have the specific figures with you and I 
recognize that they are general figures--the $50 to $75 billion 
number, what percent of that would you say would be American 
investment?
    Mr. Brodman. Probably close to half. It would vary country 
by country, but I would say if you are talking about the past 
cumulative investment it is probably close to half.
    Senator Hagel. Would you say that, from what you know, 
would hold for the future, over the next 5 years or so, that 
that level of American investment would be maintained at half 
of that total investment, from what you know?
    Mr. Brodman. From what I know, I believe that American 
investment may actually rise. Again, it will vary considerably 
from country to country. I have not sat down and really racked 
up all the investments country by country and divided them up, 
American or not American. But these are just my sort of seat of 
the pants guesses from being familiar with the region.
    Senator Hagel. Where would the bulk of the remainder of 
that come from? Europe?
    Mr. Brodman. Europe predominantly.
    Senator Hagel. Is there in your sense of this significant 
Chinese investment in energy?
    Mr. Brodman. Not yet. The Chinese are very actively trying 
to become more involved in West Africa.
    Senator Hagel. By the way, I will address the questions to 
maybe one of you specifically, but I would appreciate, if one 
of you or both of you have additional comments, please feel 
free to engage. Thank you.
    Where do you think the U.S. Government can do more, should 
do more, in the way of assisting investment? Now, some of it 
will spill over into Mr. Simons' area, I know. But we are 
somewhat limited, any government is, as to what we can do. We 
have some programs that we have mentioned this afternoon. I 
want to get into some of those, Millennium Challenge Account, 
some of these areas where it does cut to the core issue of 
climate and environment, stability, security, things that we 
try to do, what governments can focus on.
    But any areas, Mr. Brodman, that you think the government 
can do more in and should do more in in the way of encouraging 
investment in these areas?
    Mr. Brodman. Sir, I think we really need--we have done a 
very good job of engaging these countries on a bilateral basis. 
But I think we need to keep the dialog going to help them out 
and to help them to build a technical and managerial capacity, 
to understand the trends in the oil and gas development around 
the world. I think it is very important that we help the 
countries of West Africa learn about what I would call 
international best practices, or sort of the international 
standard for investment regimes and investment climates, so 
they can make more informed decisions and take the steps that 
are necessary to attract the international investments that 
they will need. I think that is one thing.
    I also think we need to encourage them to maintain an open 
dialog with the companies so that every time they are thinking 
of changing their tax laws or their petroleum legislation or 
the laws governing exploration and development in their 
countries that they do so in consultation with the private 
companies that will be making the investments, so as to not 
take steps that will adversely affect the investments in the 
longer term.
    I think it is this kind of dialog that is the most 
beneficial.
    Senator Hagel. Let me ask a question that both of you can 
answer, and I know Mr. Simons will get into this. But another 
question that relates to this: How do we coordinate our policy 
on this issue between your two Departments and agencies? How do 
we integrate foreign policy and energy policy specifically in 
this area? And I will let you start with that, Mr. Simons, 
because you have some other things you want to talk about as 
well.
    Mr. Simons. Sure. If I could just pick up on the last 
question and perhaps add a little bit and then move on to the 
question of the policy integration. On the issue of promoting 
investment, I think we can look at it perhaps on three 
different levels. One is the broad macro level, where we have 
really been working very closely with the IMF and the World 
Bank to get these African countries in the situation of basic 
macroeconomic stability, which also is a precursor for any sort 
of reasonable involvement by oil companies and energy sector 
investments. So we have the international financial 
institutions playing on that macro level.
    We have the international financial institutions also 
playing a role now on transparency, good government, and 
budgetary issues, much more so than they did say 10 or 15 years 
ago. So I think that has been an area we have made a lot of 
progress.
    The second issue, I would agree with John, involves ways 
that we can introduce, through bilateral mechanisms, through 
dialog with the Department of Energy and private consulting 
firms, appropriate investment strategies, appropriate laws, 
regulations, and best practices. That is very, very important 
as well.
    Then finally, I think we should not overlook the impact 
that we can have on the ground through our missions, through 
our Ambassadors, our staffs, in terms of providing linkages 
between the companies and host governments. For instance, we 
are reopening an office in Equatorial Guinea for the first time 
in a number of years. We are expecting that will be an 
important link, an important bridge between our companies and 
the Government of Equatorial Guinea.
    Our Ambassadors throughout West Africa are extremely active 
on commercial advocacy as well as investment climate advocacy 
with host governments. It is one of their top priorities. And 
they are really the hands and ears on the ground. Having served 
in Africa myself, as has John, I think we recognize the 
importance of having folks on the ground who have a feel for 
how far local governments can go, how you can steer them, how 
you can get deals done, how to get investment regimes shaped 
properly.
    So I think we have those three levels. I will say a couple 
words about policy cooperation and coordination. I think, quite 
frankly, the relationship, the basic players within the U.S. 
system right now are the Energy Department, the State 
Department, to some extent the White House. We really have an 
excellent cooperative relationship. We travel together. We 
coordinate papers together. We share documents. We are in 
continuous coordination on the Internet.
    Secretary Abraham has been I think a great leader in terms 
of shepherding the Africa energy minister process along over 
the the last few years. He has excellent relationships with all 
the major African energy ministers.
    We also work together through the International Energy 
Agency in Paris to provide initiatives to non-member countries, 
again to get countries to improve their investment climates.
    So I think the inter-agency process, compared to other 
inter-agency processes that I have worked on over the years, I 
think it is quite, quite healthy and is working well.
    Senator Hagel. Well, part of the reason for Secretary 
Abraham's effectiveness is he was trained in the Senate and he 
brings that advantage to the job that few others have, of 
course.
    Before I go back to Mr. Brodman to get his response to that 
general question, could you address specifically the Africa 
Growth and Opportunity Act and the Millennium Challenge Account 
in the context of what we are talking about here and how we 
would tailor that, apply that, implement that, get that down 
into the areas that we are talking about that we must see 
improvement in in order to connect the investment and all the 
other pieces that you both have noted in your testimony?
    Mr. Simons. Right. Mr. Chairman, I do think both the Africa 
Growth and Opportunity Account as well as the Millennium 
Challenge Account are very, very important and new tools in our 
tool kit. They are the sorts of vehicles we did not have 10 
years ago to work with. So we are very appreciative that the 
Congress has given us these instruments that we can use, in 
addition to the transparency process, which is purely an 
administration initiative.
    But to offer unique kinds of trade opportunities to African 
countries, to be able to offer substantial amounts of incentive 
resources for countries that can qualify for the Millennium 
Challenge Account, is I think very much a cutting edge 
opportunity and it is one that we do need to take advantage of. 
And I think we have taken advantage of it.
    If you look at the 37 eligible beneficiaries for the Africa 
Growth and Opportunity Act, most of the major oil producers are 
included in that group--Nigeria and Angola. We do have 
conditionality attached to qualifications for membership in 
that group that references continuing progress in terms of 
corruption, in terms of rule of law, and in terms of human 
rights. So we do have benchmarks that countries need to meet. 
My own personal view of the AGOA is, with respect to oil 
countries, it gives them the opportunity also to diversify. 
Certainly we do not want to be creating or promoting countries 
that are purely dependent on oil. So AGOA really provides the 
opportunity to develop nontraditional resources, to develop 
competitiveness in those areas, and to have access to the U.S. 
market.
    With respect to the MCA, the Millennium Challenge Account, 
we have five West African countries that have qualified in the 
first tranche. None of them happen to be major oil producers, 
but the oil producers continue to be candidates. The benchmarks 
are a little bit higher in terms of transparency and good 
government. That is not to say the oil countries could not meet 
the bar, but they have not yet.
    I think it provides a good standard to aspire to for the 
oil producing countries, again a very important tool, and I 
think as the first set of countries develops their compacts 
that will also provide some perspective to the countries that 
are now aspiring under the MCA, and hopefully will show 
Congress also that this is a very good program and it deserves 
continued funding.
    Senator Hagel. Thank you.
    Mr. Brodman.
    Mr. Brodman. Mr. Chairman, I would like to echo the 
sentiments on cooperation that my colleague from the State 
Department just made. I think we clearly realize, as you stated 
in your opening statement, that international energy policy is 
not made or carried out in a vacuum. Our international energy 
policy is an integral part of our foreign policy, our economic 
policy. There are elements of trade and investment policy in 
there and of security policy as well.
    So we rely very much on the State Department, the Treasury, 
USAID, and others for the context, I think, within which we try 
and develop close bilateral energy relationships to make 
strides on strictly energy issues with most international 
governments, and especially those in West Africa.
    Our cooperation runs the full gamut. In many cases the 
energy policy component and dialog that we have ongoing with 
individual countries is the part of a larger economic dialog 
that is managed by the Department of State, and in other cases 
we have a very active energy policy dialog going on, where we 
invite State Department representatives, but clearly it is the 
overall energy policy dialog. But we do work very closely with 
State and are dependent on them for advice and oftentimes 
resources.
    There have been a number of times in the past--as you know, 
sir, the Department of Energy is not an economic development 
agency per se, so the resources that we have available to 
devote to, let us say, economic development issues, including 
energy policy development, in developing regions of the world, 
like West Africa, are in fact fairly limited. We have some 
technical expertise and some advice and we can have working 
dialogs and exchanges of information with many countries that 
draw on the expertise and advice that we have. But the 
resources we have to really carry out sustained programs in 
individual countries are limited.
    In a couple of instances in the past few years, the State 
Department has been instrumental in helping to provide the 
Department of Energy with economic support funds to help us 
carry out programs of assistance in the energy area in specific 
African countries. More specifically, a number of years ago 
USAID provided the Department of Energy with several million 
dollars to start an energy cooperation and assistance program 
in Nigeria that just recently came to a conclusion. More 
recently, the State Department and USAID were instrumental in 
providing the Department of Energy with $200,000 to have us 
assist the Government of Angola in the development of a 
comprehensive national energy strategy that would focus on the 
provision of energy services to the Angola domestic economy.
    So these I think are two very good examples of how we work 
cooperatively together.
    Senator Hagel. Thank you.
    Mr. Brodman, are there fundamental differences that exist 
currently with these gulf country oil-producing areas, where 
the countries are more specifically tailored to their own 
traditions, their own specific business dynamics, resource 
development, versus a more regional concept of development, of 
not just the resources but of the stability in general of the 
region?
    Is there developing or has there been developing or yet to 
develop that kind of a regionalization appreciation, 
understanding, between governments, that they are not isolated, 
that if two or three of their neighbors are not doing well and 
unstable then that is going to affect them? I know Mr. Simons 
is going to talk about that, as he referenced the compact that 
was signed in Sea Island, Georgia, at the G-8 conference, which 
relates to my question. So I will ask Mr. Simons the same 
question. Thank you.
    Mr. Brodman. Mr. Chairman, I think we have seen very, very 
positive developments on exactly that front in the last 10 
years, but more so in really the most recent few years. In the 
past, you know, the bulk of the investment really going on in 
exploration and development in Africa was in one country, in 
Nigeria, and Nigeria really was leaps and bounds ahead of its 
neighbors in terms of understanding how to deal with the 
multinational oil companies, how to negotiate contracts, how to 
play the international oil development game.
    Here I am speaking in general terms and I know Nigeria has 
not exactly been a model of stability over the years and it has 
had many successive military governments prior to the current 
democratic government and it has had a fairly rocky history.
    But in the recent past we have seen a number of countries 
really step up and resolve their territorial disputes with 
their neighbors. I am thinking here of Gabon and Equatorial 
Guinea in particular. I think just earlier this month Gabon and 
Equatorial Guinea resolved a longstanding territorial dispute 
in offshore waters that had been stalling and delaying 
exploration and development in that area for a considerable 
period of time.
    We have seen the same happen in Nigeria and Cameroon. We 
see the same kinds of thing happening I think with Equatorial 
Guinea and Cameroon as well. This kind of gradual encroachment, 
I guess, of a realization on the part of the countries that 
they are a region, that they can work together and cooperate 
for their own best long-run interests, is something that is 
taking foot there very positively.
    Another important example that I see developing is the 
example that is being provided by the joint development zone 
between Sao Tome and Principe and Nigeria. The joint 
development zone is basically this territorial waters between 
Sao Tome and Principle and Nigeria where there are no clearcut 
boundaries. It is expected that it has large-scale--or the oil 
resource potential of that disputed territory, if you will, is 
considerable.
    We have seen Sao Tome, which has no experience in dealing 
with the multinational oil companies in developing resources, 
enter into a pact with Nigeria whereby they will jointly work 
with them. They have jointly created a board consisting of both 
Nigerians and Sao Tome officials, that will proceed with the 
development of the oil resources in this joint development 
zone. And it is a very logical step forward because it will 
allow the officials from Sao Tome to learn from their Nigerian 
counterparts as they go forward and develop this joint zone.
    I think the lessons they can learn from that experience 
they can then bring home and apply to their own, their own 
development in their own territory, outside of the disputed 
area.
    But there are a number of other examples that we see 
happening. In Equatorial Guinea, for example, Equatorial Guinea 
hopes to develop an LNG facility in Equatorial Guinea that will 
take gas from several of the surrounding countries. The gas 
resources in a number of the surrounding countries in and of 
themselves are not enough to sustain investment in a major LNG 
port for export. As a matter of fact, some people believe that 
the gas resources in Equatorial Guinea by themselves may not 
sustain a large-scale LNG facility for a long time. But the 
countries of the region have gotten together. They have decided 
on an operator. The operator, Marathon in this case, plans to 
build an LNG facility that will purchase gas from Cameroon, gas 
from ExxonMobil, and gas from other producers in the region and 
bring it all back to Equatorial Guinea for processing through 
this one LNG facility and sale to the world market.
    So we see very positive signs along that score, sir. These 
are things that we would like to encourage.
    Senator Hagel. Mr. Simons.
    Mr. Simons. I would certainly associate myself with all of 
John's examples. They are impressive in the African context. I 
would just cite two other areas that I think merit mentioning. 
First is the Chad-Cameroon pipeline, where you have a 
landlocked country that really is investing its entire economic 
future in the political viability of its neighbor. It is a very 
impressive arrangement that we hope again will be a model.
    The second area, is a little out of economics and is more 
in the security area. The work that ECOWAS has been doing 
lately on conflict management is very impressive. They have set 
up a small defense security staff. They have successfully 
deployed, as you know, to Cote d'Ivoire and Liberia in the last 
couple of years. We have been able to get some other Western 
donors to help build capacity. We are also putting a small 
amount of our own money into their operation. We have been able 
to make their headquarters a hub for peacekeeping training, and 
this is something that certainly 10 years ago would not have 
been imaginable.
    Senator Hagel. Thank you.
    Let me ask each of you about terrorism. First, Mr. Brodman, 
have we changed in any significant way our U.S. strategic 
energy policy since September 11, 2001? Obviously we have all 
recalibrated to some extent, which affects all our policies, 
but especially international policy. But has it been 
significant? Where has it been significant? How has it made it 
more difficult in order to fulfill, accomplish a number of the 
areas that you talk about?
    Then I would ask Mr. Simons the same question, only on a 
little broader scale, specifically tailored to the West Africa 
region; and more specifically for each of you, the Gulf of 
Guinea energy countries that we are talking about here--threats 
and then how we are dealing with those in our policy? Mr. 
Brodman?
    Mr. Brodman. Clearly the war on terrorism has highlighted 
the key security concerns that American companies and Americans 
working abroad are likely to encounter in many hostile parts of 
the world. This has affected the energy industry considerably 
in many places, and it has even in some cases I think at this 
point placed in doubt their ability to maintain a significant 
footprint in some countries.
    There are clearly risks to Americans living abroad in some 
countries that companies must have a corporate policy for 
dealing with. When lives are at stake, I think corporations 
will always tend to be risk-averse and will do the most they 
can to minimize the danger to their personnel, even if that 
means withdrawing them from the country and shutting down 
operations. That is kind of an extreme case.
    The other things we have seen in terms of impacts of the 
war on terrorism I think have to do more with economic costs 
that the companies will incur by exploring and developing 
energy resources in other countries. Clearly the higher costs 
of security will have to be factored into all their investment 
decisions from here on out. Just the logistical cost and the 
extra personnel and things associated with providing security, 
with hardening your facilities, with building redundancy into 
the key infrastructure and everything like that to deal with 
potential terrorist threats is a significant additional burden 
that the industry has to factor into its calculations.
    When it comes to West Africa per se, clearly there are 
terrorist threats that exist in West Africa. I think we have 
been fortunate to some extent in that many of the oil-producing 
facilities in West Africa are offshore, they are far from large 
population centers, they are geographically isolated, such as 
those in Nigeria in the Niger Delta, in places that are 
difficult to reach.
    While that in and of itself may provide a certain measure 
of security to the Americans and the American firms working 
there, it is by no means a simple proposition. The fact that 
these facilities are isolated can make them targets of 
opportunity as well. These are issues that I think the industry 
is beginning to address. I think we have a long way to go as 
far as trying to deal with all the threats that might possibly 
arise and to handle all the issues that could come up. But I 
think we are making some progress.
    Senator Hagel. Thank you.
    Mr. Simons.
    Mr. Simons. I think John summed it up pretty well. I would 
perhaps make a couple of observations just to put John's 
comments in some context.
    I think we have a whole set of physical security issues, 
homeland security issues that host countries face, that 
industry faces, and that we face here at home. We have an 
unanswered question, which is how many of those external 
homeland security types of questions, physical security for 
soft targets kinds of questions, how much of that is the 
responsibility of the United States, how much of it is the 
responsibility of the private sector, and how much of it is the 
responsibility of the host governments.
    I think that whole set of issues we are starting to come to 
grips with. I do not think it is really Africa-specific. It is 
worldwide. We are addressing these questions in the Middle 
East, in Southeast Asia, as well as in Africa. But it is a 
question that we need to take a good hard look at and begin to 
define where our involvement and our responsibility begins and 
where it ends.
    So that is one set of issues. A second set of issues, which 
John has also alluded to, involves country risk. To what extent 
has the war on terrorism heightened overall perceptions of the 
risks of operating in certain countries, which are not really 
soft target countries but might be hard target countries, where 
you would have a real threat of a terrorist incident against a 
facility in a country.
    I think that these issues taken together may be having some 
impact in terms of the marketplace, in terms of the world 
market, oil markets, short-term markets as well as long-term 
investment markets. So this is to some extent a price of doing 
business post-9-11. We talk with the companies about this, we 
talk with host governments. We have discussions inside our own 
executive branch, and it is something that we are sorting 
through.
    Senator Hagel. Thank you.
    How would you rate--I know this is imperfect, but give me 
some answer to the question, the terrorist threat in the area 
that we are talking about? High? You must be aware always, as 
you have noted. Give me some calibration of that issue in the 
area we are talking about? We have so far seen not a great deal 
of terrorist activity in those areas. But because as we develop 
those areas and see them develop into major energy centers, 
they represent newer targets, bigger targets, more significant 
targets.
    Mr. Brodman. I do not know if I--I am not going to give you 
a numerical rating on a scale of one to ten or anything like 
that, Mr. Chairman, if you do not mind. But in the case of West 
Africa, it has been historically here an inherently conflicted 
region. Religious conflicts; there are ethnic conflicts; there 
are conflicts between the countries. And within individual 
countries, as you know, the history of the region, there are 
relatively--there are some positive examples of political 
stability, but there are probably more pronounced examples of 
political instability.
    While we think the region is making progress as a whole 
and, as you say, a lot of the security concerns that I think 
these companies--or the countries and our companies that are 
operating there have experienced, they really come more from 
these sources of conflict that are inherent within the region 
than they have from terrorism themselves. But the fact that 
they are politically unstable places and the fact that there 
already are existing other types of conflict I think makes 
these countries a potential breeding ground for future 
terrorism activity.
    So to what extent are the terrorists there and active 
today? I really do not know. To what extent are terrorists 
really looking at these conflicted areas as possible places to 
carry out terrorist activities in the future? I do not know 
either. But it would seem to me that, because the countries are 
weak, because they are inherently conflicted the way they are, 
that they do become fertile ground for potential future 
terrorist activities.
    Senator Hagel. Thank you.
    Mr. Simons.
    Mr. Simons. I think it is important also to note that the 
problems that we have seen to date, which have largely been 
concentrated in Nigeria, where we have actually had supply 
interruptions because of different internal conflicts, have 
largely been local in nature. They have had to do with internal 
problems, ethnic problems, and their solution is a combination 
of development, internal security, as well as law enforcement.
    I do think that to the extent that you have a weak law 
enforcement base in a number of these countries that you are 
vulnerable as a soft target for terrorists to come in. For the 
time being, though, I do think that it is the weak law 
enforcement structure and some of the other unresolved issues 
with respect to how resources are divided within the countries, 
which can be attacked more directly by this transparency 
process.
    I think the countries have to get that right. They also 
have to get moving on the law enforcement side as well, where 
they have substantial weaknesses. So there is currently a 
vulnerability to terrorism, but the immediate challenge I think 
is more on the transparency side.
    Senator Hagel. Thank you.
    Gentlemen, you have been most helpful. The committee 
appreciates your testimony and your forthright answers to the 
questions. What we will do is keep the record open for a couple 
of days. I know some of my colleagues had wanted to be here. We 
have Dr. Rice coming here in about an hour actually to a 
different room. So there were other members of the committee 
who wanted to ask some questions and we may send those along 
for your answers. So we will keep the record open a couple of 
days.
    But thank you very much. Please give our thanks to your 
colleagues who do such good work for our country. We appreciate 
it. Thank you.
    If the second panel would step up when we have the table 
cleared, we will get started. Thank you.
    Gentlemen, welcome. As you know, I have introduced each of 
you. I see you are well fortified with water and if you need 
more we will pour more water for you. So thank you again for 
coming up this afternoon and presenting your thoughts on an 
important issue for the future of this country, the future of 
the world.
    So I will get started. We will ask each of you to present 
your testimony. As you have noted, I have already stated you 
can do that any way you like. Anything you brought along in 
formal remarks, additions, insertions, will be all included in 
the record. So thank you again.
    Mr. Goldwyn, I will reintroduce you and you can begin: Mr. 
David Goldwyn, Founder, Goldwyn International Strategies, 
Washington, DC. Sir, thank you.

 STATEMENT OF DAVID L. GOLDWYN, FOUNDER, GOLDWYN INTERNATIONAL 
                        STRATEGIES, LLC

    Mr. Goldwyn. Thank you, Mr. Chairman. It is a pleasure to 
be here again and an honor to speak to you and this committee. 
This committee's sustained interest in the issue of energy 
security has helped keep this issue on the agenda with the 
executive branch and so I commend you for your sustained 
interest.
    Oil supply from the Gulf of Guinea is important to U.S. 
energy security, but the supply from that region in my view is 
vulnerable to a disruption from both internal and potentially 
from external threats. We do not have an energy policy that is 
strategic in any sense, not nationally and not in the Gulf of 
Guinea. As a government, we are not organized to address either 
the chronic causes of the unrest in that area or the acute 
threats of crime, privacy, and possibly terrorist attacks on 
the energy infrastructure.
    I have had the opportunity, as you have noted to some of 
the other witnesses, to study these issues closely in concert 
with my good friend and colleague and fellow witness Dr. 
Stephen Morrison. We have done two studies this year for CSIS 
on oil in the Gulf of Guinea. Dr. Morrison is going to talk 
about our recommendations for addressing the region's chronic 
problems in his testimony. I am going to talk about what energy 
security means in a globalized market, why the Gulf of Guinea 
is critical to U.S. energy security, what is at risk, and what 
we ought to do about it.
    In terms of energy security, energy security is more than 
just access to diverse, reliable, abundant and affordable 
supplies of energy. Diversity is important, but the real threat 
to our economy is price volatility, because rapid spikes in oil 
prices cause recessions, drive up inflation, make our 
industries uncompetitive, and create job loss. And oil prices 
have been highly volatile in recent years, swinging from $10 to 
$40 from 1998 to now, because we are more and more dependent on 
nations that are less than stable themselves.
    Conflict among nations, when you look back 20, 30 years--
the Iran-Iraq war, Iraq's invasion of Kuwait--caused major 
disruptions in supply. Internal conflict does this as well. The 
Iranian revolution, the 2003 strike in Venezuela, and strikes 
in Nigeria are examples of this. So we cannot deter these kinds 
of disruptions with strategic stocks. That was our old energy 
security policy, deter an embargo by having strategic stocks. 
For the new threats we need conflict prevention and diplomacy.
    The newest threat we face, of course, is the potential of a 
terrorist attack on oil installations. We have seen attacks in 
Iraq by insurgent forces and we have seen them in Saudi Arabia, 
reportedly by al-Qaeda. In terms of the overall market, we have 
rarely been more energy insecure than we are today. The global 
market itself is stretched to capacity. Prices are at nearly 
$40 and, due to a deliberate OPEC policy, there is barely 
600,000 to 800,000 barrels a day of excess capacity, depending 
on whose statistics you believe.
    So if there is a supply disruption--a strike in Nigeria or 
a disruption in Venezuela or Iraq, much less something 
happening in Saudi Arabia--we have no cushion. Commercial 
inventories, which is what we would draw on first, are also at 
historic lows. So we are in no position to endure a supply 
interruption from the Gulf of Guinea today.
    But the threat of having that disruption, as I said, is 
real. And if we want to have energy security at home, we need 
to focus on promoting stability in the nations we rely on and 
help them protect the infrastructure that delivers the oil and 
gas we depend on.
    As many of the witnesses have said today, the nations of 
the Gulf of Guinea are and will remain critical to U.S. energy 
security. I will not torture you with the statistics since we 
are all working off the same numbers, but the Gulf of Guinea 
provides roughly 14 percent. It is not the Persian Gulf, but 
the marginal barrel sets the price of oil and if these 
countries exports go off the market the price shoots to 50 
bucks. That is why they are important.
    In the future they are going to be important as well. OPEC 
productive capacity really has not changed, but the Gulf of 
Guinea next year will provide the second largest increase of 
oil supply in the world. Russia will provide the most barrels. 
The Gulf of Guinea is going to be No. 2. OPEC is holding fast. 
So the Gulf of Guinea is important and if all goes well--this 
is what we are talking about today, will all go well--we could 
get to 20 percent of imports from this region in 20 years.
    The reasons why increased exports from the Gulf of Guinea 
are important is well known--they make us less dependent on 
Middle East crude. And all of these nations except for Nigeria 
are non-OPEC nations, so that they provide some competition to 
OPEC in terms of driving down the price of oil.
    It is important to note for a trade subcommittee that the 
reason these countries are growing is because they are open to 
Western investment. They provide a competitive rate of return, 
about 15 percent or so, and they have attracted $30 to $40 
billion or will attract $30 to $40 billion of investment this 
decade. I think it is actually about 40 percent American and 
about 60 percent European investment.
    But it is the very openness of these nations to Western 
investment that also makes them a potential target for 
terrorism. And of course, it is important to note that we have 
more than oil at stake. There are thousands of Americans who 
work in this region and our taxpayers, through investments in 
companies, have billions invested there.
    The geological prospects are good in the region, but the 
risk of an oil disruption is high for a variety of reasons. One 
is rising violence. The unrest in the Niger Delta is 
unresolved. Political violence is often directed at foreign oil 
workers and facilities. Foreign oil workers have been held 
hostage for weeks at a time. Just last April, seven people were 
killed, including two Americans who worked for ChevronTexaco. 
The risk of onshore violence is reportedly leading some 
companies to consider even selling off their Nigerian 
operations.
    Labor strikes are another major threat to security of 
supply. In March 2003, strikes led to 800,000 barrels of oil 
coming off the market. That is a lot of oil. Earlier this 
month, Elf Nigeria suspended 235,000 barrels over fears that a 
threatened strike would become violent. That was 10 percent of 
Nigeria's oil supply. There are strikes threatened against 
Shell, which produces 950,000 barrels a day, and ExxonMobil, 
which produces 500,000 barrels a day.
    I do not profess to be an expert on the labor issues that 
are involved, but from a consumer perspective we can look 
forward to more disruptions.
    Piracy and theft are another rising concern. CSIS has 
documented there are organized thefts of between 100,000 and 
200,000 barrels a day of oil in the Niger Delta. That is about 
a billion dollars in cash disappearing. It reportedly involves 
armed militias and criminal groups. So we have got two worries. 
One is we do not have the oil. Second is what are they doing 
with the money?
    The Nigerian Government is working hard to combat piracy, 
but frankly they are having modest success. In terms of the 
overall issues, the government has no credible plan to foster 
development and reconciliation in the Delta. So we are likely 
to continue to see oil disruptions from Nigeria until this 
problem is addressed.
    There are problems in the rest of the neighborhood as well. 
Sao Tome, while not yet an oil producer, saw a coup attempt 
against its President in July 2003, and criminal networks have 
already appeared there looking for the spoils which are yet to 
come. Equatorial Guinea has faced two coup attempts against its 
President in the past 8 months. The one in March involved a 
well-financed mercenary group possessing somewhere between $10 
and $15 million that was arrested while its plane was refueling 
in Zimbabwe.
    The threat of terrorism also looms over the region. The 
2003 al-Qaeda attack on the French oil tanker in Yemen and, 
more relevant to this area, Osama bin Ladin's pronouncement 
referring to Nigeria as a target in February 2003 both raise 
serious concerns about security in the gulf. We do not know how 
serious this threat is, but we do know that the forces of the 
Gulf of Guinea states do not have the capacity to protect their 
oil rigs and facilities. It is a soft target for a terrorist 
group that is willing to attack. So hardening these targets I 
think is at least a prudent deterrent.
    So what should we do? I think the most urgent task for the 
United States in the Gulf of Guinea is to fashion a strategic 
policy that draws on our diplomacy, our influence in 
international financial institutions, our aid, and our military 
relationships, all to enhance the stability of these nations. 
As I detail in my written testimony, I think the United States 
has had no serious engagement with these countries on energy 
security issues in at least the last 3 years.
    As part of a comprehensive strategy--and we need to wrap 
this all into a comprehensive strategy--I think the United 
States should lead an urgent effort to help the countries of 
the Gulf of Guinea protect their maritime territories and 
enhance onshore policing and security. In the long term, the 
United States and others can help train local personnel on how 
to secure these installations themselves and to do so in a 
manner that respects human rights. But in the short term they 
are not going to be able to fulfill this task, and I think that 
means the United States should enhance its own presence in the 
Gulf of Guinea, including maybe an on-the-ground training 
center, begin direct security consultations with the region's 
governments, and organize an equip-and-train effort to 
establish a regional maritime security force.
    The U.S. European Command has begun this process with 
periodic visits by carrier groups and visits by senior 
personnel. EUCOM's Africa Coastal Security Program I think is a 
good start. But there is really no indication that EUCOM has 
support from the Department of Defense or the Department of 
State or that they have been given the resources to lead.
    I would urge the U.S. Government to create a decidedly 
regionally focused and regionally managed program. President 
Obasanjo has talked about a regional security commission to his 
neighbors in Equatorial Guinea and Sao Tome. I do not think it 
is actually formed. The Government of South Africa is 
supportive of a regional program also and they have proposed a 
binational commission with Equatorial Guinea.
    The United States ought to use its resources to work with 
all the region's governments, help them pool their physical 
assets, create some common security response doctrines, and 
organize them into a cohesive group. An effective regional 
program will reduce tensions among the Gulf of Guinea states, 
and these tensions are quite ample with different countries, by 
focusing them on sharing threat intelligence, promoting common 
strategies, conducting confidence-building measures, 
professionalizing training of security forces, and ensuring 
that their conduct respects human rights norms.
    The United States does not need to do this alone. We can 
and we should engage other nations in our effort to improve 
security in this part of the world. The African Union, the 
European Union, ECOWAS, and the United Kingdom can all be 
important allies in this effort. As I said earlier, European 
investment in the Gulf of Guinea is significantly greater than 
American investment.
    The United States can contribute leadership and training 
through the IMEP program, the International Military and 
Education Program, and our focus should be counterterrorism, 
counternarcotics, and customs enforcement, all with a human 
rights training component.
    It is important to take a couple seconds on human rights 
here, because the United States historically has been very 
cautious about providing security assistance to countries which 
have committed human rights violations or that misuse their 
national wealth, and there are a lot of those countries in this 
region. We have been loath to issue licenses to some of these 
countries even to purchase training by U.S. trainers because we 
want them to do other things first.
    But I think in this case the benefits of professionalizing 
their forces and offering them exposure to human rights 
training outweigh the risks. I think a lot of these countries 
are going to procure the help they need anyway, but they might 
do it from sources which are not interested in having a human 
rights training component to the training that they get. I 
think if the countries are wealthy they ought to be paying for 
this themselves. The U.S. does not need to pay for it. But the 
U.S. ought to be able to provide them the expertise.
    In conclusion let me say that I think the nations of the 
Gulf of Guinea have the potential to enhance U.S. energy 
security and global energy security by delivering new supply to 
the market. I think the United States can promote stability by 
addressing both the chronic problems of governance which people 
talk about and also the acute threats posed by the fact that 
they have very weak security forces. I hope that this 
committee's sustained interest in these issues will help us 
produce such a policy.
    Thank you.
    [The prepared statement of Mr. Goldwyn follows:]

                 Prepared Statement of David L. Goldwyn

    Mr. Chairman and Members of the Committee, it is an honor to speak 
with you today about the importance the Gulf of Guinea to U.S. energy 
security.
    We do not have a strategic energy policy in force in the United 
States today, but we need one. Today I will address briefly what energy 
security means in a globalized market, why the Gulf of Guinea is 
critical to U.S. energy security, why the stability of supply in the 
Gulf is at risk, and what we should do about it.
    I have had the opportunity to study these issues closely, in 
concert with Dr. Stephen Morrison, my colleague and fellow witness 
today. I co-authored two studies on this subject this year. The first 
was ``Promoting Transparency in the African Oil Sector: A Report of the 
CSIS Task Force on Rising U.S. Energy Stakes in Africa'' (CSIS: March 
2004) with Dr. Stephen Morrison. The second was ``Crafting a U.S. 
Energy Policy for Africa:'' in Rising U.S. Stakes in Africa: a Report 
of the Africa Policy Advisory Panel (CSIS: May 2004).
    These studies show that the nations of the Gulf of Guinea will 
enjoy an enormous increase in government earnings from oil revenue 
between now and 2010. Nigerian oil earnings will exceed $110 billion. 
Angola's could reach $40 billion. Equatorial Guinea could earn $10 
billion. These revenues give these countries a chance to achieve 
significant economic growth in the years to come, but they also 
demonstrate the importance of their energy resources for global oil 
market. This wealth can provide a platform for expanding prosperity in 
the region or it may encourage more rent seeking and destructive 
competition for a share of the new wealth. These studies provide 
detailed recommendations for enhancing U.S. energy security in the Gulf 
of Guinea. The recommendations focus on the need for much higher level 
U.S. diplomacy in the region, using our limited leverage to promote 
transparency and better governance by the producing nations, and 
building the administrative capacity of the region's governments to 
promote internal development as well as the development of their 
natural resources. I will draw on these reports for much of what I have 
to say today.

                 ENERGY SECURITY IN A GLOBALIZED MARKET

    Let me take a moment first to talk about what I mean by energy 
security. U.S. energy security depends on access to diverse, reliable, 
abundant and affordable supplies of oil and gas. But energy security 
today means more than access to supplies of oil. In a global market, 
the United States can buy the supply it needs by outbidding other 
consuming nations. The greatest risk to our energy security today is 
the volatility of the price of oil.
    When prices rise rapidly, as they have this past year, American 
consumers and industry cannot adjust quickly. We cannot easily change 
our cars, stop commuting, switch to other fuels, or move to warmer 
climates. We can reduce our vacations, reduce discretionary spending or 
cut back our production of products when fuel costs make them 
uncompetitive. It is no wonder that despite our significant increases 
in energy efficiency, nearly all of the recessions we have suffered 
over the past half century have been preceded by oil shocks.
    We have seen unprecedented price volatility in the past six years. 
Prices have swung from $10 to $40 between 1998 and 2004. Prices are 
volatile because too many producers are unstable. Look back thirty 
years and ask what caused the greatest price spikes, spikes that sent 
the U.S. economy into recession or hurt our consumers. The answers are 
war, civil unrest, or revolution, not embargoes. The major disruptions 
were the Iranian revolution, the Iran-Iraq war, the two Persian Gulf 
wars, the Petroleos de Venezuela (PDVSA) strike of late 2002, which 
removed 3.1 million daily barrels from the global market during over 2 
months and, to a lesser degree, the 2003 strikes in Nigeria which 
removed 800,000 barrels of oil from the market. The newest threat of 
course is terrorism against oil installations. The very fear of a 
terrorist attack on Saudi Arabia, no longer a hypothetical 
potentiality, adds several dollars to today's oil prices.
    Our old system of energy security does not address today's threats. 
The old system was a system of deterrence--if we built our reserves 
large enough, we could deter an embargo. After September 11, the 
concept of security has dramatically changed, and this affects the oil 
industry. Threats are no longer localized, intermittent and manageable. 
Our paradigm for oil security has to be modified. Today, the U.S. 
invests approximately $50 billion per year in the security of the 
Middle East and only very modest amounts to directly secure energy 
infrastructure in other critical regions. Neither the U.S. nor the 
producers we rely on in many parts of the world are deployed to protect 
this strategic commodity. We need to rethink our policy.
    These problems which give rise to oil supply disruptions are 
chronic in the Gulf of Guinea. Unrest in the Nigerian delta, piracy in 
its waters, coups in Equatorial Guinea and Sao Tome and Principe, 
strikes protesting rationalization of fuel costs are all derived from 
decades of corruption, poor governance, under development and neglect. 
We must use diplomacy, training, trade and the creative intervention of 
the international financial institutions to help these nations build 
stability by better governance. We need to empower our military to help 
build up local forces that can combat terror and crime while respecting 
the rights of their citizens. A strategic energy policy would marshal 
these foreign policy tools to enhance our energy security, while also 
addressing our demand for hydrocarbons. While we have such tools, we so 
far lack the vision to use them effectively. We have not empowered or 
directed our senior foreign policy or security officials to make this a 
priority. In the Gulf of Guinea, where governments are weak and deeply 
in need of reform, we must develop new mechanisms to address their 
unique needs and limited capacity.

         THE GULF OF GUINEA IS CRITICAL TO U.S. ENERGY SECURITY

    The nations of the Gulf of Guinea are and will remain critical to 
U.S. energy security. They are a key contributor to the diversity of 
global oil supply. In this case I refer to Nigeria, Angola, Chad, 
Equatorial Guinea, Gabon, and Sao Tome and Principe. Today, oil exports 
from the countries in the Gulf of Guinea provide us with 13-14% of the 
oil we import. While OPEC countries cut production, countries from the 
Gulf of Guinea provided one out of every four barrels of new oil that 
came on the market last year. This Gulf is much closer to U.S. 
refineries than the Middle East, and we have good relations with all of 
the exporting countries. In the future, if the investment and security 
climate remains stable, the U.S. could draw 20% of its imports from 
this region. Their share of global oil supply will rise from 4% this 
year to nearly 6% by 2007. Increased exports from the Gulf of Guinea 
allow the U.S. to reduce our dependence on Middle East crude. 
Furthermore, the non-OPEC nations in this area--all of them except 
Nigeria--provide a counterweight to OPEC's monopoly power.
    The region is a rising gas power as well. If current projects under 
development are brought to fruition, Nigeria, Angola and Equatorial 
Guinea will increase their liquefaction capacity from 9 million tons 
(M/T) per year to nearly 40 MT per year. These nations are growing as 
suppliers because they have opened their economies to Western 
investment. While most of the world's oil reserves are closed to 
international oil companies, the Gulf of Guinea has offered nearly 15% 
returns on investment. These terms (and high prices) will attract $30-
$40 billion in investment this decade. The very openness of these 
nations to Western investment can make them a potential target for 
terrorism.
    Nigeria and Angola are the region's most important suppliers. 
Nigeria produces 2.12 million b/d and exports 1.85 million b/d. It 
provides 8.25% of U.S. imports and it is planning to expand to 4 
million barrels per day by 2009. Angola produces 900,000 b/d and 
exports 866,000 b/d, providing 4.6% of U.S. imports, and is planning to 
reach 2 million barrels per day by 2009. Angola is our ninth largest 
supplier and our third largest non-OPEC supplier outside of the Western 
Hemisphere and is expanding in oil and gas as well. The other countries 
in the Gulf are significant as well. According to EIA estimates, in 
2003 Cameroon, Chad, Equatorial Guinea and Gabon exported approximately 
500,000 b/d in aggregate, with 221,000 b/d going to the U.S. Chad is 
beginning oil production this year. Equatorial Guinea will grow as a 
supplier of gas and light sweet crude for U.S. markets. Gabon and 
Cameroon are on the decline.
    From a geological and investment perspective, the regions' 
prospects are quite bright. New technologies, competitive investment 
frameworks and the availability of reserves for exploration by 
international oil companies have produced outstanding results. 
According to a study by PFC Energy, the estimated reserves of the 
region doubled in the last decade. Production rose from 2 million 
barrels per day to 3.5 m/bpd. Companies will invest between $30 and $40 
billion in these nations in this decade. Much of this oil is the kind 
of low sulphur crude oil that U.S. refiners need to produce gasoline 
that meets our environmental requirements. By 2010, these nations could 
add 2-3 million barrels of oil per day to global oil supply, an 
increase from its 3.4 million barrels to 7.4 million.

         SECURITY OF SUPPLY FROM THE GULF OF GUINEA IS AT RISK

    While the region's geological prospects are good, the risk of an 
oil supply disruption from the region is rising from internal and 
external sources. We are in no position to endure a serious oil supply 
disruption from the Gulf of Guinea today. The global oil market is 
stretched to capacity. Prices hover at nearly $40 West Texas 
Intermediate. Due to deliberate OPEC policy, there is barely 1.4 
million barrels per day of excess capacity available to redress a 
supply disruption. Nearly all of that spare capacity is in Saudi 
Arabia, and it is not enough to substitute for Nigeria's exports, much 
less a disruption from Venezuela or Iraq. Commercial inventories are at 
historic lows as well.
    We are not ready for trouble, but trouble is on the horizon.
    Nigeria faces the greatest challenge, from rising violence, 
strikes, piracy and potentially terror. The unrest in the Niger Delta 
region remains unresolved. Political conflict is often directed at 
foreign oil workers and facilities. Foreign workers have been held 
hostage for weeks at a time. Sabotage of oil pipelines has killed 
hundreds of Nigerians. Two ChevronTexaco oil workers were killed in the 
town of Ogheye last April. The risk of onshore violence is reportedly 
leading some international companies to consider selling off their 
Nigerian operations. Shut-ins due to security risks will persist absent 
relief from the unrest in the Delta.
    Strikes are another major threat to security of supply. In the 
prelude of the national elections of 2003, there was a sharp escalation 
of inter-ethnic violence that took 800,000 barrels per day off the 
market, adding pressure to already high oil prices. Production was shut 
down for months for security reasons. In early July of 2004, Elf 
Nigeria faced a shutdown over fears that a threatened oil union strike 
could become violent. Elf suspended pumping 235,000 barrels of oil--10% 
of Nigeria's production--and 187 million cubic feet of natural gas 
daily. More strikes loom on the horizon. Workers unions for Shell 
operations started a two-day warning-strike that opposed a 
restructuring plan for the company which would cut jobs by 30%. Shell 
is the biggest foreign investor in the country with 950,000 barrels 
daily. Similarly, ExxonMobil received a 21-day ultimatum to reverse the 
company's ``predilection for hiring foreign employees.'' The company 
produces 500,000 barrels daily. Additionally, labor unions, demanding a 
setback on the recent rise in gasoline price, are threatening to start 
a nation-wide strike in the coming days.
    Piracy and theft are another rising concern. As documented by CSIS, 
the organized theft of 100,000 to 200,000 barrels per day in the Niger 
Delta, reportedly involving armed militias and criminal groups that use 
some of the proceeds to acquire weapons, is an indication that oil 
mismanagement can threaten regional stability. The coastal piracy in 
this country is second globally only to the piracy in the Moluccas. The 
Nigerian government is working hard to combat piracy but with modest 
success. The Government has no credible plan at this time to foster 
development and reconciliation in the region, and rebel groups have 
taken advantage of this situation. Oil interruptions from Nigeria are 
likely to continue or worsen unless these issues are promptly 
addressed.
    Sao Tome, while not yet a producer can begin getting oil revenues 
in 2007. The country saw a coup attempt against its President in July 
2003. The coup created severe doubts about the stability of the 
country's regime and enhanced the risk associated with investing in Sao 
Tome. The situation can threaten the exploitation of this nation's oil 
wealth, which is currently estimated at 4 billion barrels, but might 
prove up to 10 billion barrels. In a country with a population of 
140,000, and virtually no administrative capacity, the early appearance 
and growth of criminal networks make the security a top priority.
    Equatorial Guinea has faced at least two coup attempts against 
President Obiang in the past eight months. Last December a clan member 
was caught escaping the country with $400,000 and a brother of the 
President mysteriously drove off a bridge. In March a well-financed 
mercenary group (with an estimated $10-$50 million at its disposal) was 
arrested while their plane was refueling at the airport in Zimbabwe.
    The threat of terrorism also looms over this region. The 2003 Al 
Qaeda attack on a French oil tanker in Yemen and Osama Bin Laden's 
pronouncement referring to Nigeria as a target in February 2003 have 
raise serious concerns about security in the Gulf of Guinea. We do not 
know how serious this threat is. But the naval forces of the West 
African states do not have the capacity to protect oil rigs and 
facilities. The area is a soft target for any terrorist group willing 
to attack. Hardening these targets is a prudent deterrent.

             POLICY OPTIONS TO ENHANCE U.S. ENERGY SECURITY

    Most of the region's problems are chronic. My colleague Dr. 
Morrison will address how these chronic problems of poor governance 
threaten political stability of the states of this region and how a 
clear U.S. policy can use pressures and incentives to address these 
root causes and help nascent reform movements in Nigeria and Angola to 
succeed. There will be no sustainable solutions to instability in the 
Gulf of Guinea without fiscal transparency and better governance.
    Yet some of the Gulf's problems are acute. The rise of criminal 
syndicates in Nigeria, the threat of terrorism in Nigeria, the 
vulnerability of offshore oil facilities in Angola, Nigeria, Equatorial 
Guinea are urgent concerns. The U.S. and host country personnel who 
operate these facilities are at risk as well as the oil and gas supply 
they deliver.
    The most urgent task for the United States is to fashion a 
strategic policy that draws on our diplomacy, our influence in 
international financial institutions, our aid and our military 
relationships to enhance the stability of these nations. We have had no 
serious engagement with the region on energy security issues. We have 
had one U.S.-Africa Energy Ministerial in four years. The U.S. Energy 
Secretary has not yet visited the Gulf of Guinea. We have no regular 
bilateral talks with these countries. We have no real funding or 
program behind our promises to support capacity building. We no longer 
have an energy attache in Nigeria. We have no funding for debt relief 
for Nigeria.
    The CSIS Task Force and the Africa Policy Advisory Panel both 
recommended appointing a Special Adviser to the President and Secretary 
of State for African Energy Diplomacy to forge and lead this policy. 
Dr. Morrison will address this and other recommendations in more 
detail.
    With billions of U.S. investment, thousands of U.S. workers on the 
ground, and strategic supplies of energy at stake, the U.S. should also 
lead an urgent effort to help the countries of the Gulf of Guinea 
protect their maritime territories and enhance on-shore policing and 
security. In the long term the U.S. can help train local personnel how 
to secure oil installations themselves in a manner that respects human 
rights. In the short term the U.S. should enhance its own presence in 
the Gulf of Guinea and begin direct consultations with the regions' 
governments and an equip and train effort to establish a regional 
maritime security force.
    The U.S. European Command has begun this process with periodic 
visits by a carrier group and senior personnel through the Gulf of 
Guinea and its proposal for Coastal Security program. It is unclear if 
they have been given the resources to carry this out, or been given 
support by the Departments of State of Defense. They are clearly the 
source of leadership on this issue. I would urge the U.S. government to 
create a decidedly regionally focused and regionally managed program. 
President Obasanjo has proposed a regional security commission to 
neighbors in Equatorial Guinea and Sao Tome and Principe. The 
government of South Africa is supportive of a regional approach as 
well. The U.S. should use its resources to work with these local 
governments, help them pool physical assets, and conduct a regional 
equip and train effort. An effective regional program will reduce 
tensions among the Gulf States--which are ample--by focusing on sharing 
threat intelligence, promoting common strategies, conducting confidence 
building measures, professionalizing the training of security forces 
and ensuring that their conduct respects human rights norms. The U.S. 
does not need to do this alone; we can and should engage other nations 
in our efforts to improve security in this part of the world. The 
African Union, the European Union, ECOWAS and the UK can all be 
important allies in this effort.
    The U.S. can contribute leadership and training through the 
International Military Education and Training (IMET) program. The focus 
of U.S. training should be counterterrorism, counter-narcotics and 
customs enforcement efforts. The U.S. has rightly been cautious about 
providing security assistance to countries which have committed human 
rights violations and countries that misuse their national wealth. We 
have been loathe to issues licenses for U.S. trainers. In this case I 
would argue that benefits of professionalizing these nascent forces, 
and offering exposure to human rights training, outweigh the risks. 
These countries may procure the help they need from sources unconcerned 
with human rights training. The U.S. should ease its licensing policy 
to permit the nations of the Gulf of Guinea to purchase U.S. training 
where needed. Wealthy nations should procure their assistance on a 
reimbursable basis.

                               CONCLUSION

    The nations of the Gulf of Guinea hold the potential to enhance 
U.S. and global energy security by delivering significant new supplies 
of oil and gas to world markets. These supplies can help moderate oil 
prices and help insure the U.S. against political instability in the 
Middle East. But the nations of the Gulf of Guinea can just as easily 
make oil prices more volatile if internal instability leads to further 
oil supply interruptions. U.S. policy can promote stability by 
addressing both the chronic problems of poor governance and misuse of 
oil wealth and the acute threat posed by weak security forces. To 
succeed, such a policy must be strategic, well resourced, and backed by 
high level diplomacy. I hope this Committee's sustained interest in 
these issues will help produce such a policy.

    Senator Hagel. Mr. Goldwyn, thank you.
    Dr. Morrison.

  STATEMENT OF J. STEPHEN MORRISON, PH.D., DIRECTOR OF AFRICA 
    PROGRAMS, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES

    Dr. Morrison. Thank you, Senator Hagel, and thank you for 
the chance to be here today.
    I want to commend you for your leadership on this issue. I 
know you are taking a special interest in the question of 
maritime security in this zone, and I think I will start out 
with some quick comments in support of the concluding remarks 
that David provided around the notion of a Gulf of Guinea 
maritime strategy.
    Let me reinforce that there is a glaring vulnerability in 
the Gulf of Guinea, and it is a function of both unrivaled 
piracy levels in Africa--in fact, the piracy that you see in 
the Gulf of Guinea is second only to the Malacca Strait in 
Southeast Asia. And this is inviting extensive illicit 
trafficking in weapons and drugs, illegal immigration, and it 
potentially invites terror attacks against an energy 
infrastructure that is rapidly developing in this region, but 
which is not constructed with any serious sabotage threat in 
mind.
    It is very much in the U.S. interests to take a higher 
level of engagement in this regard. I want to reinforce the 
remarks that David made about the threat that comes out of the 
theft or bunkering of oil in the Niger Delta, which is 
dependent on transit through the waters of the Gulf of Guinea. 
We are talking about 10 percent or more of production, onshore 
production in Nigeria, with a value of well over $1 billion per 
year. This is a huge loss. It is a huge boon to criminal 
activities and it could continue to rise, and it permeates the 
entire region in terms of the criminal networks that grow up 
around it. This oil shows up supplying refineries and traders 
all over the region and shows up in Europe as well.
    If we were to take a higher level of engagement in trying 
to build maritime security in the Gulf of Guinea, we could 
begin to curb piracy and shrink the bunkering or theft of oil. 
We could improve the oil production environment, encourage much 
greater regional integration, and deter terror and sabotage 
while protecting American citizens and American property.
    The cost is not prohibitive. A sensible, aggressive, robust 
American program could run at $10 to $20 million per year, with 
major gains for security in the area and for U.S. commercial 
national interests.
    The gulf states themselves have signaled their strong 
interest in joining us in this regard and that is an important 
factor. Particularly Nigeria, Sao Tome and Principe, and 
Equatorial Guinea have been very overt in signaling their 
interest in partnering with the United States, and I think the 
other major states, such as Angola and Gabon, Cameroon, can 
also be brought into a discussion around these issues fairly 
easily.
    If we are going to get serious about building a regional 
maritime security initiative in the Gulf of Guinea among these 
six states, I think it is very important that we make sure 
Angola is in that package.
    What do we need to keep in mind? The first thing is we need 
to act very quickly and we have to act with a very real sense 
of realism about what is possible in what timeframe. We have to 
proceed on a long-term strategy of at least 5 years. Speed is 
essential because the environment today is receptive. If we 
wait much longer the surge of oil wealth is going to create new 
sets of incentives and distractions, and that surge of oil 
wealth is going to be fully upon us in the next 2 to 3 years.
    Speed is also essential that we demonstrate concrete 
benefits to the states themselves and to Congress and to the 
administration and to others and that we minimize the 
distractions that will come as China, India, and others become 
a larger presence in this region. We have competitors in this 
region who are arguing a different strategy of protecting 
interests.
    We have to be very realistic that we are starting with U.S. 
capacities on the security side, on maritime security, as 
minimal, at a minimal level. It is going to take some time to 
create the relationships and operational capacities. This is an 
environment with an exceptionally weak infrastructure and 
technical expertise. This is different from operating in the 
Caspian, and I think we need to bear that in mind. We have to 
make an investment for at least a full 5 years.
    The second thing we need is a coherent regional partner. 
There have been early discussions among the six states around 
forming some type of body. I know the European Command under 
General Wald's leadership has taken some efforts to begin some 
early conversations. I think those conversations and that 
diplomacy should be intensified. We need a partner. The spirit 
is there today. The environment is receptive to doing that.
    The third thing we need is more of an internal U.S. 
Government consideration, which today there is not an inter-
agency operational plan for moving ahead in this regard. There 
are concepts, there are ideas that are very worthy, that need 
to be put into finer detail and vetted quickly through our 
system, costed out, and approved. This strategy is not simply a 
military strategy. This is a strategy that has to have a very 
heavy diplomatic component and it has to be backed by a 
strategy of putting pressure upon oil-wealthy governments, to 
offer them both incentives and disincentives to buildup the 
accountability and transparency within their systems.
    Let me shift to what a governance strategy would look like. 
I will not go through all the policies, specific policies that 
are proposed in the task force report which we issued at the 
end of March, but I want to emphasize two points. One is we 
need a governance strategy that is sensitive to democratic 
process and respect of human rights and creating transparency 
and reform in the energy-rich countries in the Gulf of Guinea. 
This has to be enshrined as a top priority of U.S. foreign 
policy. It is not today enshrined as a top priority.
    Second, in order to make it clear that this really is a top 
priority we need to appoint a special adviser to the President 
and Secretary of State dedicated to the concerns of energy in 
this zone of the Gulf of Guinea. I think there are very strong 
arguments for needing someone of this ilk with a strong mandate 
and with a direct authority vested from the President and the 
Security Council to be able to lead this effort within the 
region. This will guarantee that the diplomacy is carried 
forward in an adequate way. It will guarantee that we have 
coordinated the political, economic, military, and government 
policy of the U.S. Government.
    I will not dwell on the other pieces, the specific policy 
initiatives that are laid out in our report. Let me close with 
a couple of specific comments on Nigeria. I argue in my 
testimony that any regional strategy for the gulf needs to give 
a very, very special priority to Nigeria because of Nigeria's 
scale, its complexity, and the dangerous mix that one sees 
there today. It is very close to the edge of disorder. It is 
emerging from years of misrule. It is engaging in bold 
experiments of reform in the management of Nigeria's oil 
wealth. It presents very stark risks and very alluring 
opportunities.
    Yet our capacity today to shape events in Nigeria is 
exceptionally weak and I think needs to be corrected. I make 
the point that the high-level regular U.S.-Nigeria consultative 
mechanisms that were created in the late 1990s have been 
allowed to lapse. There have been some recent exceptions to 
that in consultations between Secretary Snow and his 
counterpart, Minister Ngozi. There have been high-level law 
enforcement negotiations or consultations.
    But we need to really create something that is a routine 
high-level mechanism that covers multiple sectors and has 
predictability to it. We have no diplomatic presence in the 
north of Nigeria. Northern Nigeria arguably is among the most 
dangerous places in Africa at the moment. It is where the 
strongest terrorism threat resides and it is a place where we 
are fundamentally blind to what is happening.
    Our embassy in Nigeria has been chronically understaffed 
and in disarray, although under Ambassador John Campbell, who 
arrived in May, is beginning to improve. We have chronic 
problems in attracting and holding talent in that embassy. The 
working environment there is very difficult. We need to take 
special measures. We need to incorporate Nigeria within the 
pan-Sahel Initiative, which is a counterterrorism initiative 
begun by General Wald and the European Command.
    To pursue these interests then in Nigeria, what do we need 
to focus on? We need to focus on rebuilding the staff strength 
and morale. We need to devise a much more serious 
counterterrorism approach that has a strong public outreach and 
public diplomacy focus on northern Nigeria. We need to upgrade 
our intelligence. We need to bring forward creative new forms 
of debt relief and other forms of assistance that can reward 
the experiments that are under way in the early economic reform 
campaign begun by Minister Ngozi.
    Thank you very much.
    [The prepared statement of Dr. Morrison follows:]

             Prepared Statement of Dr. J. Stephen Morrison

                              INTRODUCTION

    Senator Hagel, Chairman of the Subcommittee, Senator Sarbanes, 
Ranking Member of the Subcommittee, other Members: I am grateful and 
honored to have the opportunity to speak here today on a subject that 
in recent years has swiftly risen to the top of U.S. foreign policy 
challenges in Africa, namely, how to conceptualize and execute a 
dynamic, U.S. energy strategy for the Gulf of Guinea.
    The preceding speaker, David Goldwyn, is a close friend and 
professional colleague with whom I have collaborated in two projects in 
the past year that are directly relevant to the subject before us 
today.
    Beginning in mid-2003, we co-chaired the CSIS Task Force on Rising 
U.S. Energy Stakes in Africa, which concluded in its March final report 
that a major, heightened U.S. diplomatic effort was warranted to 
promote greater transparency in the use of Africa's burgeoning oil 
wealth, especially governance in Nigeria and Angola, but also in three 
small states experiencing substantial growth of oil production, Chad, 
Equatorial Guinea and Sao Tome and Principe. As these states add 2-3 
million barrels per day to world markets in the next five years, their 
oil earnings will skyrocket. Nigeria is estimated to earn over $110 
billion between now and 2010, Angola over $43 billion. These are 
staggering figures by any measure. When set against the legacy of 
corruption and mismanagement of these and other African producing 
states, these figures are potentially destabilizing.
    David also authored an excellent chapter, ``Crafting a U.S. Energy 
Policy for Africa,'' as part of the Africa Policy Advisory Panel, an 
exercise authorized and funded by Congress, overseen by Secretary 
Powell, and for which I served as the executive secretary. Former 
Assistant Secretary Walter Kansteiner chaired the Panel.
    Just one week ago today, we released the full Panel report here on 
Capitol Hill. Secretary Powell spoke at length on U.S. Africa policy. 
Two panel members, Senator Feingold and Representative Royce, also 
spoke at length of the need to think in new and innovative ways about 
better advancing rising U.S. national interests in Africa. Congressman 
Wolf, the impetus in Congress for the creation of the Panel, also spoke 
eloquently in the same vein. All shared an enthusiasm for the focus 
placed in the Panel's report on building transparency, accountability 
and stability in Africa's expansive oil sector.
    In his testimony here today, David has laid out in considerable 
detail how the Gulf of Guinea figures in global security terms, why 
this small pool of important African producing states in the Gulf of 
Guinea are of rising vital significance to U.S. energy security, why 
their supply to U.S. markets remains at risk of disruption, for both 
internal governance reasons and, externally, from regional instability 
and emergent terrorist threats, and what the policy options are to 
enhance U.S. energy security. I wholeheartedly support David's 
analysis, and will not retrace the ground be has covered. I will 
instead concentrate upon providing complementary details to back two 
core assertions.
    The first, core assertion, consistent with what we have heard thus 
far, is that there is indeed an urgent need for a coherert U.S. 
strategic energy policy to fill the gap that exists today. Only then 
will rising U.S. interests in the Gulf of Guinea be addressed 
effectively.
    Such a strategy needs several key elements. It must be long-term, 
it must be built upon sustained partnerships with African counterparts, 
and must feature a two-pronged, regionally coordinated approach. It 
needs simultaneously to address both serious deficiencies in the 
internal governance of key African oil-producing states at the same 
time that it systematically addresses the shared, external security 
threats these states face.
    Improved internal governance fundamentally calls for enhanced 
diplomatic engagement to promote transparency and accountability in the 
use of a producing country's wealth, including respect for human rights 
and democratic process, and ensuring that oil revenues are tied to 
sustained and equitable economic growth. Regional security 
fundamentally calls for heightened engagement by U.S. intelligence and 
military institutions, under the guidance of overall U.S. foreign 
policy, to strengthen maritime security and meet other threats, 
especially in northern Nigeria. Reconciling these two imperatives is 
not always easy, and requires high-level oversight and a durable 
compact with Congress. As a matter of U.S. policy, we are not yet at 
that point, though if there were sufficient will in the administration 
and Congress, significant early progress could be realized, I believe, 
in relatively short order.
    Second, a special bilateral priority needs to be assigned, in any 
U.S. strategy, to Nigeria's central importance to the Gulf of Guinea. 
What transpires there in the near and medium term, with respect to both 
governance and security, will be decisive to the future of the Gulf. 
For that reason alone, I would like to spend a few minutes at the 
conclusion of my presentation to discuss recent developments in Nigeria 
and specific measures that need to be taken to make the U.S. approach 
to Nigeria more comprehensive, dynamic, and effective.

        ELEMENTS OF A GOVERNANCE STRATEGY FOR THE GULF OF GUINEA

    What I summarize briefly in this section are the major elements 
laid out in the CSIS report, ``Promoting Transparency in the African 
Oil Sector: A Report of the CSIS Task Force on Rising U.S. Energy 
Stakes in Africa,'' issued in March 2004.
    First, the United States should pursue sustained, high-level 
engagement, bilaterally and multilaterally, to promote transparency and 
reform in the Gulf of Guineas oil producing nations. It should 
explicitly enshrine this goal as a top priority of U.S. Africa policy.
    This will entail devising clear and transparent benchmarks for 
regional behavior, complementary to the standards of the Millennium 
Challenge Account. The touchstone should be a public commitment to 
transparency in public finance, with benefits contingent on verifiable, 
sustained, and public disclosure of government revenues and 
expenditures and adoption of open public finance practices. Examples of 
transparency practices could include disclosure of aggregate revenues 
(royalties, taxes, and other fees) from extractive industries, 
disclosure of oil-backed loans, publication of IMF Article IV reports 
(which report annually a country's macroeconomic management and 
compliance with IMF programs), open procurement practices, transparent 
processes for bidding oil concessions, public disclosure of signature 
and other bonuses, auditing of national accounts and national oil 
companies, expenditure transparency in public budgeting, legislative 
access, and review of public finances.
    Second, to pursue this goal, a Special Adviser to the President and 
Secretary of State for African Energy Diplomacy (S/AED), with 
ambassadorial rank, should be designated to lead Interagency policy.
    A special adviser with ambassadorial rank would be housed at the 
State Department, but endowed with authority by the president and the 
National Security Council to lead interagency policy. The appointment, 
an unprecedented act of commitment in this area, would powerfully 
signal U.S. leadership on this issue.
    The special adviser would be mandated to develop relationships with 
senior African leaders, coordinate political, economic, military, and 
governance policy for the U.S. government, interact with the G-8 
process and other multilateral fora, liaise with like-minded nations, 
and brief the Congress on U.S. policy. The Special Adviser should chair 
a U.S.-Africa Energy Policy Business Advisory Council to work with U.S. 
agencies and industry on a coordinated and consistent basis to address 
transparency, governance, human rights, and democracy issues.
    Third, the United States should introduce a set of reinforcing 
bilateral policies with special application to the Gulf of Guinea.
    The United States should declare publicly its benchmarks for 
regional behavior, in close parallel with those benchmarks set out for 
the Millennium Challenge Account. Any leader who makes such a 
commitment would meet with the secretary of state and be eligible for 
regional support programs. The level of support for a nation would be 
calibrated to concrete irreversible actions and the level of 
development. The United States should continue to utilize Africa Growth 
and Opportunity Act (AGOA) eligibility as a means of leverage for good 
governance.
    Regional programs that committed nations would be eligible for 
include:
    African Energy Producer Summit. A summit would provide a platform 
for governance issues, and could be appended to the G-8 meeting or the 
annual AGOA summit. Meetings with the president of the United States in 
conjunction with these biannual summits should be restricted to those 
countries practicing transparency and good governance, and would serve 
to single out countries that manage their oil wealth well.
    Peacekeeping and IMET Training. The United States should 
dramatically increase peacekeeping training and International Military 
Education and Training (IMET) support for nations that commit to 
respect human rights norms and adhere to transparency criteria.
    zMaritime Security Program. The United States should help to 
establish and train an African regionally-coordinated maritime force to 
protect offshore oilrigs, contingent on mandatory human rights 
training. This force would police borders, strengthen customs 
enforcement, counter-narcotics efforts, and counter-terrorism. Maritime 
security programs would also protect offshore infrastructure from 
piracy or attack.
    Support for Civil Society. Indigenous nongovernmental organizations 
in energy-rich countries should be encouraged, trained, and empowered 
to monitor and report on their governments' progress in implementing 
reform and fulfilling their public commitments to transparency in 
revenues and expenditures, especially within the oil sector.
    Fourth, the U.S. should Integrate the World Bank and IMF into its 
Gulf strategy and devise new innovative collaborations.
    The World Bank and IMF will play a lead role in fostering 
transparency in many countries by upholding standards for staff 
monitored programs or conditions of revenue and expenditure disclosure 
contained in Poverty Reduction Strategy Papers. The United States 
should support a common and consistent agenda of promoting oil revenue 
and expenditure transparency, especially where the World Bank provides 
financing for the oil sector. The United States and G-8 allies should 
also focus diplomatic support on the implementation of World Bank 
standards for the Chad-Cameroon pipeline.\1\ There is great hope that 
Chad-Cameroon can be a model for public-private partnerships that can 
foster investment and transparency. Public confidence in such efforts 
will hinge on how the Chad-Cameroon project proceeds, and how the 
international community deals with inevitable problems that arise.
---------------------------------------------------------------------------
    \1\ Chad is now emerging as the critical test case of whether 
African oil-producing nations can use their oil windfalls for 
development purposes and not sink into the typical pattern of 
corruption and autocracy. The Chad-Cameroon pipeline project is the 
largest development project in Africa today. It has spawned a unique 
multi-stakeholder experiment in transparency that involves civil 
society, governments, the World Bank and oil firms.
---------------------------------------------------------------------------
    The United States should press for new multilateral programs for 
which committed nations would be eligible:
    Debt for Transparency. The burden of debt puts pressure on public 
budgets, stunting development and giving politicians little space for 
satisfying public demands.
    While the Paris Club debt rescheduling process and the IMF staff 
monitoring programs that precede Paris Club reschedulings are 
critically important, more generous U.S. appropriations and greater 
flexibility for debt rescheduling, reinforced by heightened U.S. 
leadership in multilateral reschedulings, can provide a powerful tool 
for promoting reform in countries such as Nigeria and Angola. Non-HIPC 
eligible countries, such as Nigeria, should be eligible for debt relief 
if they make appropriate commitments and demonstrable progress.
    Electric Power for Good Governance. The United States should lead a 
G-8 effort to fund a fresh, conditional commitment to financing 
national electrification, with appropriate focus on restructuring and 
regulatory capacity-building, including revenue management to help 
recoup investments and operating costs, as well as rural 
electrification and distributed generation, based on new contributions 
by World Bank shareholders, in exchange for transparency and 
development commitments by the recipient nation.
    Capacity-Building Trust Fund. Most African nations lack the human 
capital to prepare, audit, and monitor public finance, and to manage 
their petroleum reserves. The United States and other nations must 
support a long-term capacity-building program to train national 
officials in these essential skills, and link U.S. and African academic 
institutions to provide education on an ongoing basis. The program must 
be based in Africa and tailored to African needs.
    Conditional Trade Finance. Energy development is capital intensive, 
and trade financing through the Export-Import Bank, the Trade and 
Development Agency, and international equivalents plays a critical 
role. To obtain financing, countries would need to demonstrate a 
commitment to using the proceeds of the resources for national 
development and to agree to transparent monitoring and auditing of 
project revenues to obtain finance.
    Capital Market Access. G-8 nations can ensure that all national or 
correspondent banks that have relationships with G-8 banks disclose the 
beneficial owners of those accounts to prevent government officials 
from using western banks to hide misappropriated funds.

              A GULF OF GUINEA MARITIME SECURITY STRATEGY

    A glaring vulnerability in the Gulf of Guinea is the lack of 
effective control over its maritime and coastal environment. This has 
encouraged levels of piracy unrivalled in Africa (and in global terms, 
second only to the Malacca Straits in Southeast Asia.) It invites 
illicit trafficking in weapons and drugs, illegal immigration, and 
terror attacks against an energy infrastructure that was constructed 
with no serious sabotage threat in mind.
    It is very much in U.S. interests to become more directly engaged 
in strengthening the Gulfs maritime security, given the projected 
growth of U.S. oil operations there. Short-term benefits can be quickly 
realized, in curbing piracy and the bunkering of oil, improving the oil 
production environment, encouraging greater regional integration, 
deterring terror and sabotage, and protecting American citizens and 
property. The cost of such programs is not prohibitive, particularly if 
the effort is effectively multilateralized and costs shared with host 
governments, European allies, and oil corporations. Major gains can be 
achieved with an annual U.S. government investment of $10-$20 million. 
A number of Gulf coastal countries have signaled their strong interest 
in building their maritime security capacities in collaboration with 
the United States, most notably Sao Tome and Principe, Nigeria, and 
Equatorial Guinea.
    What are the other requisites for success?
    First is the imperative to act with speed, realism, and a long-term 
commitment. Speed is essential to take advantage of the current 
receptive environment and to avoid attempting to engage host 
governments after the steep upsurge of oil earnings in a few years 
time. Speed is also essential to demonstrate rapid benefits and to 
minimize the distractions that may grow as China, India, and other 
energy-hungry powers enlarge their presence in the region. Realism will 
require the United States to recognize that it will be starting its 
programs from scratch, in an environment that has very weak 
infrastructure and technical expertise. Success will only come if the 
U.S. strategy calls for an investment of five years, at a minimum.
    Second is the imperative to work hard to encourage the formation of 
a coherent African regional body, comprising Sao Tome and Principe, 
Nigeria, Cameroon, Gabon, Congo-Brazzaville and Angola, with which the 
United States and others can partner. Early discussions are now under 
way around the formation of a Gulf of Guinea Commission. These should 
be intensified.
    Third is the imperative, internal within the U.S. government, that 
an interagency consensus and operational plan be devised for funding 
and implementing a Gulf maritime initiative. It will be essential to 
call upon high-level diplomatic support across a range of states, to 
bring in both military and civilian agencies, and to monitor progress 
closely and have a process in place that can make adjustments swiftly 
and effectively.

                   PUTTING A SPECIAL FOCUS ON NIGERIA

    Despite major U.S. oil investments in Nigeria and enduring U.S. 
interests in counterterrorism, democracy, transparency in the use of 
oil wealth, and regional stability, the United States at present is 
ill-equipped to shape events in Nigeria. Quick action is needed to 
correct that reality.
    Nigeria is a challenging mix. It remains dangerously on the edge of 
disorder, emerging from years of misrule. At the same time, Nigeria's 
leadership is advancing experimental, bold reforms in the management of 
Nigeria's oil wealth, and seeking to reconcile high expectations with 
weak, decayed institutions and grave reputational problems globally. 
Given Nigeria's sway in the region, and the stark risks and alluring 
opportunities it presents, Nigeria should be the top country focus of 
any U.S. strategy that aims to advance U.S. national interests in the 
Gulf of Guinea.
    Yet to achieve that will require overcoming constraints in our own 
approach to Nigeria.
    The high-level U.S.-Nigeria consultative mechanism created late in 
the Clinton Administration has lapsed. U.S.-Nigeria military-military 
relations have been frozen by Congress since the Benue massacre of 
2002. The U.S. has no diplomatic presence in the north; the U.S. 
embassy in Nigeria has been under-staffed and in disarray for several 
years, though it has begun to improve somewhat with the arrival of 
Ambassador John Campbell in May. Special focused measures will be 
needed to attract talent to bring the embassy up to grade. The U.S. Pan 
Sahel Initiative (focused on Mali, Mauritania, Niger, Chad; now also to 
encompass Morocco and Tunisia) does not include northern Nigeria, even 
though that is arguably the zone of greatest potential terrorist threat 
in West Africa.
    To pursue U.S. interests in Nigeria, U.S. policymakers will need to 
get far more serious about (i) rebuilding the staff strength and morale 
of the U.S. embassy; (ii) devising a serious counter-terrorism approach 
with a strong public diplomacy component to northern Nigeria; (iii) 
improving our grasp of Nigerian President Obasanjo's calculations, as 
well as those of the military, and political forces in northern 
Nigeria; and (iv) bringing forward debt relief and other forms of 
assistance to reward concrete action by Nigeria's impressive early 
economic reform campaign.
    We propose that the State Department should re-establish a high-
level bilateral consultative mechanism to work in conjunction with the 
previously-mentioned special adviser for African energy diplomacy to 
encourage and assist the Nigerian government in its reform efforts. The 
United States should send the Secretary of the Treasury to Nigeria to 
develop a bilateral debt relief program with Nigeria's new finance 
minister to bolster her leadership. Finally, the United States should 
develop and offer G-8 adoption of an oil tagging system, analogous to 
the Kimberley Process for identifying conflict diamonds, to curb the 
growing problem of oil theft and reduce corruption of government 
officials involved in oil sales, shipping, and customs.
    U.S. policy has up to now been predominantly oriented around the 
consolidation of democratic governance, HIV/AIDS, and collaboration 
with Nigeria and other West African states in regional peacekeeping, 
most recently in Liberia. I am not arguing that these priorities should 
be downgraded. Rather, I am arguing that the U.S. should elevate the 
seriousness and level of effort it commits to Nigeria overall, and put 
a special new focus on strengthening diplomatic, intelligence, and 
counter-terrorism capacities and supporting economic reforms through 
creative multilateral debt relief measures.

Dramatic recent promise
    In the past year, President Obasanjo's economic reform team, led by 
Finance Minister Ngozi Okonjo-Iweala, has advanced an ambitious 
homegrown transparency initiative in the management of Nigeria's oil 
wealth, involving a February workshop with civil society and business, 
the publication for the first time of allocations from the central 
government to the states, and close cooperation with the World Bank and 
IMF in auditing the oil sector and organizing internal agency-by-agency 
data on income and expenditures. For the first time, the government has 
issued a realistic federal budget, fiscally linked to a projected oil 
price of $25 per barrel, and adhered to the discipline of applying 
surpluses to a special account. International reserves have risen to 
$10 billion, and inflation has dropped. A key outstanding question is 
whether the Nigerian National Petroleum Corporation (NNPC) will divulge 
its data and whether ingrained resistance to transparency within major 
agencies can be overcome. For U.S. policy makers, a key question is 
whether and how to provide significant debt relief, to reward progress 
in a timely way, when the sustainability of these reforms remains 
uncertain and when Nigeria does not yet have a formal agreement with 
the IMF.

Continued instability
    On May 18, Nigerian President Obasanjo declared a state of 
emergency in the central state of Plateau, suspended its elected 
officials, and put a retired general in charge as sole administrator. 
This followed months of Muslim-Christian violence there, and also in 
the northern Muslim state of Kano. Human rights activists have renewed 
calls for a sovereign rational conference to create a new national 
consensus and constitutional basis for governing Nigeria, a proposal 
that has been raised repeatedly over the last decade.
    What is happening in Plateau State is not a new development, but 
rather a continuation of past patterns. Indeed, since Nigeria returned 
to democratic rule in 1999, upwards of 10,000 have died in sectarian 
violence. While these conflicts have taken on religious overtones, the 
original cause in many instances is not religious, but economic aid 
political, aggravated by social dislocation, poverty and 
marginalization, and high unemployment, particularly among the region's 
large youth population. For example, in Plateau State, there have been 
longstanding clashes over land and resources between established 
Christian residents and Muslim migrants. Recent violence was instigated 
by Christian youths against Muslims and touched off religious reprisals 
in neighboring Kano.
    The state of emergency and return of military rule in Plateau 
raises the specter of renewed violent abuses of civilians at the hands 
of the military and the possibility that Nigeria's democratic 
governance has entered a phase of heightened strain and uncertainty. In 
April, there were reports of coup plots within the military, which may 
suggest mounting dissatisfaction within Nigeria's military over 
Obasanjo's handling of internal unrest, along with corruption.

The terror threat
    There are strong suspicions that northern Nigeria may become an 
attractive base for Nigerian and outside radical Islamists, potentially 
serving as a base for anti-American terrorist activities. The U.S. 
government unfortunately remains woefully ignorant of what is actually 
happening in northern Nigeria, and debate persists among experts as to 
how much of a threat exists there and whether Islamist radicalism will 
translate into anti-American violence. Armed Islamist militias have 
been on the rise in the north, just as armed non-religious militias 
have been on the rise in the central and southern states. Instability 
in the central Plateau state could strengthen the hand of radical 
Islamist interests in the north, and might invite renewed violence in 
the chronically unstable Niger Delta in the south.

Nigeria's regional peace-keeping role
    Despite internal uncertainties, Nigeria has also proven to be an 
important partner in restoring stability to the West African region and 
has won praise from Pentagon officials as ``a force for stability that 
has earned a reputation as one of the most capable armed forces in 
Africa.'' The country is also beginning now to more systematically 
tackle HIV/AIDS within its armed forces.
    The Nigerian military's performance in Liberia in 2003, as the lead 
element of the intervention force there, was much improved over earlier 
interventions in Sierra Leone and Liberia, attributed in no small part 
to U.S. military training. The United States is constrained from 
providing support to militaries with questionable human rights records, 
but Nigeria is a case in point that U.S. training and support can 
improve discipline and respect for human rights.
    Any analysis of U.S. stakes in the Gulf of Guinea must address the 
realities and vulnerabilities of Nigeria, the region's--and indeed the 
continent's--largest state. And in turn, an effective strategy toward 
Nigeria cannot focus solely on the security of the oil fields in the 
south. Rather, the United States will need to craft a security strategy 
for the entire country that deals with multiple threats--in the north, 
specifically with opportunistic extremist Islamic politics, and across 
the country where the movement of men, money, arms, and drugs through 
illicit networks facilitate terrorism and instability.

    Senator Hagel. Dr. Morrison, thank you. Again, to each of 
you, we appreciate you being here this afternoon.
    Let me ask you each. You sat through both the Deputy 
Assistant Secretaries' presentations and listened to the 
exchange that we had in the questions and answers. They each 
addressed U.S. policy, specific areas of trade, and we talked 
about the Millennium Challenge Account. Their assessment was I 
thought more on the positive side of developments in this 
region that we are talking about this afternoon.
    Each of your assessments are not near as rosy as what I 
heard from the administration. Now, we are somewhat realistic 
up here about those kinds of things and normally 
administrations do not come up and say the world is going to 
hell and we have got real problems. But nonetheless, there 
seems to be, unless I just did not listen carefully enough, 
some disconnect between what the two of you have said and what 
I heard these two Deputy Assistant Secretaries say.
    Let us start with the programs that I have just mentioned, 
AGOA, Millennium Challenge Account, areas that you all focused 
on. Both Mr. Brodman and Mr. Simons did not dispute the general 
objectives in these areas, but I think presented a little 
different way and hue as to the color of what was going on.
    I would like to go a little deeper down in these areas, 
taking those two specific programs and policy. Do we have a 
policy in your opinion, a foreign policy, an energy policy, 
that is specifically targeted to this area? And if that policy 
is there or if you think it is there, what is it? And you could 
take that anywhere you would like. We can start with you, Mr. 
Goldwyn.
    Mr. Goldwyn. Thank you, Mr. Chairman.
    We do not have a policy targeted at the region. We have 
policies--the Millennium Challenge Account is geared toward 
setting benchmarks for certain countries which are eligible for 
that program and if they become, if they do well enough, then 
they get some aid. It is a very good program. It is not 
targeted to the Gulf of Guinea. Lots of the countries in the 
Gulf of Guinea will not be eligible for it.
    AGOA is very important for countries that have non-oil 
sectors, particularly manufacturing, to be able to trade and 
have access to our market. But most of the countries in the 
Gulf of Guinea need to learn to be able to use AGOA, but they 
are not there now. They are selling oil, the market is open, 
and they have got it.
    A strategy to me is something that identifies the problem, 
deploys a set of measures to fix it, and then takes you to a 
different place than you are right now. None of what we have in 
place right now adds up to a strategy. I agree with John, who 
used to work for me, and with Paul Simons: Relations between 
the State Department and the Energy Department are great and 
there are lots of meetings. But it does not amount to a 
strategy.
    Nigeria is having these chronic problems because it has had 
years of corruption, deep poverty, unresolved conflict, 
underdevelopment, and governments which are pretty much 
incapable or in the past unwilling to change that. So how do 
you change that? Well, you have got reformers in Nigeria. You 
have to make them succeed. You have to make sure they live up 
to certain kinds of behavior, and they have to be able to 
deliver, if they are going to actually take the people who used 
to be on the take, risk going to jail, and say we are not going 
to steal any more.
    What is in it for them? For Nigeria, that is debt relief. 
Obasanja is going to deliver and he is going to tell his 
people, you are off the till, you are not on the take any more, 
we are going to clean this thing up. Ngozi has got the way to 
go. He has got to deliver something. A little bit of aid does 
not make any difference in Nigeria. So if we were talking 
seriously we would be talking about debt relief and we would 
tell them what bar to clear.
    A country like Angola, what is their problem? They have 
ended their civil war. They have all this, the resettlement, 
repatriation, the years of corruption, that government. What 
does it take to get the President of Angola or the Angola 
Government to stop doing what they used to do with the oil 
money, come clean, risk going to jail, and suddenly change? 
Well, I think it is donor relief. There the strategy is we need 
to leverage the huge amount of money that will come from the 
international financial system and say: If you want that money, 
this is what we want you to do in terms of transparency.
    I would say overall, if we had a strategy, it ought to say 
we need to have incentives and we ought to have pressures that 
will make these governments come clean about what money is 
coming in, but also where they are spending the money, and 
there will be rewards for doing that. But the issue is not on 
the top of the agenda for the United States with either of 
those countries.
    It is not that Secretary Powell does not care, because he 
does. But when we think about Nigeria we think about Liberia, 
we think about HIV-AIDS, we think about counterterrorism. When 
we think about Angola, we think about ending the war and they 
are on the Security Council and we are thinking about other 
issues. We do not think about Equatorial Guinea for the most 
part. We do not think about Cameroon. We do not think about 
Congo Brazzaville. Just there are too many problems in the 
world; they do not make it on the list.
    So I would say add all that together and, no, we do not 
have a strategy and the bilateral policies that we have with 
these countries do not amount to anything that will change 
their behavior, make them more transparent, and therefore make 
them more stable and reduce our risk of having an oil supply 
disruption.
    Senator Hagel. Dr. Morrison.
    Dr. Morrison. I agree with what David has said. I would add 
a few other angles to this argument. Let us be clear. Places 
like Nigeria and Angola are very, very tough places, and people 
who have worked those issues for a very long time have 
understandably grown to be very cautious, skeptical, wary, 
hesitant to think that this can be turned around in the near 
term.
    If you go back and look at the energy policy that was 
issued in the first year of this Bush administration and you 
look at the Africa sections, I think you will see that edginess 
contained in there, the hesitation about the exceptionalism of 
the corruption and toughness in these environments. That is one 
point.
    The second point, our Africa policy--and this is not just 
true for this administration, but Africa policy in general 
tends to focus on trying to do one and maybe two things really, 
really well, and that is about the limit of capacity. In this 
administration the Sudan policy has dominated, much to its 
credit in terms of seeking a negotiated peace settlement and 
now seeking to deal with the crisis in Darfur.
    It has not left a lot of space for new major initiatives of 
the kind we are talking about here today, particularly when you 
focus on the general kind of attitudes that have accumulated 
around these cases over the years.
    Now, what has changed? First of all, I think, to the 
administration's credit, I think there is a lot of excitement 
today at high levels and at mid levels around what is happening 
in Nigeria, and it is reflective of some of the high-level 
consultations that have taken place in the last 6 months, and 
the administration deserves to be commended for that, just as 
the President deserves to be commended for going to Nigeria 
during his trip last July, after a period in which there had 
been a sharp dropoff of high-level contact in Nigeria. This is 
a reflection of the seriousness of the effort of reform under 
way in Nigeria.
    What else has changed that gives us an ability to have this 
kind of conversation? You have got reformers under way in 
Angola and we should lose sight of the fact. They are not as 
far along as Nigeria, but there is a serious team. The IMF is 
taking another new look at Angola. There is a mission out there 
today.
    Second is the emergence of the counterterrorism agenda 
post-9-11 and the sudden awareness of the threat that truly 
does exist concentrated in and around Nigeria, in the illicit 
diamond-trafficking and money-laundering networks in West 
Africa, and the other criminal networks that we have talked 
about.
    Third is the need for energy security on the global level 
in such a fragile environment. This zone, the Gulf of Guinea, 
is adding 2 to 3 million barrels of oil onto world markets in 
the next 5 years, and we are going to be at the table as 
investors and we are going to be at the table as consumers in a 
very significant way.
    Those are the factors that argue today for bringing this 
into focus. But I think that administrations are slow to 
respond. Bureaucracies are slow to respond. There is some 
evidence, as I said, with respect to the enthusiasm and 
interest levels of the Nigerian reformers. You can see the 
turn-around. But as a strategic turn-around, in looking at the 
Gulf of Guinea and saying, my gosh, we need a strategy that is 
going to be concentrated and focused on these six or seven 
countries with these elements in terms of our security 
engagement, in terms of our diplomatic governance engagement, 
we are not there yet.
    Senator Hagel. Thank you.
    You mentioned the IMF and I know in your prepared remarks 
you go into some detail, Dr. Morrison, with the World Bank and 
IMF. I would be interested in hearing each of you develop that 
a little more and areas where the IMF--and you noted the IMF 
has got a team in, where, Angola today or tomorrow. Both of 
those institutions, each in its own way is very important to 
this part of the world. I would like to have each of you 
address it as to where they can be playing more of a role, how 
does that role integrate into overall U.S. policy, and any 
other comments you would like to make regarding those two 
institutions in this area of the world.
    Mr. Goldwyn.
    Mr. Goldwyn. Thank you, Mr. Chairman.
    First, I think the IMF and the World Bank have an agenda in 
Africa which is, when they do poverty reduction, to try and 
incorporate transparency as part of it. That is pretty much new 
to their doctrine, but they have got it. Part of our foreign 
policy ought to be trying to tell countries when we talk to 
them we think that agenda is important too, that living up to 
the IMF standards or the World Bank standards is something that 
is important to our relationship. I do not think we do that in 
a consolidated way. I never heard it when I was in government. 
So that is I would say step one, integrate it in our policy.
    Step two is we have got to realize who has got the 
leverage. With Angola, companies are going to go there. U.S. 
policy is not going to make a difference. Aid, we are not going 
to be able to give them enough money, you know, especially 
when--Steve mentioned in passing there was a study CSIS 
commissioned about rising oil revenues in the gulf and it shows 
that in the next, between now and 2010 Nigeria is going to get 
$110 billion in government take, Angola is going to get about 
$40 billion in government take in addition. A lot of cash. So a 
little bit of aid is not going to make a difference.
    But what these countries want is debt relief. The IMF has 
said to them: You want debt relief, here is what you have got 
to do. And donor relief for Angola, rather than Nigeria, is 
also very important. So we need to lead the team, not just get 
on the team, of saying the standards for donor relief are going 
to be these transparency issues and backstop the IMF so that 
they are not out there competing.
    The other thing we need to do is use our bilateral 
diplomacy to support the agenda. That means in the case of 
Angola again, it is talking to other countries to make sure 
they do not cut a separate deal with Angola to get an oil field 
and forgive them whatever trespasses they have, but everybody 
stays on the donor team.
    So I think those are important priorities.
    Senator Hagel. Thank you.
    Dr. Morrison.
    Dr. Morrison. We lay out several proposals: a debt for 
transparency initiative, an electric power for good governance 
initiative, capacity-building trust fund. All of these are ones 
which will only succeed if they are truly multilateral and have 
the backing of the international financial institutions.
    I want to also draw attention to a recent development. In 
Angola, the IMF has had on and off dialog with Angola around 
the need for greater transparency in its oil sector. We are in 
a period now of renewed hope around that subject. When the 
Chinese come in and offer special concessionary arrangements of 
offering a $2 billion cash facility leveraged against oil 
deliveries, that significantly weakens the ability of our 
bilateral dialog, the IMF dialog, and those of others, and 
brings forward again the degree to which this is really a 
global problem that requires a global diplomacy, and it reaches 
beyond simply the scope of what the IMF is able to do and to 
leverage multilaterally.
    The Chinese and the Indians are large and ever-larger 
players on this field and it has not really entered our 
consciousness, much less our diplomatic strategy around these 
problems.
    Senator Hagel. Thank you.
    You heard Mr. Simons note the compact agreement that was 
signed at the G-8 conference at Sea Island. I would be 
interested in getting each of your thoughts about what the 
expectations are for that agreement, what the potential is, how 
can that work into addressing some of the problems, questions 
that you each posed this afternoon. Thank you.
    Mr. Goldwyn.
    Mr. Goldwyn. Well, I think the compact agreements are right 
now more of a concept than they are a program. I think the 
concept is very good, which is work with a country, help them 
train their people how to do public finance, train them how to 
supervise auditors, learn to do transparency. I have not been 
able to detect the program funding for these compacts or the 
staff that is dedicated to implementing these compacts. So I am 
not sure how much there is there.
    But I think it is a good start. It is the U.S. complement 
to Prime Minister Blair's extractive ministries transparency 
initiative, which is another pledge by governments to say, you 
do the right thing, we will fund your ability to do this.
    The reason I am a little bit skeptical is that it is pretty 
expensive. If we were going to get the Nigerians to do an audit 
of their oil sector, if they are hiring, you know, 
PriceWaterhouseCoopers or somebody like that, we are talking 
millions of dollars and we are talking about serious training 
programs. I think the compact is something that is good and 
ought to be expanded, but I would urge some oversight on the 
substance behind it.
    Senator Hagel. Thank you.
    Dr. Morrison.
    Dr. Morrison. I would echo the sort of mixed sense that, 
yes, this is progress, but of a limited sort. It could have 
been done more aggressively with some more significant backing, 
but let us be looking forward. Next year Britain will be 
hosting the G-8 summit. It has arranged for the creation of a 
high-level Africa commission fully 18 months prior to that, 
which is planning to arrive with some significant 
recommendations in this very area that we are talking about 
here.
    Britain announced this week some rather historic projected 
rises in foreign aid that will support this strategy. As a 
matter of U.S. policy, we should be looking downstream to next 
June and planning in the administration's discussions with 
Congress and with others to be coming in fully in support of 
these, because this is a major opportunity to push the agenda 
for transparency and accountability.
    Thank you.
    Senator Hagel. Thank you.
    Gentlemen, I am going to ask you each one more question and 
then I have to go to a meeting with Dr. Rice. It is regarding 
natural gas in this part of the world that we are discussing 
today. We really did not talk much about that. I do not think 
it was referenced more than two or three times in the testimony 
of our witnesses prior to you. We have spoken primarily about 
oil.
    I would be interested in each of your assessments on the 
natural gas side of this. Obviously, the investment security, 
stability dynamics in the region stay the same regardless of 
what the commodity is, but the development, the pace of that 
development, what is really there, what we know is there, 
related to natural gas. Mr. Goldwyn.
    Mr. Goldwyn. Yes, Mr. Chairman. The gas potential of the 
gulf is enormous. Nigeria has tremendous amounts of gas. 
ChevronTexaco has large gas infrastructure there. They are a 
huge potential for LNG. Angola, increasingly a gas power. 
Equatorial Guinea, as John Brodman mentioned, has Marathon's 
methanol plant already in place.
    They used to cap those wells because they did not think the 
gas was worth anything, and now they are going to go back there 
and find out where the caps were and produce it. So it has 
tremendous potential and tremendous potential to convert to LNG 
and ship it here if the United States has the ability to 
receive the LNG and supply our market. So I think it is a huge 
potential resource.
    The other key driver for natural gas production in West 
Africa is the reduction of gas flaring. It is the legal regimes 
in Nigeria and Angola in particular which will fine companies 
if they do not cease gas flaring by a date certain that have 
led companies, I would say ChevronTexaco's West Africa gas 
pipeline in particular, to find ways to monetize this gas, 
because they are going to pay for it either way. That has been 
a very wise policy, very positive for the environment, and will 
be a continuing push factor in West Africa's natural gas 
production.
    Senator Hagel. Thank you.
    Dr. Morrison.
    Dr. Morrison. On the flaring aspect, it is important to 
remember that Nigeria accounts for about 25 percent of the 
world's flaring. It is visible from outer space. It is 
remarkable. So in terms of immediate environmental benefits as 
well as the economic benefits of capturing this asset and 
converting it into a useable commodity, there is a big 
turnaround benefit there.
    There is a big potential benefit in terms of power 
generation within a region that is woefully inadequate in terms 
of its own power generation capacities. The biggest issue, not 
just for capturing natural gas within Africa but also in the 
former Soviet Union and elsewhere where there are huge 
deposits, is finding the guaranteed accessible market consumers 
that will be sustainable over a long enough period of time and 
reliable that you can invest in that infrastructure and 
transport infrastructure to move it to the marketplace.
    We know we are not there yet. We know that this is a highly 
desirable commodity for power and heating in the United States. 
But we also know how terribly difficult it is to find new 
landing sites on our two coasts. There are roughly three dozen 
proposals. They are very controversial, complicated, and 
difficult proposals.
    Hopefully we will work our way through this phase in the 
next couple of years. I am no expert on this. I just read the 
accounts of all the different local controversies. But if we 
can get to the point where the market becomes more accessible 
on our shores, I think you can reliably predict you will see a 
significant uptick in the investments in this.
    Right now, outfits like ChevronTexaco which have made a big 
bid on natural gas have lots of natural gas, but are having a 
hard time landing it at the markets.
    Thank you.
    Senator Hagel. Thank you. Your note about the port 
facilities to receive this is a critical, critical issue. As 
you mentioned, we have some legislation here and in the House 
as well, that we are not going to get to, unfortunately, this 
year. We are not getting really to anything this year. But that 
has to be addressed because if we cannot receive it it does not 
make any difference what happens in the Gulf of Guinea.
    Gentlemen, you have, as usual, been very helpful and we 
appreciate your wise counsel and your good effort and the 
organizations you represent. Thank you very much.
    [Whereupon, at 2:55 p.m., the subcommittee adjourned, to 
reconvene subject to the call of the Chair.]