Hearing of the Senate Foreign Relations Committee

July 15, 2004 Thursday

SECTION: CAPITOL HILL HEARING

HEADLINE: HEARING OF THE SENATE FOREIGN RELATIONS COMMITTEE

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

CHAIRED BY: SENATOR CHUCK HAGEL (R-NE)

WITNESSES PANEL I:

PAUL SIMONS, ASSISTANT SECRETARY OF STATE, DEPARTMENT OF STATE; JOHN BRODMAN, ASSISTANT SECRETARY OF ENERGY, DEPARTMENT OF ENERGY;

PANEL II:

DAVID GOLDWYN, FOUNDER, GOLDWYN INTERNATIONAL STRATEGIES, LLC;

DR. J. STEPHEN MORRISON, DIRECTOR OF AFRICA PROGRAMS, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES

LOCATION: 419 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

BODY:

REP. CHUCK HAGEL (R-NE): (In progress) -- 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 U.S. in terms of geography, market access, conditions, and the quality of its crude oil. By 2020, the U.S. 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 adequately 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 see, to answer today.

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 Mr. 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 in this panel. 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 with that, let us begin with you, Deputy Secretary Simons.

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SEN. HAGEL: Mr. Simons, thank you.
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SEN. HAGEL: Mr. Brodman, thank you. And 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. And 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?
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SEN. HAGEL: Are the numbers that noted-and I recognize you don't have the specific figures with you, and I recognize that they're general figures, the $50 billion to $75 billion number. What percent of that would you say would be American investment?

MR. BRODMAN: Probably close to half.

SEN. HAGEL: It is --

MR. BRODMAN: It would vary country by country, but I would say-if you're talking about the past cumulative investment, it's probably close to half.

SEN. HAGEL: Would you say that, from what you know, would hold for the future, over the next five 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-the American investment may actually rise. I mean, it's-again, I mean it will vary considerably from country to country and I haven't sat down and really racked up all the investments country by country and divided them up, American or not American. But these are next my sort of seat of the pants guesses from being familiar with the region, sir.

SEN. HAGEL: Where would the bulk of the remainder of that come from? Europe?

MR. BRODMAN: Europe predominantly. Yes, sir.

SEN. HAGEL: Is there, in your sense of this, a significant Chinese investment in energy --

MR. BRODMAN: Not yet. The Chinese are very actively trying to become more involved in West Africa,

SEN. HAGEL: And, by the way, I'll 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 United States government can do more-should do more in the way of assisting investment? Now, some of that 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've mentioned this afternoon and 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, the 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've done a very good job of engaging these countries on a bilateral basis. But I think we need to keep the dialogue going to help them out and to help them to build the technical and managerial capacity to understand the trends in the oil and gas development around the world. I think it's 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 climate 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's one thing.

I also think we need to encourage them to maintain an open dialogue 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 investment in the longer term. And I think it's this kind of dialogue that is the most beneficial for us.

SEN. 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'll let you start with that, Mr. Simons, because you have some other things you wanted to talk about as well.

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SEN. 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 African Growth and Opportunity Act and Millennium Challenge Account in the context of what we're talking about here, and how we would tailor that, apply that, implement that, get that down into the areas that we're 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.
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SEN. 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 that been developing or yet to develop that kind of regionalization, appreciation, understanding between governments that they're not isolated, that if two or three of their neighbors are not doing well and unstable, then that's 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 G8 conference, which relates to my question, so I'll ask Mr. Simons the same question. Thank you.

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SEN. HAGEL: Thank you. Let me ask each of you about terrorism.
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SEN. HAGEL: Thank you.

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SEN. HAGEL: Mr. Goldwyn, thank you.
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SEN. HAGEL: Dr. Morrison, thank you.

And 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 question and answer. 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're talking about this afternoon. Each of your assessments aren't nearly as rosy as to what I heard from the administration. Now, we're somewhat realistic up here about those kinds of things, and normally administrations don't come up and say the world's going to hell and we've got real problems.

But nonetheless there seems to be, unless I just didn't listen carefully enough, some disconnect between what the two of you have said and what I heard these two deputy assistant secretaries say. And let's start with the programs that I've 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.

And I'd like to go a little deeper down in these areas, taking those two as 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 can take that anywhere you like, and we can start with you, Mr. Goldwyn.

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SEN. HAGEL: Dr. Morrison?

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SEN. 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, IMF. I would be interested in hearing each of you develop that a little more in areas where the IMF-and you noted the IMF has got a team in Angola today or tomorrow. Both of those institutions each in its own way is very important to this part of the world.

And I'd 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'd like to make regarding those two institutions in this area of the world.

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SEN. HAGEL: Thank you.
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SEN. HAGEL: Thank you.

Dr. Morrison.

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SEN. HAGEL: Thank you.

Gentlemen, I'm going to ask you each one more question and then I have to go to a meeting with Dr. Rice. But it's regarding natural gas in this part of the world that we are discussing today. We really didn't talk much about that, I don't think it was referenced more than two or three times in the testimony of our witnesses prior to you. We've 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's really there, what we know is there, relating to natural gas.

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SEN. HAGEL: Thank you.

Dr. Morrison.

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SEN. HAGEL: Thank you. Your note about the important facilities to receive this is a critical, critical issue, and as you mentioned we have some legislation here both in the House as well that we're not going to get to unfortunately this year, as we're not getting really to anything this year. But that has to be addressed because if we can't receive it it doesn't 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 that you represent, thank you very much.