Washington, DC — Africa and the Western Hemisphere are important to the U.S. energy market as key sources of oil and natural gas, John R. Brodman, deputy assistant secretary for international energy policy at the U.S. Department of Energy stressed October 21.

In testimony before the Senate Subcommittee on International Economic Policy, Export and Trade Promotion, Brodman said the importance of these regions with regard to their energy exports to the United States is likely to grow in the years to come.

"Even though their proven reserves and production will never allow them to replace the Middle East in importance to world energy markets," he said, those regions "will nonetheless be an important source of additional supplies for decades to come."

With regard to Africa, Brodman said West Africa is currently producing about 4 million barrels of oil per day, which is part of the continent's total output of about eight million barrels per day. Production in West Africa could rise to 7 million barrels per day or more by 2010, he forecast, and even higher in subsequent years if the geology and investment climates are favorable.

"West Africa," he said, "is one of the world's fastest growing sources of oil and gas. Oil production generates a large share of government revenue in countries such as Nigeria, Angola, Gabon, Equatorial Guinea, Republic of Congo, and Cameroon," he told the lawmakers, and much oil remains to be discovered and developed in some of these countries.

Additionally, he noted, Chad has begun producing oil, and Mauritania and Sao Tome and Principe will soon begin producing significant new oil supplies as well.

Other current prospective African oil-producing countries include Senegal, The Gambia, Liberia, Sierra Leone, Benin and Togo, all of which are currently, or soon hope to be, exploring for oil, he said.

Brodman called the prospects for increasing oil and gas production in West Africa "very high."

Focusing on Latin America, Mexico and the Caribbean, Brodman said the region accounts for 10.5 million barrels a day of global oil production (including natural gas liquids and alcohol fuels), which he estimated will increase to 12.8 million barrels per day by 2010.

Fifty-two percent of U.S. crude oil imports, and fifty-four percent of petroleum product imports come from the Western Hemisphere, where three of the top five exporters to the United States -- Canada, Mexico, and Venezuela -- are located, he pointed out.

Following is the text Deputy Assistant Secretary Brodman's statement, as prepared for delivery:

Mr. Chairman and Members of the Subcommittee. I am pleased to appear before you today to discuss the Administration's efforts to address our nation's energy security with a particular, focus on Latin America and West Africa. Before discussing these two regions, however, I would like to say a few words about the evolution of our approach to energy security, and the challenges facing us today.

Energy security, like beauty, is in the eye of the beholder. What is it? How do you define it or measure it? How much is enough? While the answers to these questions depend in large measure on your perspective, our energy security concerns are a dominant factor in U.S. energy policy for many reasons:

1. Many of our long-standing concerns about energy security stemming from developments in the Middle East are still with us;

2. Energy security is often an entry point for government interference or involvement in energy markets;

3. There are many new challenges in the area of energy security itself, some stemming predominantly from our growing concerns with terrorism;

4. Oil producing countries, old and new, large and small, are increasingly facing new challenges and new threats, often from internal sources of instability, which can have an impact on our energy security; and

5. There is concern that our growing dependence on oil and gas imports may have considerable influence on our foreign policy.

President Bush recognizes that the dynamics and necessities of our energy marketplace, in terms of addressing energy supply and demand and ensuring energy security to promote economic growth, are the key focus of our national energy policy.

U.S. energy policy is founded on the belief that open markets ensure optimal production and supply of energy. President Bush's Administration also recognizes that open markets largely reflect the situation here and now, and that the government has a role in assuring that technologies are developed to ensure the most efficient use of energy, to facilitate the use of alternative fuels and energy carriers such as hydrogen, fusion and nuclear, and to develop new, secure energy supplies to meet the energy needs of today and the future.

Also, from an energy security point of view, U.S. Government energy policy has a strong role to play in assuring 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 the past, disruptions in supply were largely the result of sovereign political decisions and conventional wars. As we shift toward new sources, there are increased threats and risks stemming from corruption and governance issues, ethnic/religious strife, border or territorial disputes, poverty and other issues. These new threats to security of supply may require new policy approaches to our energy security.

President Bush recognizes these new international challenges, and the National Energy Plan calls for strengthening our global alliances through such important mechanisms as our existing bilateral relationships with key countries and regions around the world. Secretary Abraham has made energy security one of his top priorities, and security of supply is the driving force behind our policy engagement on energy issues with most countries.

The Western Hemisphere and Africa are important sources of our imports of oil and natural gas, and their importance is likely to grow in the future. Even though their proven reserves and production will never allow them to replace the Middle East in importance to world energy markets, they will nonetheless be an important source of additional supplies for decades to come.

ENERGY SECURITY POLICY

What have we learned? In the last thirty years, developments in the world oil market dominated our energy security concerns, and we have been impacted by six serious interruptions of supply:

-- The Arab oil embargo

-- The Iranian revolution

-- The Iran/Iraq war

-- The Iraqi invasion of Kuwait, the first Gulf war, and the subsequent embargo

-- The recent strike in Venezuela, and

-- Regime change in Iraq

We have devoted a great deal of effort over the years to analyzing the differences between import dependence on the one hand, and vulnerability to supply disruptions on the other. In the short term, we learned to allow market forces to allocate supplies, and to depend on the use of excess production capacity and strategic reserves to augment supplies if required. We learned that oil is a fungible commodity, and that the marginal barrels are the determining factor in the marketplace. In the longer term, we strove to improve our energy security through diversity, in both the types of energy we use and in the sources of supply, and through efficiency gains, which limit the economic damages of price shocks on our economy.

We developed over time, with varying degrees of success, a flexible energy security policy that was based on a combination of policies. This combination of policies is a mix of:

-- Reliance on market forces

-- Opening markets to free trade and investment in energy resources

-- Energy efficiency

-- Diversification of supplies

-- Science and technology, research and development for the long term

-- Good relations with the rest of the world

-- A strong military to protect our interests, and

-- Strategic petroleum reserves, both as a deterrent and as a supply of last resort.

At the heart of this flexible, multiple policy approach was and is a desire to promote and protect resilient international oil and energy markets through the application of sustained policies that transcend political partisanship and stand the test of time. The goal was to reduce the threat and incidence of disruption, and to mitigate the effects of a disruption if it did occur.

It would appear that many of the threats to energy security that we have experienced in the past, remain with us today. Looking forward, there are also several new threats to energy security today that we will have to learn to cope with, especially in oil producing developing countries. Thirty years ago oil was produced in commercial quantities in just over 60 countries around the world, and the share of the top ten producers in overall world supply was greater than 80 percent. Today, oil is being produced in commercial quantities in over 90 countries, and the share of the top ten producers has fallen to about 60 percent. While some of this increase in the number of producers can be attributed to the breakup of the former USSR into separate countries, there are also many new producers, in Africa, Latin America and elsewhere.

Now what does that mean for energy security? In the first place, we have always favored a strategy that promotes diversity of supplies, both among the different forms of energy (oil, gas, coal, renewables, etc.) and in the sources of supply for any one form. In this sense, this new diversity is generally viewed as a good thing. While you can argue that more oil from diverse sources might raise the risk of disruption simply because there are more producers, you can also argue that the disruption will likely be smaller in the first place, and more likely to be offset by compensating increases from the other sources.

While our policy of supply diversity has been successful to some degree, the development of many frontier oil provinces carries with it its own set of political, economic and security risks. Our policy of diversifying supplies relies on commercial investment in energy projects. We don't tell our companies where to invest or where to buy oil. It is up to them, and there are a considerable number of obstacles to realizing this commercial investment, directly related to economic, political, and security risks.

An unfavorable business climate may keep needed resources locked away from development for a long time.

The emerging threats to energy security in many new producing countries and regions, and indeed, as recent developments in Venezuela and Nigeria have demonstrated, in older producing regions as well, are somewhat different than those we have faced in the past. As a result, they may also require new policy responses. In the past, supply disruptions came from sovereign political decisions, revolutions, and conventional wars. Today there are increased risks from non-traditional, and often internal, sources of conflict, such as:

-- Corruption and a lack of transparency

-- Governance issues

-- Federal, state, and local jurisdictional disputes

-- Ethnic/religious conflicts

-- Border and territorial disputes

-- Energy sector revenue management issues

-- Local content requirements

-- Lack of managerial capacity

-- Political instability

-- Environmental issues

-- Poverty and the distribution of income

-- Lack of "rule of law" and dispute settlement procedures

These threats to energy security, clearly recognized in the National Energy Plan, may not always lend themselves to conventional security solutions. These new threats call for a continuation (and possible enhancement) of the balanced and sustained engagement with the oil-producing countries that we have been pursuing, to help them manage and utilize their revenues in a way that promotes political stability and sustainable economic growth. For this reason, it may be that sustainable development is the real frontier battleground for energy security in the 21st century. The lack of good governance is also a fertile breeding ground for terrorism, and we may have not yet grasped the full implications of terrorism for the energy sector.

Speaking rhetorically, it may be reasonable to ask why and whether oil consumers or developers should be responsible for promoting sustainable economic development in oil producing countries? We may need to be more engaged on sustainable development issues with energy producers in order to minimize many of these new, internal threats to stability, and to promote, protect and defend our own security of supply, and our own security in commercial energy and trade relationships.

CURRENT U.S. ENERGY POLICY WITH REGARD TO OUR HEMISPHERE

President Bush's Administration is committed to working with Canada, Mexico and other countries, particularly in our hemisphere, to strengthen and create energy partnerships. We are fortunate to have secure and reliable North American partners that supply a significant part of our energy requirements.

A key recommendation of the National Energy Policy is the formation of the North American Energy Working Group. President Bush, Canadian Prime Minister Chretien and Mexican President Fox directed their Energy Departments to work together to create ways to facilitate the development of a true North American energy market that will deliver reliable, affordable energy to the citizens of all three countries. An overarching goal of the Working Group is to foster communication and cooperation among the three governments on matters of common interest.

The National Energy Policy recommends ongoing energy consultations with Brazil and other countries in Latin America, to improve the energy investment climate for the growing level of energy investment flows between the United States and this region. During the U.S.-Brazil Presidential Summit of June 2003, DOE and Brazilian energy officials agreed on a number of mechanisms to strengthen the energy cooperation between the United States and Brazil.

Investment Climate in Latin America and Prospects for Improvement

As a region, Latin America's Gross Domestic Product contracted by 1.3 percent in 2002, with deep recessions in Argentina, Uruguay, and Venezuela. Foreign direct investment fell from $69 billion in 2001 to $42 billion in 2002 (40 percent decline). Demand for exports was depressed due to sluggish growth in Europe and the United States. Despite generally sound economic fundamentals, there was lower investor confidence due to concerns about the political direction in several countries and overall debt dynamics. This slowed capital flows, hindering economic recovery.

Political and economic reforms are still seen as the most important factors influencing investment in the region. The energy sector requires capital inflows to achieve adequate growth, especially in the oil and natural gas sectors.

Privatization in Bolivia has attracted companies interested in commercializing the region's second largest natural gas reserves. Liberalization in Brazil's oil sector has attracted necessary investment and technology to explore and produce deep-water oil reserves -- enough so that Brazil now produces 1.5 million barrels of oil per day, an increase of over 500,000 barrels per day in the last five years. Prior to the recent economic crisis, privatization efforts had transformed Argentina into a net oil exporter. On the other hand, countries that have placed new limits on private investment are now confronting diminished capacity, antiquated infrastructure, and declining production rates. Vast energy resources in these countries may remain underutilized or untapped and economic growth will stagnate.

Unfortunately, several countries in the Hemisphere continue to weather severe economic problems. Venezuela's economic downturn was propelled by both a loss of business confidence and the devaluation of the Bolivar, which lost almost half of its value since being allowed to float freely in February 2002. Reports of the partial recovery of daily oil production levels are encouraging, although not the whole answer for the economies of Venezuela and the region.

Colombia continues to weather difficult political and economic conditions. However, improved U.S. and Latin American economic outlooks for the second half of 2003 are likely to have positive implications for the Colombian economy. Additionally, recent higher world oil prices provided a significant boost to Colombian export earnings, as oil is Colombia's top export product.

Argentina's economy continues to suffer. The most pronounced of President Duhalde's crisis management measures was to abandon the country's 1991 Convertibility Law, which had pegged the Argentine Peso 1:1 to the U.S. dollar for eleven years. After almost four years of recession, the Argentine economy ground to a halt in December 2001, as Buenos Aires defaulted on its approximately $140 billion debt. Civil unrest swept the nation as citizens were locked out of the country's banks and unemployment reached a record high of 18 percent.

We are encouraged by the efforts of many of our neighbors in the region to work with private investors in developing a solution to problems in the energy sector. We hope the countries in the hemisphere will continue to strengthen their public dialogue on energy sector issues.

Prospects for Increasing Energy Production in Latin America

Latin America, Mexico and the Caribbean accounts for 10.5 million barrels a day of global oil production (includes natural gas liquids and alcohol fuels), which is estimated to increase to 12.8 million barrels per day by 2010. Fifty two percent of U.S. crude oil imports, and fifty four percent of petroleum product imports come from the Western Hemisphere. Of the top five exporters to the United States, three -- Canada, Mexico, and Venezuela -- are in our hemisphere. These three countries account for a large percentage of the 314 billion barrels of proven reserves in the region (a level of over ten times the current U.S. oil reserves).

Nine other countries (Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guatemala, Peru and Trinidad and Tobago) have oil and gas reserves of varying sizes. While the oil reserves of these nine countries are clearly not as significant as reserves in the Persian Gulf, they provide an important source of energy to the domestic economy and reduce the region's dependency on imported oil. The region is also richly endowed with natural gas and hydroelectric power potential, and some countries, primarily Colombia and Venezuela, have been developing their coal reserves for export. Peru is also developing its huge Camisea gas field, which is expected to yield benefits in the form of increased LNG exports to the West Coast of the United States.

The United States' economic future and energy security is contingent upon the availability of ample energy supplies. If the region expects to increase the reliability and security of its energy supply, reduce long-term dependence on imported oil (outside of the Western Hemisphere), and maintain its economic vitality and viability, it must have in place a set of policies that support increased energy production, energy integration, diversification of supply, and increased foreign investment.

Consequently, the Department of Energy has been working with its neighbors to improve their technical and managerial skills in their energy sector. Through various mechanisms, we are promoting a reliance on market forces and the elimination of monopolistic controls, emphasizing the importance of regulatory reform, fostering the implementation of clear and transparent trade practices, and stressing the importance of foreign investment in meeting the hemisphere's future energy needs.

We are also encouraging major oil producing countries in our region to maintain responsible production policies to support a growing hemispheric economy and help reduce oil market price volatility.

By promoting these policies and efforts, we hope to continue to see energy production grow to meet the future energy needs of the United States and other countries of the region. Over the next few decades, oil and natural gas will continue to play a central role in the world economy and international energy markets. We must find more oil and gas supplies, and these supplies must be reliable and made available at prices that permit sustained economic growth.

Examples of possible prospects for increasing production include:

-- Argentina is the fourth largest oil producer in Latin America, with 2.9 billion barrels of proven reserves. Argentina's oil production was as high as 900,000 barrels per day in the late 1990s; however, recent estimates put production at about 800,000 barrels per day as a result of the 2002 financial crisis and the government's economic policies, (particularly a 20 percent tax imposed on oil exports, as well as a briefly imposed oil export cap). Argentina's oil sector is completely privatized, although the largest company, Repsol-YPF, remains the dominant player. The economic difficulties faced by Argentina have adversely affected oil production.

-- Colombia has around 1.84 billion barrels of proven oil reserves. Colombia's oil production has fallen over the last three years after hitting a high in 1999 at 830,000 barrels per day. The government has taken positive steps to make the investment climate friendlier to foreign oil companies, but security issues remain a significant problem. Rebel groups have attacked the production and transportation facilities of oil companies operating in the country, which has hampered Colombia's ability to maintain production levels at 1999 levels.

-- Ecuador is counting on foreign investment to boost oil production for the new 450,000 b/d heavy oil pipeline that will start pumping in June, and will enable the country to significantly boost production and will double the country's transport capacity from the Amazon jungle to its coastal port.

-- Mexico's current (first quarter of 2003) total oil production is 3.8 million barrels per day (3.3 million barrels per day of crude), making it the fifth largest oil producer in the world. Mexico ranks fourteenth in the world for proven oil reserves, with 13 billion barrels. Oil production (crude oil and natural gas liquids) is forecast to grow through 2010. Natural gas production is forecast to grow significantly through 2010, when it is expected to nearly double to 3.2 Tcf. With 8.8 Tcf of gas reserves, Mexico ranks 40th in the world for proven gas reserves.

-- Venezuela is a key oil producing country with the Western Hemisphere's largest conventional proven reserves. Venezuela has experienced a great deal of turmoil in its energy sector recently, with increasing government intervention and labor unrest. In the past few years under President Chavez, cuts in the state oil company, Petroleos de Venezuela, S.A. (PDVSA), a lack of foreign direct investment and a policy of strict adherence to OPEC quotas have hindered the country's long-term expansion and production.

The Outlook for Venezuela

The loss of Venezuelan oil supply during December, January and February was a serious blow to U.S. oil supplies. The Administration monitored the situation closely. We also encouraged other oil producers to activate their spare production capacity in response to the market signals that were generated by the Venezuelan loss. OPEC's decision to increase its production was a positive development. We are continuing our close monitoring of the Venezuelan situation and are prepared to act quickly should a need arise.

Venezuela is a significant source of oil for the U.S. and we have kept on a close eye on events in that country. Over the past few months, the Department of Energy has met on several occasions with officials from Venezuela's Ministry of Mines and Energy and PDVSA. In February and again in July, Deputy Secretary McSlarrow met with Minister Ramirez and PDVSA President Ali Rodriguez. There have also been ongoing DOE staff level meetings and exchanges of data with PDVSA representatives to discuss current production and export levels in an attempt to improve the transparency of information coming out of the country. The worst effects of the strike in Venezuela appear to be over. Venezuelan oil production and exports have been significantly restored.

The increase in oil supplies from Venezuela, as well as from other producers, has helped relieve pressure on crude and product markets over the past several months. However, crude and product inventories remain at historically low levels, due in part to the Venezuelan disruption.

Production -- There are a wide range of estimates about Venezuela's ability to restore full production and export of oil. Venezuelan government sources claim that production is at 3.1 million bpd. On the other hand, most industry experts place production around 2.5 million bpd.

EIA is using 2.35 million bpd for its calculations since that is what can be confirmed based on available data. Industry analysts cite field damage and lack of maintenance resources as preventing the restoration of the remaining 500,000 bpd. Before the strike, Venezuela produced about 3 million bpd and exported 2.5 million bpd.

Many analysts also question whether current production can be sustained. Venezuela's oil fields have natural depletion rates up to 25 percent per year, which has, in the past, required PDVSA to invest heavily to maintain production capacity. Experts have not seen evidence of the investment -- such as drilling activity -- necessary to sustain production.

Exports -- Unofficial EIA data from the last few weeks show that U.S. crude imports from Venezuela continue to be above one million barrels per day -- higher than levels seen in January and February but still below pre-strike levels of 1.5-1.6 million barrels per day.

Refining -- Reports indicate that several refineries are operational and running, but the amount and quality of refined products being produced, by Venezuela, particularly gasoline, are unknown. Venezuelan domestic demand for gasoline has dropped due to economic constraints, which may allow for more exports.

There have been reports of gasoline shipments to the U.S. but it is possible that the gasoline came from storage or was imported to Venezuela during the strike. Venezuelan gasoline exports to the U.S. have not yet consistently returned to pre-strike levels of around 60,000 bpd (100,000 bpd with imports from PDVSA's Caribbean refineries).

Technical Consultations -- The Department of Energy has had long-standing technical and policy cooperation with Venezuela. We believe it is important to maintain that relationship. We have made initial efforts to resume technical level cooperation. We have not yet set dates for policy level consultations.

CURRENT U.S. ENERGY POLICY WITH REGARD TO AFRICA

The President has recognized the importance of the United States' relationship with Africa, and the National Energy Policy outlined some specific recommendations for continued engagement, that include actions to:

-- Use the U.S.-Africa Trade and Economic Cooperation Forum and the U.S.-African Energy Ministerial process; deepen bilateral and multilateral engagement to promote a more receptive environment for U.S. oil and gas trade, investment, and operations; and promote geographic diversification of energy supplies, addressing such issues as transparency, sanctity of contracts, and security; and

-- Support more transparent, accountable, and responsible use of oil resources in African producer countries to enhance the stability and security of trade and investment environments.

In June 2002, DOE co-sponsored the Third U.S.-African Energy Ministerial Conference in Casablanca, Morocco, where Secretary Abraham and ministers or representatives from nearly 40 African countries reaffirmed a commitment to good governance and stable regulatory structures, and discussed additional steps to encourage private sector investment in the energy sector. At the Ministerial, we met with government and industry representatives to discuss ways to improve energy trade and facilitate energy sector development in order to better serve U.S. and African economic growth and development.

Routinely, DOE meets with a number of African government officials on a variety of energy issues. In late 2002, we organized a Gulf of Guinea Business Roundtable to discuss energy issues with U.S. oil and gas company representatives doing business in the region. Also, over the last year or so, we have been engaging more actively in various trade policy mechanisms, including the African Growth and Opportunity Act (AGOA) process.

I would also like to highlight some of our specific activities with African countries:

-- Through an interagency agreement with USAID, DOE implemented a comprehensive energy program with Nigeria, which included energy sector reforms and power and natural gas development activities. In cooperation with the Department of State and USAID, DOE is initiating a similar formal bilateral energy program with the Angolan Government.

-- In terms of natural gas development and reduction of flaring, DOE is working with Nigeria and South Africa, and routinely advocating our support for the West African Gas Pipeline Project, which will transport Nigeria gas to markets in Benin, Togo and Ghana. USAID is assisting the four nations involved in completing a series of cross-border agreements and harmonization of their respective regulatory environments.

-- USAID has been actively involved in designing a global development alliance for the West Africa Power Pool whose purpose is to produce an abundant, reliable, efficient and affordable energy supply, while attracting private sector investment, by means of institutionalized regional cooperation among the fifteen member states of the Economic Community of West Africa (ECOWAS).

-- We are active participants, and a member of the steering committee, in the World Bank's Gas Flaring Reduction Initiative, which involves several African countries.

-- We participated in and spoke at the Africa Growth and Opportunity Act (AGOA) Economic Forum, which was held in January in Mauritius, and emphasized issues related to small- and medium-sized enterprises, local content, and capacity building opportunities.

-- We are participating in the negotiations for the U.S.-South African Customs Union Free Trade Agreement with Botswana, Lesotho, Namibia, South Africa, and Swaziland, among other energy-oriented activities with African countries.

Investment Climate in West Africa and Prospects for Improvement

Democratization and the development of responsible governing institutions are particularly important in reducing oil related conflicts and promoting African supply stability. Accountability and transparency are necessary to ensure that oil revenues benefit the population and support economic and social development. Managed effectively, revenues from expanding oil and gas production could be the engine for national and regional economic development and political stability in these countries. However, this will not happen if energy development is accompanied by corruption, the disruption of other economic sectors, and a disenfranchisement of the citizenry.

We have an interest in helping African nations solve these problems and in helping them to become fully reliable energy suppliers to international markets. Substantial foreign direct investment is needed to develop African energy resources both onshore and offshore. Broadly, we support this process by encouraging the reforms needed to improve the investment climate. For instance, we have negotiated a bilateral energy cooperation framework with Nigeria, we advocate on behalf of U.S. energy concerns, and we support the World Bank's involvement in independent monitoring arrangements in the Chad-Cameroon Pipeline Project and other regional energy infrastructure projects. The G-8 countries agreed in Evian on an action plan to fight corruption and improve transparency, which will enable us to help oil-producing West African states to improve transparency in the management of their oil revenues to ensure they support broad-based, sustainable development.

Prospects for Increasing Production in West Africa

West Africa is currently producing about 4 million barrels of oil per day. Production in West Africa could rise to 7 million barrels per day or more by 2010, and even higher in subsequent years if the geology and investment climates are favorable. West Africa is one of the world's fastest growing sources of oil and gas. Oil production generates a large share of government revenue in countries such as Nigeria, Angola, Gabon, Equatorial Guinea, Republic of Congo, and Cameroon. Much oil remains to be discovered and developed in some of these countries. Additionally, emerging potential producers, such as Mauritania, and Sao Tome and Principe, will soon begin producing significant new oil supplies. Chad began producing oil for the first time this summer and production could reach 150,000 bpd in 2004.

Other current prospective African oil producing countries include Senegal, The Gambia, Liberia, Sierra Leone, Benin and Togo, all of which are currently, or soon hope to be, exploring for oil. So, the prospects for increasing oil and gas production in West Africa are very high. While Africa as a whole holds only about 6 percent of the world's proven oil reserves, and while it will never replace Middle East oil, West Africa will nevertheless be the source of about 3-4 million barrels per day of additional oil supplies over the next ten years. This is important to us because it is the incremental or marginal barrels that have the most impact on the world market and our energy security.

One of the largest infrastructure projects in Sub-Saharan Africa is the $3.5+ billion, 650-mile Chad-Cameroon oil pipeline project. This project has the potential to bring up to 250,000 bpd of oil to the market and promote development of other reserves in the region. The project is led by Exxon Mobil and includes Chevron Texaco. The oil is located in landlocked southern Chad and is being transported by the pipeline to the coast of Cameroon.

Rising U.S. Energy Stakes in Western Africa

Energy from West Africa plays an increasingly important role in our energy security as we diversify our sources of oil supply. Currently, more than 12 percent of imported U.S. oil is from Africa. However, Africa's oil exports to the U.S. are set to rise. African oil is a key engine for economic development in Africa.

Nigeria, an OPEC member, has proven oil reserves of 24.0 billion barrels and currently produces nearly 2.2 million barrels per day. The largest U.S. oil producing companies in Nigeria are Exxon Mobil and Chevron Texaco, but many other companies are involved as well.

Angola, a non-OPEC member, is the second largest Sub-Saharan African oil exporter to the U.S. Total oil production in Angola in 2002 was over 900,000 barrels per day, with production projected to top 1 million barrels per day in 2003. Angola's total proven reserves are 5.4 billion barrels, and rising with new discoveries. Chevron Texaco, Exxon Mobil, Marathon Oil, Occidental, Devon Energy Ocean Energy and Conoco Phillips are U.S. oil companies with holdings in Angola. Only Chevron and Exxon are currently operators.

Equatorial Guinea's oil production is currently about 200,000 bpd. It is a non-OPEC producer and has proven reserves of 12 million barrels. The U.S. plans to re-open an embassy in Equatorial Guinea within the next year. Major U.S. oil companies operating in Equatorial Guinea are Amerada Hess, Chevron-Texaco, Exxon Mobil, and Marathon Oil.

Gabon is Sub-Saharan Africa's third largest oil producer and exporter, producing about 294,000 bpd in 2002. While Gabon's oil production has decreased in recent years, its proven oil reserves are 2.5 billion barrels.

Republic of Congo (Brazzaville) has estimated proven oil reserves of 1.5 billion barrels. The majority of its crude oil production is located offshore, with Total as the dominant operator. Congo produced about 249,000 bpd in 2002.

Natural Gas -- With regard to natural gas, the U.S. consumed more than 22.5 trillion cubic feet in 2002. Currently, the natural gas market in the U.S. is tight, with inventory levels lagging behind normal levels. This shortfall is reflected in spot natural gas prices and the expectation that demand will remain at a high level relative to domestic natural gas supply capability. Our dependence on imported liquefied natural gas (LNG) is expected to rise, and much of that could come from Africa and Latin America. As such, Secretary Abraham will be convening the LNG Global Summit in November, which will include major and emerging LNG producers and explore ways to facilitate increased exports to the U.S.

By 2025, total natural gas consumption is expected to increase to almost 36 trillion cubic feet, or 26 percent of U.S. delivered energy consumption. Such a demand level represents an increase of about 59 percent from the expected 2003 level. U.S. domestic gas production is expected to increase more slowly than consumption. As a result, U.S. dependence on imported natural gas is expected to rise. Significant increases in LNG imports from West Africa and Latin America, along with new supplies from the Middle East, Russia and North Africa are likely to meet our rising demands.

The use of natural gas, increased LNG exports and the associated increase of revenues from gas development to governments will help to eliminate gas flaring and provide opportunities for enhanced socio-economic development. DOE is working with various countries and 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.

Nigeria has the 9th largest natural gas reserves in the world and the largest of any country in Sub-Saharan Africa. In 2001, the most current data available, Nigeria vented and flared an amount equal to 44 percent of its gross natural gas production and reinjected an amount equal to 10 percent of its gross natural gas production. Nigeria has an LNG plant with three trains operational, two additional ones due to come online by the end of 2005, and a sixth train being considered. In addition, many companies have active proposals to develop additional LNG projects in Nigeria.

The West African Gas Pipeline (WAGP) is a gas transmission project designed to connect Nigeria's gas reserves, including some flared gas, to markets in Benin, Togo, and Ghana (with Ghana being the primary market for the gas). The governments of these four countries, Chevron Texaco, and Shell are partners in the project. When completed, the open access pipeline will help to bring some of the regions gas resources to commercial markets for electric power and industrial uses.

Angola and Equatorial Guinea have substantial reserves of natural gas, and both countries are pursuing LNG projects to utilize the gas.

The Status of the Conflict in West Africa

West Africa is a conflicted region that is suffering the effects of corruption, political instability, border disputes, ethnic/religious strife, governance issues, and poverty. These conflicts produce risks that must be overcome if the region is to attract the investment it needs to sustain and expand energy resource development.

The recent effect of the political and ethnic instability in the Niger Delta was a temporary loss of about 800,000 bpd of Nigerian crude oil production and an upward pressure on oil prices during the lead up to the Iraq war earlier this year. This represented 37 percent of Nigeria's daily oil production of nearly 2.2 million barrels per day. Today, 272,500 barrels per day of crude oil remains shut-in in Nigeria due to ongoing civil strife in the Delta.

Nigeria supplied 621,000 barrels per day of oil to the U.S. in 2002. This represents over 5 percent of U.S. imported oil in 2002. Also in 2002, Nigeria was the fifth largest foreign supplier of crude oil to the U.S.

Angola currently produces about 930,000 barrels per day of oil, is the second largest Sub-Saharan African exporter of oil to the U.S., and is not a member of the Organization of Petroleum Exporting Countries or OPEC. Until a little over a year ago, Angola was immersed in a nearly 30-year civil war. However, because most of Angola's oil production is offshore and was removed from the largest population centers and closest proximity to the fighting, oil production was relatively unaffected in Angola during the war. A final peace agreement has been successfully implemented and the U.S. Government is supporting the peace process and rebuilding of Angola.

I visited Angola earlier this year and engaged in a dialogue on identifying possible areas for bilateral and multilateral cooperation. We want to establish a formal framework that will facilitate enhanced cooperation on such issues as policy and regulatory reforms, natural gas development, electrification, and infrastructure development. An interagency agreement has been signed between DOE and USAID to assist the Government of Angola in developing a national energy strategy.

Conflict and political instability plague some countries in the region that have not even begun exploring for or producing oil. For example, on July 16th of this year, there was a military coup in the small country of Sao Tome and Principe. The coup leaders demanded better government, pay and facilities. In some ways this coup may have been precipitated by the expectation that the country will soon realize significant revenue increases from signing bonuses received, and from oil production that may result from development of the offshore Joint Development Zone with Nigeria. Sao Tome highlights how the large natural resource rents that often accompany oil development projects in developing countries can, in certain circumstances, become a source of instability.

These conflicts in West Africa have a destabilizing impact on the investment climate, on the social and economic development aspirations of the African people, and on our energy security. Finding affordable and effective ways to help these countries overcome these barriers is one of the new challenges to our energy security aspirations.

CLOSING

Mr. Chairman, I believe that my statement covers all of the topics you requested for today.

At this point, I would therefore like to end my prepared remarks and thank you for the opportunity to testify before you today. I welcome any questions that the Committee might have.

An appendix of charts regarding Western Hemisphere and African Oil and Gas Production and Resources. Also appendixed is a chart on U.S. Petroleum Imports by Source.

Western Hemisphere

-- Proven Oil Reserves as of 1/1/03: 291.2 Billion Barrels (24% of the world total) (includes Canadian oil sands).

-- Proven Natural Gas Reserves as of 1/1/03: 319.0 trillion cubic feet (6% of the world total)

Total Oil Production (2002): 13.4 MBD (18% of the world total) (includes natural gas liquids and alcohol fuels)

U.S. Oil Imports from the Western Hemisphere (2002): 6.0 MBD (49% of total oil imports)

Africa (including North Africa)

-- Proven Oil Reserves as of 1/1/03: 77.4 Billion Barrels (6.4% of the world total)

-- Proven Natural Gas Reserves as of 1/1/03: 418.2 trillion cubic feet (7.6% of the world total)

-- Total Oil Production (2002): 8.1 MBD (10.6% of the world total) (includes natural gas liquids and liquids from coal)

-- U.S. Oil Imports from Africa (2002): 1.4 MBD (12.3% of total oil imports)