The battle for resources

Britain leads dash to explore for oil in war-torn Somalia

Government offers humanitarian aid and security assistance in the hope of a stake in country's future energy industry

the Guardian,

25 Febraury,2012

Britain is involved in a secret high-stakes dash for oil in Somalia, with the government offering humanitarian aid and security assistance in the hope of a stake in the beleaguered country's future energy industry.

Riven by two decades of conflict that have seen the emergence of a dangerous Islamic insurgency, Somalia is routinely described as the world's most comprehensively "failed" state, as well as one of its poorest. Its coastline has become a haven for pirates preying on international shipping in the Indian Ocean.

David Cameron last week hosted an international conference on Somalia, pledging more aid, financial help and measures to tackle terrorism. The summit followed a surprise visit by the foreign secretary, William Hague, to Mogadishu, the Somali capital, where he talked about "the beginnings of an opportunity'' to rebuild the country.

The Observer can reveal that, away from the public focus of last week's summit, talks are going on between British officials and Somali counterparts over exploiting oil reserves that have been explored in the arid north-eastern region of the country. Abdulkadir Abdi Hashi, minister for international cooperation in Puntland, north-east Somalia – where the first oil is expected to be extracted next month – said: "We have spoken to a number of UK officials, some have offered to help us with the future management of oil revenues. They will help us build our capacity to maximise future earnings from the oil industry."

British involvement in the future Somali oil industry would be a boon for the UK economy and comes at a time when the world is increasingly concerned about the actions of Iran, the second-biggest oil producer in Opec.

Hashi, in charge of brokering deals for the region's oil reserves, also said Somalia was looking to BP as the partner they wanted to "help us explore and build our oil capacity". He added: "We need those with the necessary technical knowhow, we plan to talk to BP at the right time."

Somali prime minister Abdiweli Mohamed Ali said his government had little choice but to entice western companies to Somalia by offering a slice of the country's natural resources, which include oil, gas and large reserves of uranium. "The only way we can pay [western companies] is to pay them in kind, we can pay with natural resources at the fair market value."

Britain is not the only country looking to develop Somalia's vast natural resources. Last month oil exploration began in Puntland by the Canadian company Africa Oil, the first drilling in Somalia for 21 years. Hashi, who sealed the Africa Oil deal, said the first oil was expected to be extracted within the next "20 to 30 days".

The company estimates there could be up to 4bn barrels (about $500bn worth at today's prices) in its two drilling plots. Other surveys indicate that Puntland province alone has the potential to yield 10bn barrels, placing it among the top 20 countries holding oil. Chinese and US firms are among those understood to have also voiced interest about the potential for oil now that, for the first time in 20 years, the country is safe enough to drill.

Yet it is the extent of oil deposits beneath the Indian Ocean that is most exciting Somali officials. One said the potential was comparable to that of Kuwait, which has more than 100bn barrels of proven oil reserves. If true, the deposits would eclipse Nigeria's reserves – 37.2bn barrels – and make Somalia the seventh largest oil-rich nation.

The state-owned China National Offshore Oil Corporation has tried to acquire an interest in Somalia's reserves. Senior officials from the Somali transitional government are adamant that the imminent extraction of oil in Puntland next month would kickstart a scramble from the multinationals.

On Thursday, the last day of the London conference, BP and Shell unveiled an initiative to support job-creation projects in the coastal regions of Somalia. A subsidiary of Shell was thought to have acquired exploration concessions in Puntland before the descent into lawlessness in 1991.

A BP spokesman said there were "no plans" to work in Somalia and no official had recently visited the country.