The rise of Liberia’s oil and gas industry

Founded by freed American slaves; having emerged as recently as 2003 from one of Africa’s most infamous civil wars; and home to Africa’s first democratically elected female president and Nobel laureate, Ellen Johnson Sirleaf – Liberia is unambiguously a fascinating country.

In view of the 14-year long civil war that destroyed much of the country’s infrastructure and decimated its economy, Liberia has, until recently, fallen outside of the purview of the oil and gas industry.

In view of fairly recent and noteworthy hydrocarbon discoveries in neighbouring countries, however, there has been a significant increase in the oil industry’s interest in what is perhaps one of the last untapped stretches of the West African coastline.

The minnows and the majors – including Peppercoast Petroleum PLC, Simba Energy, Tullow Oil, Anadarko and Chevron – have all, to varying degrees, shown an interest in the possible exploitation of Liberia’s hydrocarbon resources.

It was in the light of this interest that Liberia was, in April this year, in a position to host the nation’s first industry-related conference, namely the First Liberia International Mining, Energy and Petroleum Conference & Exhibition (LIMEP).

During her opening address to the delegates at LIMEP, President Sirleaf confirmed that recent discoveries in Ghana and Sierra Leone bode well for Liberia’s hydrocarbon potential, and she was visibly pleased to state that “Liberia is back and ready for business.”

The thrust of her address was that Liberia’s hydrocarbon resources must be utilised for the benefit of its people, stating that “we have made it clear, with the fullest of commitment, that before we export one drop of oil, we will have the policies in place that dictate how oil wealth will be used for development, stability and poverty reduction.”

President Sirleaf’s statement was made less than one year ago, and it is debatable whether her government will manage to adhere to the socio-economic commitments contained therein.

Fortunately for Liberians, their oil and gas industry is in its infancy. They are thus able to learn from the industry-related problems experienced by their fellow West Africans. This observation was made by many of the LIMEP attendees and echoed by Dr Eugene H. Shannon, Liberian minister of Lands, Mines and Energy who, during his LIMEP presentation, stressed that “we do not want to experience the ‘Resource Curse’ or ‘Dutch Disease’.”

Having committed itself to managing its country’s hydrocarbon resources for the upliftment of the Liberian people, as well as acknowledging the industry-related problems that it wishes to avoid, the billion-dollar question that confronts the Liberian government is whether it will be able to establish, manage and maintain the requisite administrative and enforcement mechanisms.

It is commonly understood that the first step in this regard must be the strengthening of Liberia’s current regulatory framework.

As recently as September 2011, Global Witness (a non-profit organisation aimed at preventing natural resource-related conflict, corruption and associated environmental and human rights abuses) and the Liberian Oil and Gas Initiative (a group of non-profit organisations aimed at promoting good governance within Liberia’s oil and gas industry) published a report that highlighted various concerns.

Notably, the very first problem to be discussed in the report is the need for substantial reformation of Liberia’s outdated legislative framework. Even a somewhat cursory glance at the relevant legislation reveals that significant lacunae exist, particularly in relation to economic, human rights and environmental safeguards.

A regulatory framework in need of an overhaul is, however, only one of the challenges facing the Liberian government. Another significant point of concern includes a lack of knowledge and skills when it comes to the application of administrative procedures and regulatory mechanisms – a problem that has resulted in weak administrative structures that lack enforcement capacity.

The report in question is not the first report to canvass this particular problem. In May 2007, Liberia’s Environmental Protection Agency, with assistance from the United Nations Environment Programme, produced the “National Report on the Marine and Coastal Environment”, which concluded that, due to weak administrative structures, it was not possible to implement and enforce Liberia’s environmental laws and policies effectively.

The oversight and enforcement capacity of the Liberian government must be founded on a strong, well-drafted, industry-specific regulatory framework. Thus, until the rules governing the oil and gas industry have been revisited, the hands of the administrators are tied and the Liberian government may expose its citizens to the risk of the so-called “Resource Curse”. Unfortunately, however, Liberians may already be exposed to this risk, as seemingly fairly well-documented instances of bribery and corruption have recently come to light.

It must be stressed that an improved regulatory framework is not required simply to reduce the risk of maladministration, environmental degradation, human rights abuses or the mismanagement of hydrocarbon-related revenues, but also to encourage the realisation of the full earning potential of the country’s hydro-
carbon resources.

In her LIMEP address, President Sirleaf acknowledged that “Liberia is underexplored because of a weak regulatory and legal environment.”

By providing a cutting-edge industry-specific regulatory framework and, concomitantly, a level playing field for companies wishing to explore for and produce Liberian oil and gas, the Liberian government would be taking a significant step toward meeting its previously mentioned socio-economic commitments.

It has been estimated that, by 2015, the offshore hydrocarbon resources of Ghana, Sierra Leone, Côte d’Ivoire and Liberia may satisfy as much as one quarter of the United States’ oil demand.

Consequently, it appears there is little time left for Liberia to get its regulatory and administrative houses in order, not to mention the establishment of effective compliance and enforcement mechanisms.

As things currently stand, it appears the Liberian government has an opportunity to fashion and implement regulatory and administrative regimes that can sidestep the many problems that the oil and gas industries of other African countries have infamously endured.

With a fair amount of luck, Liberia may well become one of the few African countries to manage, and benefit from, its oil and gas resources in a praiseworthy manner.

Luke Havemann