FACTBOX-Key political risks in the Gulf of Guinea

DAKAR, Sept 1 (Reuters) - A stretch of West Africa's coast spanning more than a dozen countries, the Gulf of Guinea is a growing source of oil, cocoa and metals to world markets.

But rising rates of piracy, drugs smuggling, and lingering political uncertainty in an area ravaged by civil wars and coups have made it a challenging destination for investors seeking to benefit from the massive resources.

The Gulf of Guinea runs from Guinea on Africa's northwestern tip to Gabon in the south and includes Nigeria [ID:nLDE65S0ZA], Ghana [ID:nLDE65S1SC], Ivory Coast [ID:nCOC952710], Democratic Republic of Congo [ID:nLDE65S0PZ], and Cameroon.

NEW ENERGY FRONTIER?

Gulf of Guinea nations produce more than 3 million barrels of oil per day -- about 4 percent of the global total -- mostly for European and American markets, with the bulk coming from OPEC-member Nigeria (2.2 million barrels per day).

Smaller producers include Equatorial Guinea (300,000 bpd), Congo Republic (310,000 bpd), Gabon (250,000 bpd), Cameroon (66,000 bpd) and Ivory Coast (60,000 bpd).

While many of the region's producers are struggling to maintain output, oil companies believe the deep seas along the coast north and west of Nigeria could be a new frontier.

Ghana is already set to join the ranks of West African oil producers later this year when its Jubilee field comes on line, and Sierra Leone and Liberia are hopeful offshore drilling results will spell oil riches for them as well.

Washington estimates the Gulf of Guinea will supply about a quarter of U.S. oil by 2015 and has sent military trainers to the region to help local navies secure shipping.

What to watch:

-- The results of exploration efforts by Tullow and Anadarko off Ghana, Sierra Leone, Liberia and Mauritania north of the Gulf of Guinea could go a long way to defining the energy potential of the region.

Tullow (TLW.L) announced in August its latest drilling result in Ghana, Owo-1, found another major oil field that it hopes to develop while a well in June, the Mahogany-5, found oil that signified an extension of Jubilee. [ID:nLDE66P086]

Five other wells in Ghana, Sierra Leone, Liberia and Mauritania are expected to be completed by year-end.

-- The security of operations and shipping is a key risk, with piracy on the rise in the area.

-- The security of operating contracts may also cause concern after Ghana's government said last year Exxon Mobil's reported deal to buy Kosmos' stake in the Jubilee field was illegal. Kosmos reported in August the deal was scrapped.

The move in one of the region's most stable countries adds to broader worries in the coup-prone region that leadership changes can trigger contract reviews.

COCOA HUB

Two-thirds of the world's cocoa comes from Gulf of Guinea nations, most of that from No.1 global producer Ivory Coast, and the rest from Ghana, Nigeria, Cameroon and others.

Cocoa output from the four producers during the 2009-10 season is on track to hit a three-year low below 2.4 million tonnes due largely to continued declines in Ivory Coast, but may rebound over 2.5 million tonnes over the next two years if Ghana sticks to its ambitious targets.

The outlook could pave the way for a global supply surplus next year, after fears of shortages helped drive world cocoa futures CCc1 to 30-year highs in December 2009.

The bulk of this year's decline in West Africa will come from Ivory Coast, where plantations are suffering from underinvestment since a 2002-03 civil war.

Ivory Coast's representative to the International Cocoa Organisation said output during the current season would decline to 1.2 million tonnes from 1.223 million in the previous year.

As of end-July, some 1.124 million tonnes of cocoa had been moved from Ivorian farms to the coast for export, according to official figures. Analysts believe this volume is swollen by smuggling from Ghana.

The season ends at the end of September.

What to watch:

-- Ivory Coast's government is keen to revamp the sector but a lingering political crisis has slowed reform efforts. Some progress could be made if Ivory coast sticks to a planned Oct. 31 election date.

-- Official output from No. 2 world cocoa grower Ghana is also expected to slip this year, to below 700,000 tonnes from 710,000 tonnes, though the drop will largely be due to smuggling keeping tonnage of the books rather than a drop in output.

The country has said it is committed to its target of 1 million tonnes of annual output within the next two years.

If successful, the programme could put Ghana in the running to overtake Ivory Coast as the world's top cocoa producer and could help push regional production above 2.5 million tonnes for the first time since the 2007-08 season.

IRON ORE AND OTHER MINERALS

Gulf of Guinea nations -- already home to top bauxite exporter Guinea and major gold producer Ghana -- have attracted billions of dollars of investments from resource firms eager to dig up its vast unexploited resources of iron ore.

"Guinea, Sierra Leone, Liberia, Cameroon, Gabon, Ivory Coast, they all have potential," said John Jorgenson, iron ore specialist at the United States Geological Survey (USGS).

The region could eventually produce nearly 10 percent of the world's iron ore, up from under 1 percent last year, he said.

Investments announced this year alone from BHP Billiton (BLT.L)(BHP.AX), Rio Tinto (RIO.L)(RIO.AX), Vale (VALE.N)VALE.SA and Chinalco amount to around $10 billion.

What to watch:

-- Mining companies are well aware of the risks common to West Africa, contract security being one of the chief worries.

-- Iron-rich Guinea holds unique risks in that it is in an election year which if successful will take it from military to civilian rule. The vote, whose decisive second round is due Sept. 19, will be a green light for investors to re-engage with the country.

Months before the elections began, Rio Tinto and Vale surprised many by saying they would spend billions there, moves widely interpreted as expressions of confidence in Guinea's ability to complete the transition and uphold the contracts.

-- Other risks include tight power generation capacity -- something which has interfered with mining investment in other countries such as South Africa and Chile.

Most notably, Cameroon is hoping to triple power generation by 2020 after shortages forced Rio Tinto's joint-venture Alucam smelter to cut back operations in 2009.

-- Attempts by mineral-rich countries to eke out a bigger share of revenues could also complicate investment. Sierra Leone and Ghana have both moved to raise mining royalties since late last year, anticipating the flood of investor interest.

PIRATES AND DRUGS RUNNERS

Piracy in the Gulf of Guinea is not on the scale of that off Somalia, but analysts say an increase in scope and number of attacks in a region ill-equipped to counter the threat could affect shipping and investment. [ID:nLDE64I1D0]

An attack by gunmen on two ships anchored off Cameroon's major port of Douala in May showed pirates are extending their range beyond the restive Cameroon-Nigeria maritime frontier, where Niger Delta rebels operate.

Cameroon blamed piracy for part of a 13 percent slide in oil production in 2009 to 73,000 bpd. Production has since fallen to 66,000 bpd and is expected to dip further to 55,000 bpd in 2011 before rebounding.

Nigeria, meanwhile, has suffered years of curtailed output due to rebel attacks.

West African drug trafficking is also having an impact on the region's economies. The United Nations estimates that $1 billion worth of cocaine, destined to Europe from Latin America, passed through West Africa in 2008.

What to watch:

-- Narcotics trade. Analysts say the drugs trade is leading to a spike in regional money laundering, crime and corruption.

Experts have warned that West Africans are also consuming more of the drugs flowing through their countries, raising the spectre of rising crime and health problems.

Instability in Guinea-Bissau and Guinea over the last year has also been linked, in parts, to the trade. (Editing by Alison Williams) (richard.valdmanis@thomsonreuters.com; Dakar newsroom +221 33 864 5076))