Angola Is Part Of OPEC - A Survey.

Angola, which on Jan. 1, 2007 became the 12th member of OPEC, now has an OPEC output quota of 1.517m b/d and a capacity to produce 2m b/d of crude oil which on 2010 will reach 2.2m b/d and that level is expected to remain until 2013. From Jan. 1, 2009, Angola took OPEC's presidency for this year, with the post assumed by its Petroleum Minister Jose Maria Botelho de Vasconcelos. Angola's proven oil reserves have more than doubled to 10 bn barrels by early 2009.

Angola's actual production in 2009 will average about 1.65m b/d, according to an announcement on Feb. 25, 2009, by the state-owned Sociedade Nacional de Combustiveis de Angola (Sonangol). Although this is above the OPEC-set quota, Angola has been warned by international oil companies (IOCs) operating in the country that output cuts affect their current and future E&P investments. In 2008 Angola was producing about 2m b/d. Angola believes the price for OPEC crude oil should be around $70-$75/b, in line with a proposal made in late 2008 by Saudi Arabia. But market forces have pulled paper WTI down to a range of $34-45/b in view of a global recession, down from a peak of $147.27/b on July 11, 2008.

Falling world crude oil prices have compelled the government to revise its annual budget but until now no new figures have been announced. The 2009 budget approved by parliament in December was based on a crude oil price of $55/b, as in the 2008 outlay, and the assumption that Angola's output would average 2.1m b/d - up from 1.95m b/d assumed in 2008.

In terms of capacity, Angola has overtaken Nigeria as the largest oil producing country in Africa. But because it is holding this year's OPEC presidency, Angola is bound morally to be more compliant with the organisation's output discipline than other members - some of which are producing over their quotas.

Ecuador in 2007 rejoined OPEC, and has a quota 434,000 b/d. It left OPEC in 1992 after nearly two decades of membership (see gmt9EcuadorMar2-09). Indonesia at end-2008 suspended its OPEC membership due to a decline in its crude oil production, having become a net oil importer; but some of its officials have since indicated the country could return to the organisation if and when its production will increase. (Indonesia will be serialised in APS Review's No. 10-13 issues).

Angola has climbed the ladder of regional power configurations and posed a challenge to the stranglehold of the World Bank and IMF. Impoverished parts of Africa have for decades been the experimental laboratories of Western powers and international financial institutions. When Angola emerged from the shadows of internal war and began pumping out its offshore oil wealth, the IMF and the World Bank were shown the door by the government in Luanda. As the sixth-largest crude oil exporter to the US, Angola had enough traction to avoid being pressurised by the Washington Consensus instruments into submission. The profile of Africa, crushed under the hammer of the liberal aid enterprise, would look radical if the other big oil powerhouse, Nigeria, followed in Angola's footsteps.

Angola became the top crude oil exporter to China in the first quarter of 2008, staying ahead of Saudi Arabia, Iran, Oman and Russia. China, the No. 2 energy consumer, increased its purchased to overcome its domestic shortage. Angola then supplied 8.48m tons of crude to China. But since the global crisis from last autumn, Chinese oil demand fell considerably and its purchases from Angola now are lower.

India, Asia's third-largest oil consumer, has been focusing on acquisition of petroleum in Angola after failing to secure supplies closer to home. On April 1, 2008, Indian Oil Minister Murli Deora was quoted as saying: "Angola is the next country where we are going to concentrate. We lost because our bid wasn't good enough [in previous auctions]. We have learned from this". State-run explorers from India and China have submitted bids for oil blocks in Angola as the world's two most populous nations need imports to sustain economic growth. India's oil shortage has spurred Deora to turn to Angola after losing out to China in $10 bn of auctions.

Consuming about 150,000 b/d, Angola is set to export 1.5m b/d of crude oil in March, down from 1.6m b/d in February due to shipment delays and OPEC supply curbs. March exports will exclude the loading programme for distillate-rich Palanca crude and reflect delays to shipments of Plutonio. Plutonio, one of the new oilfields in Angola, went on stream in September 2007, but it has suffered from disruptions and was shut for the whole of September 2008. Although production restarted on Oct. 10, cargoes were delayed in February and will be carried over into March. There will only be three new cargoes, or around 92,000 b/d, loaded in March, half the usual amount. No cargoes of Palanca were on Angola's preliminary loading programme but there would probably be two. That would add around 61,000 b/d to exports, taking output above the OPEC target. Most other Angolan grades were loading at steady levels from February with five cargoes of Cabinda and Girassol, eight Nemba and seven Dalia cargoes to be shipped. Heavier crude oil grades like Dalia and Hungo have been in higher demand than lighter, gasoline-rich West African crude like Nigeria's Qua Iboe due to the drop in US demand for fuel.

ExxonMobil, Chevron, BP and others have poured billions into Angola in the last decade to unlock petroleum resources in the country's deep waters, where the vast majority of the oil is, and the pay-offs are finally coming in. In recent years, Angola has become the fastest-growing source of exports to the US and, along with Nigeria and smaller West African countries, it is about to become an important component of American energy security.

By 2010, West Africa will account for one of every three new barrels pumped worldwide. By 2015, the US is projected to import a quarter of its oil from Africa, up from 15% in 2007. Angola's promise stems from a string of big discoveries about 160 km offshore that have increased the country's oil production capacity ten-fold since the mid-1970s.

Angola is at the crossroads of today's energy geo-politics. It has become the latest stage in a global rivalry playing out among Western, Russian and Chinese oil companies. China has identified Angola as a promising source in its rush for energy resources, providing billions in loans and development aid in return for favourable treatment of its oil interests.

ENI of Italy in 2006 bid a startling $902m to secure the rights to drill offshore, then the highest fee ever paid by an oil company. After ENI's bid, Chinese state-owned Sinopec and Sonangol jointly offered $2.2 bn for two other offshore blocks. While oil companies talk at length about how welcoming the government is to foreign investors, they are much more circumspect when it comes to the government's lack of transparency or the history of corruption among its leaders.

Angola suffered through a devastating civil war for 27 years and became a focus of Cold War proxy battles between Western and Soviet allies in Africa. When the fighting ended in 2002, an estimated 500,000 people had died and much of the country was in ruins. These days, Angola still has a terrible record on corruption and ranks on the lowest rungs of nearly all development indicators.

Oil is the lifeblood of the Angolan government, providing 90% of the country's export revenues. The industry is growing fast - since the 1980s, the petroleum industry in Angola has grown at an average rate of 25% a year. Conservative estimates put Angola's oil reserves at 10 bn barrels. However, with the recent discovery of several new enormous offshore oilfields, figures as high as 20 bn barrels are being quoted. Angola is quite literally swimming in oil.

It was the Belgian company, Petrofina, which first discovered Angola's oil; in 1955, offshore reserves were found in the Kwanza Basin. The Portuguese colonial authorities did not hesitate to exploit this wealth. They set up Fina Petroeos de Angola (Petrangol), which they owned jointly with Petrofina. The Portuguese also built an oil refinery on the outskirts of Luanda. This old dilapidated refinery still handles most local crude oil processing.

Yet, it was not until 1966 that Angola's true oil-producing potential was realised with the discovery of substantial reserves off the coast of Cabinda. The enclave has an oil haven, as production dominates the economic life of the province. Then, after independence in 1975, Sonangol was set up to manage all fuel production and distribution. Since 1978, Sonangol has been authorised to acquire up to a 51% interest in all petroleum exploitation activities. Angola's largest oil production area is Chevron's Block Zero off Cabinda, followed by Blocks 1 to 4 off the northern coast near Soyo.

There are 46 offshore and onshore blocks under licence. However this situation is set to change. The most exciting news for the Angolan economy in recent years has been the discovery of massive new oilfields, most of which remain unexploited. The most significant of these are the Kuito, Benguela, Belize and Landana fields in Chevron's Cabinda Block 14; Girassol, Dahlia, Rosa and Lirio fields in Total's Luanda/Soyo's Block 17; and Kissanje, Marimba and Hungo fields in ExxonMobil's Soyo's Block 15.

Total has brought the giant deep-water Girassol field on stream. Pumping started at Girassol-2 in December 2001 at 35,000 b/d but has surged to 205,000 b/d. Total has used highly sophisticated techniques to bring Girassol-2 and Girassol-C into action. It has a giant oil rig, using under-water robots to lay pipes from the well-heads.

Concessions: Sonangol mainly enters into production sharing agreements (PSAs), although most previous agreements were joint ventures (JVs). Minister Vasconcelos explains why Sonangol has now changed its policy when striking deals with IOCs: "We are a Third World economy, and have difficulty obtaining capital. We therefore prefer PSAs because government investment is only required once a discovery has been declared economically viable".

Sonangol is particularly keen to award concessions for its deep-water sites which require massive investment, despite the existence of large tracts of open shallow-water acreage. "This is because all the fields in shallow waters are being depleted", notes Sonangol's Vicente. Declining production is also being reported in some of Cabinda's onshore blocks. The volume of oil discovered in the Lower Congo and Kwanza Basins, however, far outweighs the declining resources in some of Angola's onshore and shallow-water fields.

In early 2009, Sonangol offered 14 blocks, including tracts in deep-water and ultra-deep water. Senior Sonangol geologist Francisco da Cunha says these include 10 blocks offered in a postponed 2007 licencing round. These include ultra-deep water Blocks 46, 47 and 48 in the Lower Congo Basin, and deep-water Blocks 19, 20 and 21 in the Kwanza Basin.

A potentially lucrative by-product of oil production is natural gas. At present, about 85% of gas is flared. The government is implementing strategies to reduce this, and aims to end all gas flaring by 2010. It plans to commercialise gas by exporting it in LNG form to the US, South America and Europe, and also by converting it locally for domestic consumption.

Angola LNG Ltd - a JV of Sonangol (22.8%), Chevron (36.4%), BP (13.6%), Total (13.6%) and ENI (13.6%) - is having a 5.2m t/y LNG plant built by Bechtel to be on stream in early 2012. This project includes storage and marine loading facilities, and units to produce LPG and condensate. Bechtel was contracted for this in February 2008.

The plant, adjacent to the town of Soyo in the Zaire Province, will use ConocoPhillips' optimised CascadeSM process under an accord signed on Feb. 1, 2008. The plan is to receive about 1,000 MCF/day of associated natural gas.

A consortium of Mitsui (34%), NYK Bulkship (33%) and Teekay (33%) in early 2008 signed an agreement with Angola LNG to supply four 160,000 cm LNG carriers from late 2011.

Part of the LNG is to be sent to Gulf LNG's Clean Energy regasification terminal in Mississippi for sale in the US. This terminal will be in service by September 2011. Gulf LNG has secured two 20-year contracts with Angola LNG and ENI, to deliver LNG.

ENI has another agreement to be part of a second gas consortium, led by Sonagas. This consortium will evaluate existing gas discoveries and explore further potential in the Angolan offshore, with the objective of supporting the feasibility of a second LNG train. This JV involves Sonagas (Operator, 40%), ENI (20%, technical partner to the operator), Gas Natural West Africa (20%), Galp (10%) and Exem Exploration and Production BV (10%).