Angola is the second biggest producer of crude oil in Africa. A combination of intensified oil exploitation in the country and damage to the oil infrastructure in the Niger delta due to attacks from anti-government insurgents, enabled Angola to temporarily surpass Nigeria in the oil production stakes in 2008, but Nigeria regained its top position and is expected to produce 2.6m barrels per day in 2012.
However, to assert that oil is the Angolan economy would be no overstatement – exportation of oil is by far the most important element in the Angolan economy. It constitutes 90% of the country’s exports and 80% of its government revenue.
Moreover, the country’s oil production and capacity is set to increase. Oil output was anticipated by the government to reach 1.84m barrels per day in 2012.
The continuing surge in oil production is partly due to new offshore projects coming into fruition. They include Pazflor, at deepwater offshore block 17, 150km off the coast of Angola, which is operated by Total in partnership with Statoil, Esso and BP.
The country has plans to increase Pazflor’s June exports by one cargo from May to seven. This would be the project’s largest output since it was initiated in October 2011.
Another project which is expected to ramp up oil output is Plutao, Saturno, Venus and Marte (PSVM), which is anticipated to have output peaking at 150,000 b/d by 2013–2014.
The acceleration of exploration activities is also anticipated to add to Angola’s already impressive oil reserves, currently estimated to be between 10 and 13.5bn barrels.
Gas production, which is tied to oil production, can also be expected to increase in Angola. Estimates put gas reserves above 11 trillion cubic feet.
The expected boost in output levels is partly due to projects with notable gas production tied to them getting under way. It is also partially due to the fact that significant efforts have been made to reduce gas flaring in the country.
Exportation outlook is promising: Angola LNG is expected to start regularly exporting to Asia and Europe, rather than the US, due to higher prices in the former regions, from June following shipping tests.
And Angola’s LNG plant in Soyo, which is now in its advanced stages, also hit the headlines in May; its annual production is anticipated to reach 5.2m metric tonnes.
Western oil firms dominate stakes in Angola’s oil field. They include the two American firms, Chevron Texaco and ExxonMobil, the French company Total, British oil giant BP and Italian firm Agip Eni.
Chinese firms are also jockeying for oil equity rights in exchange for no-strings loans and credit lines. However, experts predict that China is not likely to make any dramatic progress in their struggle for more expansive oil rights as its oil companies are said to lag behind when it comes to deploying technology and know-how to navigate Angola’s sprawling and treacherous undersea depositories.
Moreover, it has been reported that the Angolan government has sought to impose limits on Chinese operations in the country through its subsidiary active within the country, Sonangol Sinopec.
In contrast, downstream production is likely to remain modest in Angola in the immediate future. There is currently only one refinery in Luanda. There are, however, plans to build a new refinery, known as SonaRef, in Lobito.
Commissioning at the end of the $8bn project is scheduled to take place by 2016. It is estimated that SonaRef’s refining capacity will add up to 200,000 b/day with the overwhelming majority of its production being harnessed for domestic consumption.
By far the single biggest player in Angola’s oil and gas industry is the state-owned oil firm Sonangol.
The firm, which dominates the country’s oil landscape, became the national oil company in 1976. Sonangol has huge economic clout – it is estimated that the firm has more than 5m barrels of both onshore and offshore oil reserves.
Moreover, Sonangol’s acquisition of petroleum reserves looks set to only increase as new discoveries currently override consumption massively.
Sonangol is accused of having a weak corporate governance structure and keeping irregular accounts.
It has also been criticised for alleged poor oversight of its oil revenues. Sonangol also attracted criticism in 2001; although oil revenues are meant to be paid into a specific account administered by Angola’s state bank in Angola, in 2001 Sonangol announced that it would no longer comply with this protocol.
According to a report by the Development Bank of South Africa, since then tax underpayments and arrears to the government have systematically characterised management of its national oil revenues.
Sonangol has, nonetheless, shown some willingness to reform.
Firstly, it is now ring-fencing its concessionaire activities and has audited its quasi-fiscal endeavours, according to the Development Bank of Southern Africa.
Wider reforms across the sector have also been noted. For example, international auditors are now permitted to carry out annual audits of the country’s oil industry and the oil-bidding procedure is now more transparent.
Yet questions remain over whether the oil-boom will supply Angola with reliable growth.
“Although there is some diversification taking place, the economy remains dominated by oil and, as such, vulnerable to fluctuations in global oil prices,” says Lisa Lewin, head of sub-Saharan Africa Analysis at BMI.
“Even if oil prices remain stable, we expect GDP growth to be largely determined by trends in the oil sector, since output in that industry comprises a significant share (around 50%) of the total economy.”