Angola may become the biggest West African oil producer in 2008

5 May 2008

Luanda, Angola, 05 May – Problems in the Nigerian oil industry are strengthening Angola’s position as the most secure regional producer and, if they continue, Angola should be given the “title” of biggest oil producer in West Africa.

With Angolan production on the rise due to the start of production at important new wells – particularly Mondo and Plutonio – although now restricted by OPEC’s production allocation (1.9 million barrels per day), social instability in Nigeria has caused constant disruption to the industry since the beginning of the year, which last week resulted in the interruption of more than half the supply of petroleum.

In these conditions, “it is definitely a possible scenario” that Angola becomes the biggest petroleum producer in the region, David Fyfe, principal analyst of global oil supply with the International Energy Agency, told Reuters this week.

“Substantial volumes of oil production in the Niger Delta continue to be affected by the problems [rebel attacks and strikes]. With a temporary hiatus in new deep water developments, further problems in the Delta could certainly hamper total Nigerian exports,” he said.

In relation to Nigeria, the Angolan oil industry has the advantage of focusing on offshore production, safe from any acts of terrorism, unlikely anyway given the relative stability enjoyed by the country since the end of the civil war, in 2002.

The vital Nigerian industry, besieged by rebels disputing the control of petroleum produced in their backyard and criminals who sabotage pipelines and steal the oil for illegal exportation, is losing over half its output, at a time when oil prices are at their highest ever,” said Reuters last week.

Although Angola’s main reserves are offshore, which require greater development investments, the fact that security is greater makes for significantly lower operational costs.

Last week’s shut-in affected 1.3 million barrels per day, including the production by major refineries of Exxon Mobil and Royal Dutch Shell in the Niger Delta, the main oil producing region.

Analysts believe that in May Nigerian exports will fall to 1.9 million barrels, while Angola, that has a lower allocation than Nigeria, has been exporting over 1.9 million barrels and “threatens” to reach 2 million, particularly to meet the demand for Nigerian oil.

Angolan crude is of the “heavy” type with a higher sulphur level than the Nigerian, though its price is generally lower.

An analyst speaking anonymously to Bloomberg said that the current unrest in Nigeria “should generate greater interest in the more stable Angolan production from those who can run the lighter [than Nigerian] Angolan [oil] grades.”
For this year, production at three new Angolan sites is expected to begin, that should represent additional production capacity of approximately 350 thousand barrels per day.

The biggest of these, Mondo, operated by the North-American Exxon Mobil, should pump out close to 100 thousand barrels per day when up to speed.

BP’s Plutonio site started production in October, and in the next year should see its output rise by nearly 200 thousand barrels per day.

At the same time the allocation process is expected to get under way for 10 new blocks for petroleum exploration, namely in the onshore fields of Cabinda and Kwanza.
The process will also include concessions in blocks 9 (shallow water), 19, 20, 21 (deep water) as well as 46, 47 and 48 (ultra deep water).

Angola was the main oil supplier to China in the first quarter, overtaking Saudi Arabia, due to an increase of 55 percent in exports, according to figures recently released by Chinese Customs.

The biggest unknown in the Angolan petroleum industry is currently the durability of its reserves – 17.6 years, at the current rate of extraction, according to a recent study by Espirito Santo Research released in Luanda and Lisbon.

The reserves, according to the same source, are estimated at 9 billion barrels, 7.5 percent of the total in Africa, but with new investments in research and development that could reach 30 to 40 billion barrels.

For this to happen, data from Sonangol indicates that an investment of nearly US$66 billion would be needed over the next three years – in research, exploration and development – given that the main potential reserves are in deep and ultra deep waters. (macauhub)