Angola joins OPEC: The new global oil supply picture - Jan 07

Source: OPEC_RP070102 1/19/2007, Location: Europe

Angola’s oil industry has developed progressively since first oil was produced in the late 1950’s. Over the decades, theindustry has shifted from onshore to offshore operations, and more recently to deep and ultra deepwater with greatsuccess. By 2005, over 20 billion barrels of oil have been discovered (proven and probable) of which 6 billion have beenproduced. Significant discoveries have been made particularly in deepwater and this represents the largest potential forundiscovered oil.

In terms of industry structure, the Petroleum Ministry regulates the State oil company, Sonangol, as well as the othercompanies operating in the country. Sonangol is the sole concessionaire, whilst international companies operate underPetroleum Sharing Contracts (PSCs) in which the state company is the license holder and multinationals operate thelicenses as contractors. Only one license remains under a concession agreement.

In 2005 Angola’s oil production averaged 1.26 mb/d, most of which came from fields in shallow water and deepwater.There are several producing licenses, but three (i.e. Block 0, Block 15 and Block 17) account for the bulk of theproduction. International companies with operations in Angola include most major companies, but Chevron, ExxonMobil,and Total have the largest operations. The country’s oil output has risen rapidly over the last few years with the start ofnew deepwater fields. The latest estimate (December 2006) puts total oil production at 1.5 mb/d, double the level of 2000.

Angola produces mainly crude oil of predominately medium to light API (range 28-38°) and low sulphur(range 0.12-0.71%). In terms of exports, the key destinations are Asia, mainly China, and North America, primarily theUSA. The typical cargo size is 1 mb for exports handled from deepwater Blocks 15 and 17, and more than 600,000 barrelsfor cargoes departing from the Malongo terminal. Generally, the principal exports include Cabinda, Girassol, Hungo,Kuito, Xikomba, Nemba, Palanca and Kissanje blends. All of these tend to trade at a discount to dated Brent. Most of theoil produced is exported as crude; only a small refinery with 39,000 b/d of capacity is needed to meet all of the country’sdomestic requirements.

On 1 January 2007, Angola became the twelfth Member of OPEC. Accordingly, non-OPEC supply, OPEC production, andrequired OPEC crude categories have been reclassified in the MOMR retroactively to ensure consistency in the comparisons.From now on, the output of Angola will be shown in the monthly figures of OPEC producers and will no longer be part ofthe non-OPEC supply forecast; additionally, future increases resulting from new projects will be reflected in the capacity ofOPEC Member Countries when these are published in this report or in other sources such as OPEC Website.

As would be expected, Angola’s move into OPEC has reduced the base level for non-OPEC supply. As a result, non-OPEC supply in 2006 is estimated at 49.6 mb/d, representing a growth of 0.6 mb/d over 2005. For 2007, non-OPECsupply is expected to average 50.9 mb/d representing a growth of 1.3 mb/d over 2006. Concurrently, OPEC crude andother liquids have been expanding, and OPEC now accounts for approximately 42% of world oil supply (2006 estimate).Average OPEC-12 crude production was 31.12 mb/d in 2005 and 30.9 mb/d in 2006.

The base level for the required OPEC crude has also increased. The new level is now assessed at 30.3 mb/d for both 2005and 2006. Looking at 2007, the required OPEC crude is estimated at 30.1 mb/d. Similarly, OPEC capacity level is nowlarger whilst near-term expansions are stronger. It is estimated that total OPEC capacity excluding Iraq averaged31.1 mb/d in 2005 and 33.8 mb/d in 2006. In the medium term, OPEC crude capacity (excluding Iraq) is expected toincrease to 36.9 mb/d by 2010.

In addition to the historic decision to welcome Angola as a Member, the OPEC Ministerial Conferencers in Abuja alsoagreed — in anticipation of current market conditions — to cut production by 500,000 b/d from 1 as of February, on top ofthe reduction already decided at the Doha meeting. Without a doubt, the inclusion of Angola will strengthen the capabilityof OPEC to fulfilling its objectives and help to further stabilize the market. As these timely actions clearly demonstrate,OPEC is closely monitoring developments and stands ready to take further decisions as necessary in line with their ongoingcommitment to stabilize the oil market.


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