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Angola Oil and Gas

Angola is the second-largest oil producer in Sub-Saharan Africa behind Nigeria, and recent exploration suggests that Angola's reserves may be larger than initially estimated. Successful exploration in Angola's pre-salt formations continues to drive optimistic oil production forecasts for the country, and the Angolan government is targeting 2 million barrel per day production levels by 2014. With the first cargo of liquefied natural gas (LNG) scheduled to leave Angola in early 2013, the country is in a position to capitalize on the high demand for LNG to bolster its export portfolio.

The majority of Angolan crude oil is medium- to light-crude (30 degrees - 40 degrees API) and has low sulfur content (0.12 percent - 0.14 percent), making it ideal for export. With domestic consumption of under 100,000 bbl/d, nearly all of Angola's oil production is available for export. In 2011, Angola exported approximately 1.53 million bbl/d, with the largest shares going to China (38 percent) and the United States (14 percent). In 2011, Angola was the second-largest supplier of oil to China (behind only Saudi Arabia) and the 10th largest supplier to the United States. All told, Angola exports nearly 80 percent of its total oil production.

Angola's rapid rise as an energy producer over the past two decades came despite a civil war that lasted until 2002 and without many of the advantages found in other energy-rich regions. In particular, Angola lacked the appropriate infrastructure and the regulatory oversight necessary to operate a modern energy sector. With the end of the Angolan civil war in 2002, and steady investment in the country's energy infrastructure, the future of Angolan production is bright. Challenges remain—notably the tensions in the Cabinda province—but as the demand for oil continues to rebound from the global recession, Angolan crude will be an important resource for China, the United States, and other major energy importers.

Since becoming a member of the Organization of the Petroleum Exporting Countries (OPEC) in 1997, Angola's production levels have been subject to oversight by the group. However, Angola has not always acceded to the group's demands, and Angola's leadership plans to continue boosting production of oil and natural gas over the coming decade to help increase government revenue. In particular, Angola's offshore pre-salt formations and the construction of natural gas-processing facilities are viewed as potentially lucrative sources of future revenues.

Angola's economy is almost entirely dependent on oil production, as oil exports accounted for approximately 98 percent of government revenues in 2011 according to the International Monetary Fund. High international oil prices will be important for the future prospects of exploration, production, and exports of oil and natural gas, and will directly affect Angola's government spending. In recent years, roughly three-quarters of Angola's total government revenues came from the energy sector.

With a gross domestic product (GDP) of over $104 billion in 2011 on the strength of its oil exports, Angola has the third-largest economy in Africa. The International Monetary Fund estimates Angola's GDP per capita in 2011 was approximately $5,900 in current international dollars; however, much of the oil wealth in the country does not find its way to the average citizen, which is one of the reasons why nearly 60 percent of primary energy consumption consists of solid biomass.

The August 2012 presidential election again brought the country's energy sector into the public discourse, as the management of profits from the export of crude oil became an issue of some importance. Over the past decade, Angola made progress towards better capturing and distributing the profits associated with its hydrocarbon industries—notably through its Oil Investment Fund—but opposition voices disagree on the level of success the country has made. A policy of "Angolanization" intends to help the Angolan populace become more integrated into the country's energy sector, and to obtain a greater share of the wealth being generated by the country's oil exports. Additionally, in October of 2012 plans for a $5 billion sovereign wealth fund were announced. While such programs have not yet achieved great success, Angolans remain optimistic that the government's efforts will succeed.

According to Oil & Gas Journal estimates for the end of 2011, Angola had proved reserves of 9.5 billion barrels of crude oil. That figure is the second-largest in Sub-Saharan Africa behind Nigeria, and ranks 18th in the world. Angola's crude oil is light and sweet, making it ideal for export to major world markets like China and the United States. Exploration and production in offshore Angola is advancing at a rapid pace, and foreign investors are beginning to consider some onshore opportunities economically viable. Exports continue to drive Angolan oil production, but the development of new refining capacity could help ease domestic demand shortages that have plagued the country since the end of the civil war in 2002. Prospects for growth in the oil sector are good, but instability and the threat of conflict continue to temper expectations.

Exploration in Angola's offshore blocks continues to be successful, and recent forays into onshore blocks have been met with positive results. Angola's position as the second-largest producer of crude oil in Sub-Saharan Africa, and as a member of the OPEC, means that international oil companies are already very familiar with the country's resource endowments. Nevertheless, recent drilling success in Angola's pre-salt formations created a palpable buzz in the industry.

With Angola's crude being sweet (low in sulfur) and light, it is well-suited for exports to the United States, China, and other large importers, and the possibility of significant hydrocarbon resources in pre-salt formations has potential investors intrigued. This is due to the geological similarities between Angola's pre-salt formations and those of Brazil, which have remained largely unchanged since present-day South America and Africa split 165 million years ago. Because of the similar geology on the east coast of Brazil and the west coast of Angola (and its neighbors), many petroleum geologists believe that the hydrocarbon formations of the two areas will be similar.

Angola's rise as a major oil-producing nation came relatively recently due to the country's long civil war (1975-2002), which restricted exploration in the country. Once Angola began to stabilize its oil production increased dramatically, more than doubling from 896,000 barrels per day (bbl/d) in 2002 to 1.84 million bbl/d of total liquids in 2011. Angola briefly challenged Nigeria as the top oil producer in Sub-Saharan Africa in 2009, but Angola's total liquid production declined slightly in 2010 and again in 2011. Crude oil production in Angola slipped to 1.79 million bbl/d in 2011, but the additions from new projects like the Kizomba Satellites should help Angola reverse that trend. These declines came as a result of regular maintenance and normal decline in the country's older fields, and Angola's government is targeting a return to the 2 million bbl/d production-levels it achieved in 2008 by 2014.





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