Forecasts show that the oil market will go from surplus to surplus in the first quarter of 2022. Meanwhile, according to officials briefed on the matter, the government of US President Joe Biden is set to announce a plan to release reserves from the Strategic Petroleum Reserve in tandem with China, India, Japan and South Korea. The move is designed to ease this year's rise in fuel prices. The hint of a possible release of crude oil from US strategic reserves may be enough to hold prices high for now. However, the OPEC+ officials who have been doing as much as they can to restore price stability at levels acceptable to the market at large, warned they’re likely to respond to plans by the world’s largest oil consumers to release oil from their strategic stockpiles, setting up a fight for control of the global energy market.
As a matter of fact, oil and gas fields are becoming more complex and less accessible, making resources more and more difficult to find and develop in a sustainable way. Furthermore, the increased scrutiny and pressure on companies from investors and society, as well as uncertainties over long-term demand for fossil fuels, could leave assets, currently estimated to be worth trillions of U.S. dollars, stranded in the future. Moreover, in addition to the fact that this year's oil prices are now nearly double compared to the 2020 average, the energy industry faces additional impairments in the coming years and decades, this time due to the investor pressure to slash emissions and start accounting for changes to energy demand in the transition to low-carbon sources. All industries are under pressure to realign their accounting and financing practices to climate change-related risks, but none more so than the large companies in the energy sector whose core business continues to be oil, gas, and coal. It became obvious that producing oil and gas in a sustainable way also means being able to adapt to evolving requirements and limitations in the industry while capitalizing on the opportunities it offers.
Nevertheless, according to the Sustainable Development scenario put forward by the International Energy Agency (IEA), oil and gas are set to continue playing a vital role in meeting the world’s energy needs for decades to come, accounting for nearly half of the primary energy mix in 2040. OPEC also shares the view of most analysts that, over the next 20 years, world energy supply will continue to rely primarily on fossil fuels, with oil retaining its leading position.
Angolan oil and gas market
Angola is the second-largest oil-producing country in sub-Saharan Africa and an OPEC member with an output of approximately 1.3 million barrels of oil per day (BPD) and an estimated 17,904.5 million cubic feet of natural gas production. Given the Covid-19 pandemic and Angola’s commitment to follow OPEC’s oil production cuts to help stabilize global oil prices, the country’s production was expected to decrease further. However, announcements of investments and discoveries over the last year were expected to boost production -the country holds 9 billion barrels of proven oil resources and 11 trillion cubic feet of proven natural gas reserves, which represent great potential for further economic development and significant business opportunities. Further, the country has begun to implement reforms, which has led to announcements of new investment and expects to increase production in the medium to long term.
The oil industry in Angola is dominated by the upstream sector – exploration and production of offshore crude oil and natural gas. Almost 75 percent of the oil production comes from offshore fields. Angola produces light sweet crude oil containing low volumes of sulfur, suited for processing light refined petroleum products. The oil-rich continental shelf off the Angolan coast is divided into 50 blocks but the number of blocks is expected to double with the auctioning of new blocks from 2019 to 2025. Although the country is a leading oil producer in the region, it currently imports 80 percent of its demand for refined petroleum products, including gasoline, diesel, aviation fuel, Jet B for gas turbines, oil fuel, asphalt and lubricants. Only 20 percent of refined products are sourced locally. The refining of crude oil and distribution of refined oil remains well below domestic demand. To reduce the country’s dependence on imported refined petroleum, the Government of Angola has plans for the construction of three national refineries and the expansion of an existing plant.
In 2018 the Government of Angola introduced legal reforms, began restructuring the state oil company Sonangol and created the national concessionaire, ANPG in response to stalled investments in 2014 as oil prices dropped significantly and foreign currencies remained limited. These reforms were the result of a Presidential Task Force in 2017 and which led to the enactment of two new laws and three amended presidential decrees.
Major international oil exploration and production companies active in Angola include Total, with 41 percent market share, Chevron with 26 percent market share, Exxon Mobil with 19 percent market share, and BP with 13 percent market share. Other international players include ENI and Equinor. Sonangol also operates through its subsidiary Sonangol E&P.
Onshore activities are very limited. Somoil, a privately-owned company, was planning to produce around 5,000 BPD in Soyo, in northern Angola, but operations have been delayed. Onshore blocks in the Kwanza basin were offered in late 2015, but final awards were cancelled, and the blocks should be re-bid in the near term. U.S. contractors active in the Angolan upstream market include Halliburton, Baker Hughes a GE Company, FMC Technologies, Oceaneering, Schlumberger and Weatherford, just to name a few. Other countries supplying technology and providing services and investing in Angola include the UK, Norway, France, Italy, Korea and China.
To date, the downstream sector – refinery of crude oil and distribution of products derived from crude oil – remains well below domestic demand. The single oil refinery in Luanda with an installed capacity of 65,000 barrels per day (BPD) is being operated by Italian oil company ENI, under a joint venture agreement with state-owned company Sonangol. Sonangol is giving up its monopoly of the distribution of refined hydrocarbons, to allow the entry of new players like Total, and expand the network of gas stations throughout the country. Total Marketing & Services Angola’s CEO announced that the company will invest USD 100 million to construct 50 fuel stations across Angola. The company started in 2020 and is rebranding former Sonangol gas stations as well as building new ones.
However, the natural gas industry requires significant investment to capture its full economic potential. To this end, the Government of Angola has stated that increasing its refinery capacity is a top priority for the economy. The Angolan Ministry of Petroleum issued a public tender for the construction of a refinery with a capacity of 100,000 bpd in the province of Soyo in 2019. The Quanten Consortium, comprised of three American companies, won the project in March 2021. There is also a large potential of untapped oil reserves in the Congo basin and in the Kwanza basin, mostly at deep and ultra-deep waters. The ANPG, which oversees auctions and licenses, announced the auctioning of more than 50 new blocks of oil and gas in offshore and onshore basins during the period spanning 2019-2025. Moreover, the Ministry of Energy and Water announced Angolan government targets for natural gas to supply 21 percent of Angola’s energy needs by 2025.
Angolan energy transition adopted approach
The global push to reduce carbon emissions and phase out fossil fuels will have significant impacts on hydrocarbon-dependent countries in Africa. Countries such as Angola, with an 80% reliance on oil serve to be highly affected if they are forced to abandon the resource. Therefore, stakeholders are calling for an adapted, Africa-centric approach to the energy transition, one in which African policymakers and industry leaders have a say.
However, according to OPEC Secretary-General Mohammad Barkindo, despite decelerating oil demand growth in the second part of the forecast period and strong growth in other energy sources, such as other renewables, gas and nuclear, oil is expected to retain the highest share in the global energy mix during the entire period. In 2020, oil accounted for 30% of global energy requirements. Alongside post-pandemic oil demand recovery, the share of oil is anticipated to gradually increase to a level of more than 31% by 2025, before it begins a decline and reaches 28% by 2045, according to OPEC’s outlook.
Despite being committed to oil and gas, using decarbonization technologies to drive the transition, Angola has also expanded its renewable energy objectives with new programs and initiatives driving progress. During the continent’s premier energy event, African Energy Week (AEW) 2021 taking place this November, and representatives from Angola’s national oil company, Sonangol, provided insight into how the company is moving forward with the energy transition. With a focus on the role of oil and gas in the energy transition, speakers emphasized that decarbonization strategies, rather than resource phaseouts, will prove more effective in reducing emissions and protecting the environment. While energy poverty in Africa remains a significant threat and in urgent need of addressing, an adapted decarbonization approach will be significant for the country and continent as a whole.
An insight into the country’s hybridization project – aimed at expanding renewable energy utilization in the country, is proving that Angola is focused on driving the energy transition but is calling for an adapted approach. Through the continued exploitation of its oil and gas reserves, utilizing decarbonization technologies, Angola stands to benefit from its significant resources, alleviating energy poverty while pursuing cleaner energy sources.
Angolan policies change Africa’s energy future
In the last five years, Angola’s energy mix has changed considerably. The outlook for the energy and natural resources sector in the next 5 years points to Angola 2025's Long-Term Strategy which foresees a 25% growth in energy consumption to meet the needs of the Industrial and Tourism Development Hubs. The strong growth perspective of the industrial sector is supported by more than 160 specific structural projects, at different stages of development. With a particular focus on sustainability, and on reducing carbon emissions, the energy and natural resources landscape would hopefully change over the next five to ten years. It is foreseeable that a series of decisions may be taken by the government in this context, such as an increase in the average rate of electrification, at the national level, optimizing the location and availability of existing thermal generation, as well as increasing installed capacity, particularly in new and renewable energies, with a view to replacing fossil fuels; the progressive replacement of public investment in electricity generation by long-term private financing, in where public financing will be reserved for investments that have a structuring nature which results in medium and long term positive impacts in one or more sectors.
Main policy challenges refer to converting agreements into prepaid and universal medium voltage telemetering (distribution); Implementing the Commitment Program for Solar Energy, solar hybridization of thermal power plants, thermal biomass power plants in the east, solid urban waste plants in Luanda and Benguela, launching the first wind farms in Angola; Investing in renewable energy is seen as a priority for the government, with a target capacity of 500 MW by 2022. The intention was to launch an ambitious energy program for both new and renewable projects.
The Angolan Government has created investment incentive models to be adopted in the renewable energy sector. The plan states that by 2025, at least 7.5% of the electricity generated in the country will come from renewable energies.
It is essential to plan and implement the energy transition in Angola according to an appropriate scale and time horizon. In this regard, oil revenues are expected to finance projects that increase the installed capacity of renewable energy in the short and medium term.
Angola as the key pillar of energy security
The comments of the Angolan Minister of Mineral Resources, Petroleum and Gas, H.E. Diamantino Azevedo, that OPEC+ members should not accelerate phased production increases, despite growing pressure from importers, come after aforementioned demands for OPEC+ members to increase oil supply beyond the gradual resumption plan, with a view to lowering gasoline prices and curbing inflation. In that sense, OPEC + commitment to achieving and maintaining market also brings us to the important issue of energy security, which is closely linked to market stability and has gained greater prominence on the international political agenda over the past year or so, in the wake of the recent market volatility. Here we should take into consideration that Angola has been a member of OPEC since 2007 and has stated its commitment to full compliance with the global agreement to reduce supply and fortify oil prices, following the historic decision to cut supply in March 2020. Producing 1.37 million BPD and an estimated 1.79 million cubic feet of natural gas before Covid-19, Angola represents a key pillar of market stability on the continent, as sub-Saharan Africa’s second-largest oil producer after Nigeria.
Moreover, clean and safe energy is a vital requirement for developing countries as they seek access to modern energy services in their often-protracted struggle for socio-economic development, sometimes from a state of extreme poverty. Consequently, the example of Angola, with its’ comprehensive and balanced approach to implementing the three pillars of sustainable development — economic development, social development, and environmental protection — is required.