Global Policy Forum

Angola: Oil-Rich but Dirt-Poor


By Jad Mouawad

International Herald Tribune
March 20, 2007

Angola, which shared the stage with the world's most powerful oil-producing nations at its first OPEC meeting here last week, is an unlikely candidate to be the darling of the global oil industry. An underdeveloped, war-scarred country that has foundered for decades under corrupt leadership, Angola is one of the poorest lands on earth. But ask any energy executive these days and another picture emerges: a place of immense riches, solicitous of foreign investors and among the three fastest-growing oil exporters in the world today. In the capital, Luanda, hotel rooms cost more than $200 a night and are booked two months in advance by the oil companies. Three times a week, nonstop charter flights known as the Houston Express ferry workers to and from Texas. Offshore, dozens of oil fields have been discovered and given names like Cola and Canela.

Exxon Mobil, Chevron, BP and others have poured billions into Angola in the last decade to unlock petroleum resources in the country's deep waters, where the vast majority of the oil is, and the payoffs are finally coming in. In recent years, Angola has become the fastest-growing source of exports to the United States and, along with Nigeria and smaller West African countries, it is about to become an important component of American energy security. Within three years, oil-producing nations in western Africa will account for one of every three new barrels pumped worldwide. By 2015, the United States is projected to import a quarter of its oil from Africa, up from 15 percent today. Angola's promise stems from a string of big discoveries about 160 kilometers, or 100 miles, offshore that have increased the country's oil production tenfold since the mid-1970s, to 1.5 million barrels a day in 2006. Next year, Angola is expected to reach two million barrels and by 2011, 2.6 million barrels, the equivalent of Kuwait's output. But Angola is finding itself at the crossroads of today's energy geopolitics. It has become the latest stage in a global rivalry playing out among Western, Russian and Chinese oil companies. This year, it joined the Organization of Petroleum Exporting Countries, which has been paring global supplies to keep prices from falling below $50 a barrel. China has identified Angola as a promising source in its rush for energy resources, providing billions in loans and development aid in return for favorable treatment of its oil interests. Last year, Angola overtook Saudi Arabia as the largest oil supplier to the Chinese. It is the sixth biggest exporter to the United States.

The Angolan government seems emboldened by its new status as a member of the small club of big oil producers. Its decision to join OPEC baffled energy analysts, because it implied that Angola might have to slow its growth just when it seemed to be hitting the jackpot. But Angolan officials showed no signs of restraint when they appeared in Vienna for their first OPEC meeting. "We've been wanting this for a long time," said the oil minister, Desiderio da Costa, who has been involved in the country's energy sector since 1976. Manuel Vicente, chairman of Sonangol, the national oil company, added, "It means we're a real exporter now." Western executives say OPEC membership is unlikely to affect their investments. "Angola is in a growth phase," said Christophe de Margerie, chief executive of Total, the French oil giant. "They need to develop. They need the money. I don't see why they would mutilate themselves."

Energy companies have big stakes in the notion that Angola, which is nearly twice the area of Texas, may be one of the last large untapped regions of the world. ENI of Italy bid a startling $902 million last year to secure the rights to drill offshore, then the highest fee ever paid by an oil company. "At that time it seemed crazy," said ENI's chief executive, Paolo Scaroni. "In reality, we feel it was not crazy at all. There are big deposits in Angola." After ENI's bid, Sinopec, a Chinese state-owned company, and Sonangol jointly offered $2.2 billion for two other offshore blocks. While oil companies talk at length about how welcoming the government is to foreign investors, they are much more circumspect when it comes to the government's lack of transparency or the history of corruption among its leaders.

Angola suffered through a devastating civil war for 27 years and became a focus of Cold War proxy battles between Western and Soviet allies in Africa. When the fighting ended in 2002, an estimated 500,000 people had died and much of the country was in ruins. These days, Angola still has a terrible record on corruption and ranks on the lowest rungs of nearly all development indicators. Elections have been postponed several times and are currently scheduled for 2009. The nation's contradictions are glaring. Angola earned more than $30 billion last year from its petroleum exports. But according to a recent World Bank report, 70 percent of the population lives on the equivalent of less than $2 a day, the majority lack access to basic health care and about one in four children die before their fifth birthday.

There is no guarantee that African producers will end up being more stable suppliers than other oil nations. Consider Nigeria, where a quarter of the production, or about 600,000 barrels a day, has been cut for nearly two years as a result of violence in the oil-producing Niger Delta. The violence stems from years of neglect, mismanagement and corruption by the national and regional authorities and the oil companies. For consumers, relying on such volatile parts of the world where democratic institutions are weak and oversight of oil revenue is limited could spell trouble. In the next decade, 70 percent of world oil production will be concentrated in 15 countries, compared with 55 percent today, according to Cambridge Energy Research Associates. And Ian Bremmer of the Eurasia Group, a political risk consultant in New York, said, "Energy sources are going to come from increasingly unstable regions in the world."

The Gulf of Guinea has some of the world's greatest untapped oil reserves. From 1995 to 2005, western Africa accounted for 5 percent of all wells drilled worldwide but 21 percent of discoveries. Half of them were made in Angola. Africa's new importance led to the creation of a separate Africa Command at the Pentagon. Angola has about 11.4 billion barrels of proven reserves, according to Wood Mackenzie, an energy consulting firm in Edinburgh - about the same as Brazil or Algeria, two medium-size producers, but much less than reserves in the Gulf region.



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