By Irina Slav
Angola has been OPEC’s second most compliant member with regard to the 2016 oil production cut deal, but just like the number-one compliant member, Venezuela, this prestige does not come from the country’s willingness to help bring down global supply of crude, at least not entirely.
Angola’s oil fields are maturing and are nearing depletion. Unless new investments are made in new discoveries, things will continue getting worse, the International Energy Agency warned in its Oil 2018 report this week.
Without measures to stimulate new investment, Angola’s oil production capacity will drop to just 1.29 million bpd over the next five years. Currently, the West African country pumps around 1.67 million bpd in line with the quota assigned it by OPEC.
There have been oil investments in recent years. In fact, three oil majors have invested in new production in Angola, Bloomberg’s Rupert Rowling notes in a recent story. These are Chevron, Eni, and Total. But their discoveries, which have added some more crude to daily production and exports, are not enough to compensate for the decline of Angola’s more mature fields.
The willingness of more oil companies to throw money at exploration in Angola is questionable. Big Oil and independents are these days much more careful with the projects they decide to invest in. Angola recently underwent a major shake-up when long-time president Jose Dos Santos stepped down, replaced by Joao Lourenco. This could signal a change for the better, but investors might proceed with caution to see how things go before entering Angola’s oil industry or expanding their presence there.
While the recent production trend is nothing to cheer about if you’re in Angola, for OPEC it is a blessing. In the same report, the IEA gave the cartel a few reasons to worry when the agency forecast that the United States, Canada, Brazil, and Norway together will be able to cover the growth in global crude oil demand over the next five years.
For the group that has cut the economic equivalent of live flesh from its body, this is a significant blow. OPEC, together with Russia and almost a dozen other smaller producers, pledged in 2016 to take 1.8 million bpd off global markets—a pledge that it has essentially made good on, whether its members voluntarily or involuntarily met the quota.
It doesn’t really matter at this point that the success of the deal came at the cost of Saudi Arabia cutting more than it had agreed to, or that the top two compliant states did not have to put too much effort into cutting production. What matters is the simple fact that OPEC succeeded.
But as OPEC rightfully celebrated its success, the IEA slammed it with this forecast.
Against this background, oil production trends in Angola could spare OPEC the trouble of having to convince the West African nation to continue cutting beyond the end of 2018. Unfortunately, Angola is not OPEC’s only member, and while it can’t pump more at present, Nigeria can, and so can Iran and Iraq, to mention only a couple of the larger producers besides Saudi Arabia. Now these OPEC members will have to be convinced to continue pumping less for longer to support prices.