Tuesday, December 28, 2010

Angola - A new best friend forever for China

In recent years, it has become increasingly common to read mainstream media coverage regarding the increasing involvement of China in the economic affairs of the African continent as China scours the globe for new sources of much needed natural resources.  Unlike western nations, China has no qualms about dealing with countries that have been shunned because of human rights abuses or corrupted dictatorships.  In one prime example, the China National Petroleum Company (CNPC) and Talisman Energy, a Canadian oil company, partnered in petroleum exploration and development in the Sudan where a civil war led to human rights abuses and genocide.  Talisman's shareholders forced the company to leave the Sudan in 2003 and their interests in the project were acquired by an Indian oil company.  Since that time, CNPC has markedly increased its activity and investment in Sudan.  


Africa has seen all of this before; in decades past, western nations were heavily involved in African political and economic affairs and all Africa had to show for these efforts was unserviceable levels of debt, crushing poverty for its citizens and outbreaks of civil war from the north of the continent to the south.  One of the countries that suffered the most was Angola.

Angola was originally a Portuguese colony.  The Angolan War of Independence started in 1961 and ended in 1975 when Angola was granted its independence after a military-led April 1974 coup in Portugal overthrew the country's dictator and created a democracy.  During the War of Independence, three main groups, the National Uniion for the Total Independence of Angola (UNITA), the Popular Movement for the Liberation of Angola (MPLA) and the National Liberation Front of Angola (FNLA) fought a guerilla war against the Portuguese Armed Forces.  Once the War of Independence was over, the communist MPLA fought for control of the Angola with the anti-communist UNITA faction.  Several other factions were also involved in the fighting with outside countries attempting to influence the outcome.  The communist MPLA was supported by Cuba, the Soviet Union and the eastern bloc countries while the UNITA forces were supported by the United States, China, South Africa and Zaire.  The civil war was viewed by many as a proxy for the Cold War with both the United States and the Soviet Union viewing it as a battle of communism versus democracy.  The civil war lasted for 27 years with interludes of relative peace until 2002; during that time, an estimated 500,000 people were killed.

Back to the subject of this posting; the cozy relationship between China and Angola.  By way of introduction, I'll give you some background information on the country of Angola.  Angola is located on the southwest coast of Africa.  In 2008, Angola had a population of 18.021 million people and its GDP at market prices in 2009 was $68.76 billion, well less than one-third of the American deficit for the month of November 2010 alone!  Diamonds are an important source of economic activity for Angola as is iron ore, phosphate, marble and black granite.  According to UNICEF, average life expectancy at birth for both genders is 47 years, and the country's under 5 mortality rate was the second worst in the world.  Of 774,000 children born in 2008, 165,000 under the age of five perished.  The total adult literacy rate is 67 percent and Gross National Income per capita in 2008 was $3450 (USD).  It is estimated that 2.1 percent of the population is HIV positive with and estimated 190,000 people living with HIV in 2007.  Angola has one of the highest total fertility rates in the world with an average of 5.8 children per woman.  To put that into perspective, Japan's fertility rate is 1.29 children per woman.

As an oil producing country, Angola flies well under the scrutiny of the mainstream media.  Surprisingly enough, Angola is now Africa's largest oil producer, surpassing Nigeria which is currently producing 1.8 million BOPD because of attacks on their oil infrastructure in the Niger Delta.   Since Angola joined OPEC in 2007; oil has become its main driver of economic growth, in fact, in 2009 Angola held the Organization's presidency.  Here is a chart from the United States Energy Information Administration (EIA) showing OPEC's production by country for the year 2009:

As you can see, Angola is the seventh largest oil producer in OPEC with their capacity falling just below Iraq, the U.A.E., Kuwait and Venezuela.  Note that the chart shows that Angola produced only 1.82 million BOPD.  As a response to OPEC's production allocation, Angola shut-in roughly 200,000 BOPD of its capacity.  According to OPEC, Angola's proven oil reserves stand at 9.5 billion barrels and, according to the EIA, proven natural gas reserves stands at 9.6 TCF, the second largest natural gas reserves in sub-Saharan Africa.  Most natural gas is produced along with oil is flared or re-injected into oil reservoirs to maintain pressure and aid in oil recovery.  Of the 355 BCF produced in 2008, 244 BCF was flared, 81 BCF was re-injected and 28 BCF was used for domestic consumption.  Plans are underway to convert the natural gas into LPG for export by the year 2012.  The facility under construction will process 1 BCF of natural gas daily.

Angola's first oil was produced in 1955 so you can see that the country has come a long way from rather humble beginnings.  When Angola's independence was proclaimed in 1975, the country was third on the list of Africa's oil producing countries after Nigeria and Gabon.  In 2009, oil production and related activities comprised over half of the nation's total GDP with oil exports reaching $38.81 billion out of total Angolan exports of $40.99 billion.  Local consumption of oil is rather insignificant with the country consuming only 62,000 BOPD out of the 1.82 million BOPD produced in 2009.  In 2009, according to the United States Energy Information Administration (EIA), Angola's production capacity had reached 2.1 million BOPD (barrels of oil per day), up from 750,000 BOPD in 1999.  Here is a chart showing Angola's production and consumption for the past 10 years:

In 2010, Angola has supplied the United States with approximately 409,000 BOPD, making it America's seventh largest supplier of oil after Canada, Nigeria, Mexico, Saudi Arabia, Venezuela and Iraq.  Angola also exports approximately 500,000 BOPD to China, the third largest supplier to that country after Saudi Arabia and Iran.

Most of Angola's oil production and exploration activities are located in offshore blocks with water depths up to 3000 metres.  Operators in the country include ExxonMobil, Total, BP and Chevron.  Pending exploration and development activity could result in significant production increases; based on existing discoveries, production capacity could reach between 2.5 million and 3.0 million BOPD by 2015 as shown in this chart from the EIA:


From this background information, we can see that Angola is rapidly becoming a world energy power.  Both the United States and China will be competing for this resource.  Unfortunately for the United States, Angola's past experience with Western "assistance" has been less than positive.  China is (and has been) making substantial overtures toward Angola.  According to the World Bank, China has offered loans and infrastructure worth about $9 billion to help the Angolan government to rebuild roads, bridges, schools and hospitals destroyed in nearly 3 decades of civil war.  In late November 2010, China and Angola announced that they had entered into a strategic co-operative arrangement that will enhance the level and quality of their economic and trade relationship with the result that both countries will mutually benefit.  The agreement prioritizes agriculture, industry, infrastructure, urbanization and the all important energy and mineral resources exploration.  I think that we can imagine where China will be emphasizing its assistance.  This became most evident in March 2010 when Sinopec purchased a stake in one of Angola's deepwater fields for $2.46 billion from China Petrochemical Corp. in a move that will increase Sinopec's ability to supply China's fuel needs.  The Angola Number 18 block holds proven oil reserves totalling 100 million barrels and is one of the fastest growing areas for production and exploration.

Angola is most certainly going to be an interesting country to watch over the next decade.  It is definitely going to play a very important role in the world's energy markets, particularly as the world approaches (or passes) peak cheap oil.


3 comments:

  1. http://www.youtube.com/watch?v=gnmO8CuLwuw

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  2. The agreement prioritizes agriculture, industry, infrastructure, urbanization and the all important energy and mineral resources exploration. I think that we can imagine where China will be emphasizing its assistance.

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  3. The white people are the worst on the planet, do not point finger at the Chinese. They have never taken black people for slaves. Look where Africa is after the white people arrived there? The white man also killed over 90 million Red Indians in North America for their land, that is where Hitler got his ideas.

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