International Oil and Gas Market

The consistent economic growth of developed nations in North America and Europe, along with the extraordinary rise of developing nations like Brazil, China, and India, have put pressure on the international oil and gas market. The continued growth of emerging market economies and the rise in geopolitical threats and general instability in key oil and gas producing nations have contributed to a rapidly changing international energy market. Even after persistent efforts to develop sustainable energy alternatives like solar, wind, and hydropower, the global economy still primarily depends on fossil fuels to power the world. Moreover, nations that are well-endowed with oil and gas reserves have also continued to sit on massive reserves of wealth and power. As one of the world’s continents with the most abundant and accessible natural resources, Africa has started to become a major player in the fossil fuel industry. As the rapidly developing countries of China and India have started to experience economic impacts related to fossil fuel price swings, these nations have also started to invest in the African country of Angola to secure future oil and gas reserves.

As the Middle East has continued to experience intense periods of political instability, the price of oil and gas has risen and fallen dramatically over the past decade. In order to prevent future impacts from oil and gas price shocks, China and India have put their focus on Africa to diversify their energy imports away from the Middle East. Chinese national oil companies and Indian oil companies have been competing to secure fossil fuel assets in the Angola, which has become the second largest oil producer in Africa (OPEC, 2019). China and India’s purposeful intent to control oil and gas from Angola has come as a result of the desire to limit exposure to dynamic swings in global energy prices, and to ensure that they can continue to sustain their rapidly growing economies. As part of their seek-and-find efforts, China and India have started to view Africa as an opportunity to alleviate domestic concerns related to natural resources and the need for raw materials.

Source: Wikipedia

Angolan Fossil Fuels

Bordered by Namibia to the south, the Democratic Republic of Congo to the north, and Zambia to the east, the African Nation of Angola has found economic success through the extraction of its oil and gas reserves. With a population of over 28.8 million, Angola has grown steadily in recent years because of progress made on macroeconomic stability and political reforms. Oil production and its related activities make up nearly 50 percent of Angola’s gross domestic product (GDP) and roughly 89 percent of all the country’s exports (OPEC, 2019). According to the U.S. Energy Information Administration, in 2018, Angola held about 9.5 billion barrels of proven crude oil reserves, which is up from 8.3 billion barrels recorded in 2017. A 2017 report released by the African Development Bank showed that 52% of total fiscal revenue in Angola can be attributed directly to oil and gas production (EIA, 2019).

Source: Hadek

Peace and Development

Since the end of a lengthy internal 27-year civil war in 2002, Angola has made significant economic and political progress. Following the end of the war, oil production and associated infrastructure related to the fossil fuel industry started to become more modernized. However, despite this substantial economic and political progress, Angola still struggles to address large pockets of poverty, access to basic services, and inclusive development practices. Historically weak economic activity has created high levels of inflation. Although, after the Banco Nacional de Angola (BNA) adopted a restrictive monetary policy that stabilized inflation levels and offset the impact of the exchange rate devaluation, Angola has experienced a stimulus in economic activity (TWB, 2019). Nevertheless, persistent financial sector vulnerabilities and geopolitical conflicts have hindered the development of fossil fuels in Angola. However, since making great strides on its commitment to peace and stability, the nation has started to experience an increasing amount of foreign investment from countries like China and India.

After facilitating a peace agreement between Rwanda and Uganda, international development organizations have looked to fuel continued progress through the establishment of support programs like the Angola Social Action Fund and funding through initiatives like the International Bank of Reconstruction and Development. Moreover, to support macroeconomic stability, the International Monetary Fund has contributed $3.7 billion, while the World Bank has provided $500 million in the form of a series of Development Policy Financing grants (TWB, 2019). Following these substantial investments from the international community, Angola was able to focus more efforts on igniting economic activity through its oil industry instead of simply identifying opportunities to reduce localized pockets of poverty.

Source: Wikipedia

OPEC Membership

In the years following the end of its civil war, Angola’s economy started to experience a double-digit growth rate (Amundsen, 2014). The exceptional economic growth was primarily fueled by its fossil fuel industry. Angola then joined the Organization of the Petroleum Exporting Countries (OPEC) in 2007. For OPEC, Angola became its 12th full member and the first new member since Nigeria joined in 1971. Many global energy experts predicted that joining OPEC would hurt oil and gas production in Angola because of increased restrictions related to fossil fuel development. Moreover, with Africa’s second largest oil producer as an official OPEC member, the OPEC oil cartel was poised to take over even more control of the international oil market. While Angola received internal criticisms from many investors and energy experts because of the threat the OPEC posed for production growth and attracting international investment, OPEC membership ultimately provided the country with more guidance and better management of its oil and gas reserves.

In addition to providing more oversight and guidance related to oil and gas production, some energy analysts believe that OPEC membership also benefited Angola by raising oil prices on the global market, which put more revenue into the country’s budget. Traditionally, as OPEC countries have agreed to production cuts, the price of oil has risen. Following the collapse of oil prices in 2009, Angola started to experience GDP contraction. Conversely, when oil prices rise, GDP in Angola has also tended to rise. Since the oil sector accounts for one-third of GDP within the nation, political leaders have been committed to sticking with key OPEC-led reforms to stabilize global oil prices. Most recently, Angola agreed to OPEC oil production cuts in November 2016, by capping their daily production of oil to 1.67 million barrels (EIA, 2019).

Source: Wikipedia

Influence from China and India

Increasing international investment is another strategy that Angola has tried to employ to increase revenue from its fossil fuel industry. China and India have been the two foreign powers that have expressed the most interest in investing in Angola’s fossil fuel industry. Angola’s national oil company, Sonangol, underwent a series of organizational restructuring in response to falling oil prices and to allow for more streamlined opportunities for foreign investments. In 2017, the Ministry of Mining and the Ministry of Petroleum were merged into the Ministry of Petroleum and Mining by President João Lourenço, in an attempt to strengthen and streamline the industry. President Lourenço also established the National Agency for Oil, Gas and Biofuels (ANPG) and the Oil Derivatives Regulatory Institute (IRDP) to better regulate the negotiation of contracts between foreign investors and the production of fossil fuels. Furthermore, Lourenço dropped the oil production tax rate from 20% to 10% and made it more cost-effective for international oil companies to extract oil from offshore oil reserves (EIA, 2019).

The diligent work conducted by President João Lourenço and other Angolan political leaders has led China and India to make competitive offers for the opportunity to be involved in Angola’s oil industry. For example, China made an offer of $725 million for infrastructure development programs in Angola, which greatly surpassed India’s offer of $310 million (Verma, 2018). As a result of these investment offers, Angola partnered with the China National Offshore Oil Corporation (CNOOC), in collaboration with Marathon Oil, on a joint venture to produce offshore oil in Angola. Pressure from Chinese foreign policy objectives has given China an edge over India, in terms of securing oil and gas reserves in Angola. As a result of China’s continued efforts to be involved in the African oil industry, global energy analysts have highlighted how the Chinese have used selective opportunism to gain a competitive edge over other nations that have also attempted to secure African oil and gas reserves.

The Council on Foreign Relations asserts that China is following a pre-established path to natural resource exploitation, similar to the path followed by the United States, Europe, Japan, and Australia (Burgos and Ear, 2012). By offering aid agreements and comprehensive technical assistance to less developed countries like Angola, China has been able to take advantage of exploitative trade deals related to the fossil fuel industry. China’s huger for natural resources has resulted in the establishment of governmental taskforces being developed to specifically identify opportunities around the globe to become involved in regional energy dynamics. As China’s demand for oil and gas has vastly outpaced the country’s ability to increase domestic fossil fuel production, Chinese leaders have become increasingly reliant on foreign powers to supply its fossil fuels. On a daily basis, China imports nearly 41.24 million tons of crude oil, which is the equivalent of roughly 10.04 million barrels (Lee, 2019). As a proactive measure to relieve anxiety about reliance on foreign fossil fuel producers, Chinese leaders are making strategic investments in Angola to uphold national energy security.

Source: Flickr

Future Production and Investment

Despite China’s plans to become more involved in Angola’s fossil fuel industry, Angola’s fossil fuel production has remained stagnant in recent years, which is contributing to concerns that the country’s oil fields may be rapidly maturing. From 2013 to 2017, total oil production remained at approximately 1.78 million barrels per day (EIA, 2019). Some of the production stagnation can be attributed to technical problems with production, storage, and specifically related to water injection systems that are used to access hard-to-reach deposits of oil and gas. These technical issues have caused numerous production facilities to be taken offline for lengthy maintenance repairs. However, with the help of foreign investors (primarily from China), several significant new oil and gas production projects came online in 2018. The Kaombo deep water project will add 115,000 barrels of oil per day, the Ochifugu field will add 25,000 barrels of oil per day, and the Cabaca Southeast field is expected to add 54,000 barrels of oil per day (EIA, 2019). The majority of these new projects are taking place in newly discovered offshore reserves.

As Angolan oil and gas production continues into the future, China and India are expected to remain as important international investors that will drive future production growth and technological advancements. These two countries also already receive the greatest amount of exported crude oil from Angola. From Angola’s 1.55 million barrels of oil exported per day in 2017, China imported approximately 930,000 barrels per day, while India imported 140,000 barrels per day. Angola became China’s second largest supplier of oil in 2017, followed by Saudi Arabia. In addition to being the largest importer of oil produced in Angola, China has also taken the lead in long-term financing. From 2002 to 2012, the specialized Export–Import Bank of China has lent Angola $4.5 billion, while privately-owned Chinese oil investment funds have lent Angola another $3 billion (Burgos and Ear, 2012). China’s tactical diplomacy, along with its rapidly growing economy, are predicated to continue to play a vital role in Angola’s fossil fuel production in the coming decades.

Sources

Amundsen, I. (2014). Drowning in Oil: Angola’s Institutions and the “Resource Curse.” City University of New York.

Burgos, S., and Ear, S. (2012). “China’s Oil Hunger in Angola: history and perspective.” Journal of Contemporary China: 21(74), 351–367.

EIA. (2019). “Angola.” U.S. Energy Information Administration.

Lee, J. (2019). “China September crude oil imports rise on strong seasonal demand.” Reuters.

Ojakorotu, V., et al. (2018). “Oil Wealth Paradox and Its Implication for Sustainable Development in Angola and Nigeria.” Journal of African Foreign Affairs: Vol. 5, No. 1, pp 85-106.

OPEC. (2019). “Angola facts and figures.” Organization of the Petroleum Exporting Countries.

TWB. (2019). “The World Bank in Angola.” World Bank Group.

Verma, R. (2018). “China outperforms India in the oil industry in Angola and Nigeria.” India Review: Vol. 17, NO. 4, 372–396.