Angola Oil and Gas Report Q1 2008

The latest Angola Oil & Gas Report from BMI forecasts that the country will account for 1.00% of Middle Eastern and African (MEA) regional oil demand by 2011, while providing 5.77% of supply. MEA regional oil use of 8.70mn barrels per day (b/d) in 2001 rose to 10.94mn b/d in 2006. It should average 11.19mn b/d in 2007 and then rise to around 12.44mn b/d by 2011. Regional oil production was 30.39mn b/d in 2001, and in 2006 averaged 35.69mn b/d. It is set to rise to 40.04mn b/d by 2011. In terms of natural gas, the region in 2006 consumed 384bn cubic metres (bcm), with demand of 555bcm targeted for 2011, representing 44.7% growth. Production of 509bcm in 2006 should reach 869bcm in 2011 (+71%), implying net exports rising from 126bcm in 2006 to 314bcm by the end of the period. Angola is neither a significant gas consumer nor producer but, by 2011, is forecast to be producing 1.73% of the region's gas.

Global oil demand growth is now expected to be 1.9% in 2007, down from our June forecast, but with Asia Pacific and the CEE regions dominating. While oil demand growth assumptions remain robust, there are early signs that future revisions will be on the downside as factors such as the credit crunch kick in.

The overall demand outlook for the period to 2011 remains healthy, but subject to review if the macroeconomic outlook deteriorates. Our projections for 2007 as a whole are revised upwards from the last quarterly report. We are now assuming an OPEC basket price average of US$64 per barrel, compared with the US$59 estimate provided by our last quarterly report. Based on recent price differentials, this implies Brent at US$67.81, WTI averaging US$66.18/bbl, and Urals at US$64.43/bbl.

Angolan real GDP growth is now estimated by BMI at 19.3% for 2007, following 14.6% in 2006. We are assuming 15.9% growth in 2008, 13.6% in 2009, followed by 8.9% in 2010 and 11.8% in 2011. Dramatic economic growth is matched by spectacular oil demand growth, albeit from a low base. Consumption is set to rise from an estimated 61,000b/d in 2006 to 123,000b/d by 2011. State oil company Sonangol operates in partnership with various international oil companies (IOCs) and now accounts for less than 40% of the country's oil output. Thanks largely to IOC investment, oil output is forecast to increase from 1.41mn b/d in 2006 to 2.31mn b/d in 2011, with exports heading towards 2.20mn b/d. Only severe project slippage, brought about by tightness in the oil services segment, seems capable of weakening the volume growth trend. Gas production of an estimated 2bcm in 2006 should reach 15bcm by 2011. Consumption is expected to rise to 6bcm by the end of the forecast period, providing exports of 9bcm.

In the BMI Business Environment Ranking matrix, Angola receives a lower composite score of 36, which now ranks the country equal third out of 16 states included in the MEA region, alongside Oman. The country's overall business environment can be considered attractive in a regional context. While longterm political risk is extremely high, the economic risk outlook has improved greatly. The West African state benefits from exceptional oil and gas output growth, plus an effective licensing regime and benign competitive landscape. The country also has a relatively low reserves-to-production ratio (RPR).