Angola Oil and Gas Report Q2 2008

The latest Angola Oil & Gas Report from BMI forecasts that the country will account for 1.09% of Middle Eastern and African (MEA) regional oil demand by 2012, while providing 5.86% of supply. MEA regional oil use of 8.70mn barrels per day (b/d) in 2001 rose to an estimated 11.21mn b/d in 2007. It should average 11.54mn b/d in 2008 and then rise to around 12.90mn b/d by 2012. Regional oil production was 30.39mn b/d in 2001, and in 2007 averaged an estimated 35.53mn b/d. It is set to rise to 40.94mn b/d by 2012. In terms of natural gas, the region in 2007 consumed an estimated 413bcm, with demand of 650bcm targeted for 2012, representing 57.4% growth. Production of an estimated 570bcm in 2007 should reach 941bcm in 2012 (+65%), which implies net exports rising from an estimated 157bcm in 2007 to 291bcm by the end of the period. Angola is neither a significant gas consumer nor producer but, by 2012, is forecast to be producing 1.49% of the region's gas.

Global oil demand growth is now expected to have been 1.7% for 2007, rising to a little less than 2.0% in 2008. Asia and Central and Eastern Europe (CEE) continue to dominate. The overall demand outlook for the period to 2012 remains healthy (average growth 1.8%), but subject to review if the macroeconomic outlook deteriorates. We are still assuming some easing of energy prices during the period, but from a much higher level than envisaged earlier. Supply growth is capable of matching demand expansion - but only if OPEC cooperates as non-OPEC forecasts are fragile. Between 2006 and 2012, we see supply rising by an average 1.7% per annum - subject to OPEC strategy. Our revised central view is that the OPEC basket price will rise from around US$69/bbl in 2007 to US$74 in 2008, before settling around US$71/bbl in 2009 and falling further to US$70/bbl in 2010-12.

Angolan real GDP growth is forecast by BMI at 15.5% for 2008, following an estimated 19.6% in 2007.

We are assuming 14.0% growth in 2009, 9.2% in 2010, followed by 11.2% in 2011 and 11.7% in 2012.

Dramatic economic growth is matched by spectacular oil demand growth, albeit from a low base.

Consumption is set to rise from an estimated 70,000b/d in 2007 to 141,000b/d by 2012. 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 an estimated 1.61mn b/d in 2007 to 2.40mn b/d in 2012, with exports heading towards 2.26mn 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 2.5bcm in 2007 should reach 14bcm by 2012. Consumption is expected to rise to 7bcm by the end of the forecast period, providing exports of 7bcm.

Angola occupies joint third place in BMI's newly revised Upstream Business Environment rating, alongside Libya. Its oil and gas production outlook is unrivalled in the region, with the least mature hydrocarbons industry, plenty of non-state companies active and decent licensing terms being offset by a highly unappealing risk environment. Long-term scope exists for Angola to challenge the UAE, while it should be able to pull away from Libya and leave Nigeria well behind. The country is in the lower half of the league table in BMI's newly revised Downstream Business Environment rating, with few high scores and progress further up the rankings unlikely. It is ranked 12th, thanks to low scores for refining capacity, oil and gas demand, deregulation and privatisation. The growth outlook for oil/gas consumption and refining capacity represent strong suits, along with rising GDP per capita. Bahrain is immediately behind it in the regional rankings, but there is little immediate chance of it challenging for 12th place.