Wednesday, March 21, 2007

Nowadays, Angola Is Oil's Topic A

March 20, 2007

Nowadays, Angola Is Oil’s Topic A

New York Times

VIENNA, March 16 — Angola, which shared the stage with the world’s most powerful oil-producing nations at its first OPEC meeting here Thursday, is an unlikely candidate to be the darling of the global oil industry.

A corrupt, underdeveloped and war-scarred country, Angola is one of the poorest lands on earth. But ask any energy executive these days and another picture emerges: a place of immense riches, solicitous of foreign investors and among the three fastest-growing oil exporters in the world today.

In the capital, Luanda, hotel rooms cost more than $200 a night and are booked two months in advance by the oil companies; three times a week, nonstop charter flights known as the Houston Express ferry workers to and from Texas; offshore, dozens of oil fields have been discovered and given names like Cola and Canela.

Exxon Mobil, Chevron, BP and others have poured billions into Angola in the last decade to unlock petroleum resources in the country’s deep waters, where the vast majority of the oil is, and the payoffs are finally coming in.

In recent years, Angola has become the fastest-growing source of oil exports to the United States and, along with Nigeria and smaller West African countries, it is about to become an important component of American energy security.

Within three years, producing nations in western Africa will account for one of every three new barrels pumped worldwide. By 2015, the United States is projected to import a quarter of its oil from Africa, up from 15 percent today.

Angola’s promise stems from a series of big discoveries some 100 miles offshore, which have increased the country’s oil production tenfold since the mid-1970s, to 1.5 million barrels a day in 2006. Next year, Angola is expected to reach two million barrels daily and by 2011, 2.6 million barrels, the equivalent of Kuwait’s output.

But Angola is finding itself at the crossroads of today’s energy geopolitics. It has become the latest stage in a global rivalry playing out among Western, Russian and Chinese oil companies. This year, it joined the Organization of the Petroleum Exporting Countries, which has been paring global supplies to keep prices from falling below $50 a barrel.

China has identified this country as a promising source in its rush for energy resources, providing billions in loans and development aid in return for favorable treatment of its oil interests. Last year, Angola overtook Saudi Arabia as the largest oil supplier to the Chinese. It is currently the sixth-biggest exporter to the United States.

The Angolan government seems emboldened by its new status as a member of the small club of big oil producers. The decision to join OPEC baffled energy analysts because it implied that Angola might have to slow its growth just when it seemed to be hitting the jackpot in oil.

But Angolan officials showed no signs of restraint when they appeared in Vienna for their first OPEC meeting. “We’ve been wanting this for a long time,” said the oil minister, Desidério da Costa, a long-faced technocrat who has been involved in the country’s energy sector since 1976. Manuel Vicente, the chairman of Sonangol, the national oil company, added, “It means we’re a real exporter now.” Western executives say OPEC membership is unlikely to affect their investments.

“Angola is in a growth phase,” said Christophe de Margerie, chief executive of Total, the French oil giant. “They need to develop. They need the money. I don’t see why they would mutilate themselves.”

Energy companies have big stakes in the notion that Angola, which is nearly twice the area of Texas, may be one of the last large untapped regions of the world. Eni of Italy bid a startling $902 million last year to secure the rights to drill offshore, then the highest fee ever paid by an oil company.

“At that time it seemed crazy,” Eni’s chief executive, Paolo Scaroni, said. “In reality, we feel it was not crazy at all. There are big deposits in Angola. It’s an area of Africa where production can only grow, and we want to be part of that growth.”

After the Eni bid, Sinopec, a Chinese state-owned company, and Sonangol jointly offered $2.2 billion for two other offshore blocks.

While oil companies talk at length about how welcoming the government is to foreign investors, they are much more circumspect when it comes to the country’s lack of transparency or its history of corruption.

Angola suffered through a devastating civil war for 27 years and became a focus of cold war proxy battles between Western and Soviet allies in Africa. When the fighting ended in 2002, an estimated 500,000 people had died and much of the country was in ruins. The ruling Popular Movement for the Liberation of Angola had imposed a brand of African-tinged Marxism, something the government has since abandoned.

These days, Angola still has a terrible record on corruption and ranks on the lowest rungs of nearly all development indicators. Elections have been postponed several times and are currently scheduled in 2009.

The nation’s contradictions are glaring. Angola earned more than $30 billion last year from its petroleum exports. But according to a recent World Bank report, 70 percent of the population lives on the equivalent of less than $2 a day, the majority lack access to basic health care, and about one in four children die before their fifth birthday.

President José Eduardo dos Santos has shown little interest in improving transparency of oil accounts. Last month, his government arrested a prominent British transparency campaigner, Sarah Wykes of Global Witness, who was visiting the northern oil region of Cabinda. Ms. Wykes, who has lobbied producers to publish their oil accounts, was jailed for three days and accused of being a spy. [She returned to Britain on Monday after the authorities allowed her to leave the country, Global Witness said.]

There is no guarantee that African producers will end up being more stable suppliers than many in the Middle East have been. Consider Nigeria, where a quarter of the production, or about 600,000 barrels a day, has been cut for nearly two years as a result of violence in the oil-producing Niger Delta. The violence stems from years of neglect, mismanagement and corruption by both the national and regional authorities in Nigeria and the oil companies.

For consumers, relying on such volatile parts of the world where democratic institutions are weak and oversight of oil revenue is limited, could spell trouble. In the next decade, 70 percent of world oil production will be concentrated in 15 countries, compared with 55 percent today, according to Cambridge Energy Research Associates.

And Ian Bremmer of the Eurasia Group, a political risk consultant in New York, said, “Energy sources are going to come from increasingly unstable regions in the world.”

The Gulf of Guinea has some of the world’s greatest untapped oil reserves. From 1995 to 2005, western Africa accounted for 5 percent of all wells drilled worldwide but 21 percent of discoveries. Half of them were made in Angolan territory. Africa’s new importance has recently led to the creation of a separate Africa Command at the Pentagon.

“It’s a good story for consumers,” George L. Kirkland, a senior executive at Chevron, said. “The greater the diversity, the less your risk — not just political, but also technical and commercial.”

Angola has about 11.4 billion barrels of proven reserves, according to Wood Mackenzie, an energy consulting firm in Edinburgh — about the same as Brazil or Algeria, two medium-size producers, though much less than reserves in the Persian Gulf region.

But it is more than enough for big projects. Total has made 15 oil discoveries in Angola’s Block 17, about 100 miles offshore, since it began drilling there in the 1990s.

Since 2001, it has been producing 250,000 barrels a day from a Block 17 field called Girassol and plans to ramp up its output to 500,000 barrels a day by the summer with a $4 billion development named Dalia. Farther out, in the deeper waters of Block 32, Total has announced eight discoveries since 2003, including three so far this year — Manjericão, Caril and Salsa.

Exxon Mobil and its partners produce more than 550,000 barrels a day, after having completed two $7 billion projects offshore, Kizomba A and Kizomba B in Block 15. In 2008, the company plans to bring on a third big field, Kizomba C.

And Chevron, which expects to double its western Africa production in the next four years, is planning an ambitious liquefied natural gas partnership in Angola with Sonangol that is projected to bring gas supplies to the United States in a few years. These projects are likely to make Angola much richer in coming years. But what the government in Luanda does with its oil wealth and where the money goes have long been frustrating matters for human rights groups. In 2001, for instance, Angola chastised BP for disclosing a $111 million fee without the government’s approval.

After that, officials clashed with the International Monetary Fund over opening the books to scrutiny. From 1997 to 2002, $4.2 billion was unaccounted for, according to an estimate by Human Rights Watch.

Since the war ended around five years ago, the Angolan government has made some progress in improving transparency. It publishes more details about its oil revenue and production and posts some of the data on the finance ministry Web site, though it is often out of date.

But Angola still fails to disclose how it spends money, including its budget. It ranks 142nd among 163 countries in Transparency International’s annual corruption perception index.

“Angola has no interest in transparency and there is no source of external leverage on the government right now,” said Monica Enfield, an analyst at PFC Energy, a consulting firm in Washington. “With all their oil revenue, they don’t need the I.M.F. or the World Bank. They can play the Chinese off the Americans.”

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