Angola to launch big oil block under shadow of OPEC cuts

The Kaombo Norte floating production, storage and offloading vessel can pump 115,000 barrels per day, half the oil block’s eventual production. (Courtesy Total)
Updated 09 March 2018

Angola to launch big oil block under shadow of OPEC cuts

LONDON: The first vessel that will pump and store oil for Angola’s 230,000 barrels per day (bpd) Kaombo project is en route to the West African nation, operator Total said.
The Kaombo oil block will produce its first oil this summer, Total said on Thursday. Once it is fully up and running, it will add roughly 14 percent to the OPEC member’s average 2017 output of 1.632 million bpd.
The Kaombo Norte floating production, storage and offloading (FPSO) vessel left Singapore earlier this week, Total said. It can pump 115,000 bpd, half the oil block’s eventual production.
The $16 billion offshore project will add a significant amount of oil to Africa’s number two exporter at a time when it is bound by output limits under a deal orchestrated by the Organization of the Petroleum Exporting Countries.
A source close to the project said the block was expected to pump roughly 100,000 bpd by August.
Another FPSO, Kaombo Sul, is still in Singapore.
OPEC is reducing output by roughly 1.2 million bpd as part of a deal with Russia and other producers that began in January 2017 and was extended until the end of 2018.
So far, Angola has complied comfortably, pumping even less than the maximum agreed. Last month, its output of 1.6 million bpd amounted to 194 percent of compliance with promised cuts of 78,000 bpd.
Declining production at mature fields has cut into Angola’s output, but the Kaombo addition could complicate efforts to maintain compliance.
Angola’s state oil company Sonangol has said production will be roughly steady this year, and the above-target cuts earlier in the year could keep its average compliance for the year within OPEC’s limits.
Longer term, Angola is expected to struggle just to maintain output, with the International Energy Agency (IEA) warning that only Venezuela will see a bigger drop in production over the next five years.
Angola’s oil production peaked at 1.9 million bpd in 2008, the IEA said, warning in its five-year outlook that capacity will drop by some 370,000 bpd by 2023 even with the new projects.
“Angola is expected to post the biggest slide in capacity after Venezuela as aging oil fields lose steam and foreign investors, faced with relatively uncompetitive prospects, lose enthusiasm,” the IEA said.


WEEKLY ENERGY RECAP: Keeping things in balance

Updated 08 December 2019

WEEKLY ENERGY RECAP: Keeping things in balance

  • The over-compliance will result in cuts of 1.7 million bpd

Brent crude rose above $64 per barrel after OPEC+ producers unanimously agreed to deepen output cuts by 503,000 barrels per day (bpd) to a total 1.7 million bpd till the end of the first quarter of 2020.

The breakdown is that OPEC producers are due to cut 372,000 bpd and non-OPEC producers to cut 131,000 bpd.

Current market dynamics led to this decision as oil price-positive news outweighed more bearish developments in the US-China trade narrative that has weighed on oil prices throughout the year, with US crude exports rising to a record 3.4 million bpd in October versus 3.1 million bpd in September.

OPEC November crude oil output levels at 29.8 million bpd show that producers were already overcomplying with its current 1.2 million bpd output cuts deal by around 400,000 bpd. 

The over-compliance will result in cuts of 1.7 million bpd, especially when Saudi Arabia continues to voluntarily cut more than its share.

This makes the agreed 1.7 million bpd output cuts pragmatic since it won’t taken any barrels out of the market.

It isn’t a matter of OPEC making room in the market for other additional supplies from non-OPEC sources, as OPEC barrels can’t be easily replaced.

Instead, this is about avoiding any oversupply that might damage the global supply-demand balance.

Saudi energy minister Prince Abdulaziz bin Salman has effectively kept his promise and managed to smoothly forge a consensus among OPEC and non-OPEC producers.

He has also successfully managed the 24-country coalition of OPEC+ including Russia in reaching an agreement.

Despite suggestions otherwise in recent coverage of the Vienna meeting, the deeper cuts announced on Friday have nothing to do with the Aramco IPO. Let’s remember this meeting was scheduled six months ago and the IPO has been in the works for much longer.

The Aramco share sale did not target a specific oil price. If that was a motivating factor it could easily have chosen another time.