*This article will be published in the upcoming AES: Angola COVID-19 Impact Report
As a response to the reduction in oil demand amid global lockdowns, the Organization of Petroleum Exporting Countries (OPEC) and the G20 met in March, seeking to reduce the global supply of petroleum among top producers globally. In a historic decision to preserve the price of the barrel, OPEC and allies led by Russia, together known as OPEC+, agreed to cut output by a record 9.7 million barrels per day (bpd).
With a 23% cut issued for all signatory states based on an October 2018 baseline, this translated to a production of 1.18 million bpd for Angola from May. Before the onset of COVID-19, Angola was producing approximately 1.37 million bpd. This volume was expected to increase in 2020 and 2021, following a series of legislative and fiscal reforms implemented by the government to drive frontier exploration and attract foreign direct investment. In fact, Standard Bank projected a 1.4% growth in GDP for the Angolan economy in 2020 prior to the COVID-19 pandemic, anticipating that oil production alone would increase by as much as 5.6%.
Angola’s Ministry of Mineral Resources, Petroleum and Gas has stated its commitment to full compliance with the global agreement to reduce supply and fortify oil prices.
Producing 1.37 million bpd before COVID-19 and an estimated 1.79 million cubic feet of natural gas, Angola represents a key pillar of market stability on the continent, as sub-Saharan Africa’s second-largest oil producer after Nigeria.
Through its compliance with production cuts and its commitment to pan-African cooperation, Angola is fostering an open dialogue between OPEC and African producers, augmenting the role that African member countries are playing in global discussions. Operator and investor confidence particularly for new investors entering the market will likely benefit from enhanced stability and energy cooperation.
OPEC-led production cuts will continue to decrease to 7.7 million bpd to the end of December. For a period of 16 months, cuts will further be reduced to a 5.8 million bpd adjustment from January 2021 through the end of April 2022.
While production cuts aim to maintain the integrity of crude barrel prices, the market may require additional proactive measures to regain stability, since OPEC has been adhering to supply cuts since 2019 with no significant effect on oil prices. Angola, for example, has suggested that supply cuts may be insufficient to offset the global market and that additional action may need to be taken, compounded by a lack in crude storage capacity.
“Despite the measures taken by OPEC, oil producers in various countries should be aware that they may be called to take more drastic measures,” said H.E. Diamantino Azevedo, Minister of Mineral Resources, Petroleum and Gas.
Nevertheless, the decision reflects the growing importance of cross-border solidarity among regional and global oil producers, as well as the increasing role that African producers are playing on the international energy stage. Angola has been a member of OPEC since 2007, joining six other African member countries (Algeria, Equatorial Guinea, Gabon, Libya, Nigeria and the Republic of Congo).
In December 2018, OPEC Secretary General H.E. Mohammed Barkindo made a historic visit to Angola, in which he committed to working with Angolan leadership to improve market stability and strengthen the country’s relationship with OPEC. The Secretary General also commended Angolan President H.E. João Lourenço and his administration for their series of investor-friendly reforms implemented in the oil and gas sector – from a revised tax regime to new gas monetization policies – that serve to drive investment into Angola’s hydrocarbon sector.