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Financial Times: Angola warned on oil expansion

By Carola Hoyos in Vienna
Published: March 14 2007 02:00 | Last updated: March 14 2007 02:00

Saudi Arabia, the most powerful member of the Organisation of the Petroleum Exporting Countries, has told Angola, its newest entrant, not to assume it will be able to expand production past 2m barrels a day.

This is a blow to the world’s biggest oil companies, which have already paid Angola billions of dollars for the right to explore and produce its oil.

For all but Royal Dutch Shell, the west African country is one of the most important new oil frontiers of the past five years.

Angola, which joined the oil cartel in January, but is not yet subject to its quota system, should reach the 2m b/d threshold at the start of next year. It had a goal of producing 2.5m b/d by 2012, a target that has now been thrown into doubt.

This year, Angola’s production will increase by 300,000 b/d, making it the year’s biggest supplier of additional oil among those countries outside Opec’s quota system, according to Wood Mackenzie, the industry consultants, who made the prediction in a recent report.

Therefore, consumers would also suffer if Angola had to curtail its future supply as it began to have to adhere to Opec’s quota system, which aims at keeping prices at about $60 a barrel.

The US, Europe and Asia have all looked to Angola to reduce their dependence on the Middle East, which holds the vast majority of the world’s remaining oil reserves.

However, whether the government in Luanda, the Angolan capital, will cave in to Saudi pressure is still unclear. Its reaction might well emerge at the cartel’s meeting in Vienna tomorrow, and will be the first indication of whether Angola is serious about becoming an active cartel member or whether it will largely ignore its quotas, much like Libya and Algeria.

Opec produces about 30m b/d, meeting 40 per cent of the world’s total demand.

The International Energy Agency, the consuming countries’ watchdog, yesterday flagged the issue with Angola in its monthly market report:

“It is believed that ongoing development projects at the time of Angola’s accession to Opec were ruled exempt from Opec production cuts,” it said.

“This suggests that Angola may have a free hand to expand production to around 2m-2.1m b/d before it becomes subject to any future Opec production restraint measure.”

In the report, the IEA warned that the consuming countries’ oil stockpiles were running low, predicting the biggest first-quarter drop in industrialised countries’ oil inventories in more than 10 years.

“Stock trends and prices are signalling that higher Opec exports will be needed in the months ahead,” it said.

But as they arrived in Vienna yesterday, Opec ministers said they wanted to maintain output at current levels.

Oil prices jumped on the news, with Brent edging up $1.20 to $62, well above the $49 a barrel at which it traded in January, but also significantly below last summer, when prices were almost $80 a barrel.

But markets could be in for a volatile week, especially as Ali Naimi, Saudi Arabia’s oil minister, remained silent, keeping alive the chance of a surprise decision tomorrow.

Copyright The Financial Times Limited 2007


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