Is Angola poised to be the next top African oil producer?

African oil markets may be on the verge of seeing a shake-up, with previous top producer Nigeria seeing a fall in production amid increased oil thefts and bureaucracy as well as soaring inflation. Continuing West African coups have also destabilized the region further, with Gabon being the latest to see a military takeover.

For some more context, Gabon is part of the Organization of the Petroleum Exporting Countries (OPEC+) and produces approximately 200,000 barrels of crude oil a day. Although this is a relatively small amount, compared to some of the bigger members oil markets have still been on edge lately, watching for the fallout of this coup and wondering if other West African countries might follow.

As such Angola, one of the top four major African oil producers, may be poised to take centre stage.

Why has Angola’s oil production shot up lately?

Angola is hugely dependent on its oil and gas industry, which account for over 90% of its total exports, clocking in at around 295 million barrels in 2021.

In April 2023, the country overtook both Algeria and Nigeria to become the top oil producer in Africa, with about 1.06 million barrels per day of crude oil, whereas Nigeria and Algeria both clocked in at about 0.999 million barrels per day. According to this report, Angola is planning to stabilise its output at about 1.3 million barrels per day, in the next three years.

Much of this increase can be attributed to Angola’s massive offshore oil fields, which have steadily been gaining pace since the 1960s. These are mostly in the Lower Congo Basin, as well as off the coast of Cabinda. Newer discoveries of deep-water reserves have also helped power the oil industry along, with ultra deep pre-salt reserves pioneering the way forward.

Oil prices are also currently on an upswing, with Brent crude oil prices trading at $91.9 at the time of writing, having risen about 32% since mid-March 2023. This has likely caused Angolan oil companies, as well as foreign oil giants with heavy stakes in the country to ramp up production sharply, without waiting for government assistance.

Angola has also benefited from an increase in oil and gas dealmaking activity, with about 70% of all African M&A deals in 2022 being in this sector, according to Rystad Energy. This has no doubt brought in a wave of fresh new global players, bringing more investment and streamlined technology.

Regulatory reforms have also simplified Angolan oil and gas industry investments, from previously cumbersome procedures. This has also created new opportunities for foreign players to fund more upstream discoveries and further exploration.

The Russia-Ukraine war has also contributed immensely, both by creating an opportunity for Angola to fill in gaps left by Russian oil and through soaring oil prices.

Pitfalls of Angolan oil

Although Angola relies so much on its oil industry, it still suffers from years, if not decades of government underinvestment. This has led to the country not being able to ramp up production as much as it should have in earlier oil price booms, thus losing out somewhat on bumper profits.

Investment in offshore drilling and deep-sea exploration are also massively expensive, especially upstream production investment and set up, which requires sophisticated equipment and skilled workers.

This has resulted in a bottleneck of sorts, as with the double whammy of COVID-19 and global economic slowdown, government investment in offshore oil fields have further declined.

Offshore drilling is also constantly embroiled in controversies, such as oil spills, destruction of marine ecosystems and pollution, with several oil giants having been held accountable for the impact of their operations on the environment recently.

With the debate on the green transition steadily gaining pace, as well as COP28 fast approaching, oil and gas companies are seeing more heat. Shareholders have also doubled down on this scrutiny in the last few years with increased demands for ESG compliance or transitions to more eco-friendly mining operations, which have also cut into profit margins.

Angola is also especially vulnerable to global oil price movements, as they form the bulk of the country’s foreign revenue. With the state oil producer Sonangol also heavily indebted, this lack of diversification could cost the country dearly down the line, as the green transition progresses further and fossil fuel demand eventually reduces.

Which other African oil producers could scale up?

Algeria and Libya are other major oil producers which could potentially take advantage of the gap left by Nigeria recently. Libya currently produces about 1.2 million barrels a day. However, the country has also recently faced widespread floods and rampant destruction as a result.

This has caused a number of oil ports to shut down temporarily, with global oil prices spiking to about $92 on 12th September, an over 10-month high as a result. Although oil ports have since reopened, it is unclear how long it may be until normal production is resumed.

It could also be safe to assume that a large chunk of government funds would likely go towards rescue, rehabilitation and reconstruction efforts in the near future, instead of increased oil production.

Eastern Libya, including the key city of Benghazi also continues to be under the Libyan Arab Armed Forces, led by Khalifa Haftar, a breakaway from the national government. This has severely impacted national stability.

Algeria, on the other hand, could be a more viable candidate for top African oil producer. As the fourth largest oil and gas exporter, it currently produces about 1.4 million barrels a day and exports to Spain, France, Greece, UK and the Netherlands.

Algeria gained more visibility as an oil and gas producer following the Russia-Ukraine war and the subsequent disruptions of Russian energy to Europe. Within Europe, Norway was the only other supplier at the time, which naturally brought attention to Algeria.

This was both due to its pre-existing export routes to Europe, as well as its well-connected Maghreb-Europe pipeline, crossing through Morocco to deliver energy to Spain and Portugal.

Depending on how long Russian supplies continue to be disrupted and which other producers surface, Algeria could definitely ride this wave of increased attention for the next few months at least. However, project delays, underinvestment and infrastructure gaps could create roadblocks along the way.

Although Libya and Algeria both outstrip Angolan oil production at the moment, Angola has better political and economic stability at the moment, which could be hugely instrumental for oil sector to develop further.