Angola Seen Bringing Moderating Voice to OPEC

LONDON (Dow Jones Newswires), Dec. 30, 2008

As Angola prepares to take over the presidency of the Organization of the Petroleum Exporting Countries on Jan. 1, OPEC watchers expect it to bring a moderating, pragmatic voice to OPEC's fractious politics.

The southern African country, which is vying with Nigeria for the title of Africa's biggest oil producer and for OPEC's seventh position in output, brings with it a unique voice rooted in its decades of conflict and its status as a major oil producer with significant capacity to expand.

Angola's ascension to the organization's most prominent role comes at a particularly testing time in history of the cartel which controls 40% of the world's oil production. In the past three months, its members have agreed to cumulative production cuts totaling 4.2 million barrels a day to rein the fastest drop in prices in decades.

Though they have had little effect on prices recently, OPEC's decisions have the potential to make a big difference to the price drivers pay for fuel at the pump. And Angola will now feature prominently in those decisions.

To be sure, the presidency won't turn Angola into an omnipotent force in OPEC. "The country that really matters is Saudi Arabia with its huge spare production capacity," said Leo Drollas, chief economist at the Oxford-based Centre for Global Energy Studies.

Nevertheless, as holder of the presidency, Angola will play a key role in deciding to convene meetings - the organization has held two emergency gatherings in the past three months. It will have to bring its members to a consensual decision and be the public voice of the organization.

"Whoever is president has to get people to work together," said Rilwanu Lukman, himself a former OPEC president.

And in an organization where clout is measured by barrels produced as much as by voting rights, Angola in April became Africa's largest producer, with 1.9 million barrels a day, after Nigeria's output suffered disruptions from attacks by militants. The two countries are still neck-and-neck for the top African output position.

Observers say the country's history of conflict, conflict resolution and compromise means it can help bring together those members advocating as little output reduction as possible and those favoring aggressive, politically motivated cuts.

When Angola heads the OPEC presidency, "they will have a bridging voice," advocating "non-controversial positions," said Alex Vines, head of the Africa program at the U.K.'s Royal Institute of International Affairs. Angolan officials have been pressed by the Venezuelans to join a tough stance, "but they have resisted that," he said.

Ricardo Soares de Oliveira, a lecturer in African politics at Oxford University and an expert on the Angolan oil industry, said Angola is likely to favor the more moderate approach of Saudi Arabia.

"They will not want to side with the arbitrary and/or anti-Western elements in OPEC," he said.

The country has a long experience of working through crises in a pragmatic manner. It had to go through three decades of its own internal strife. An insurrection against Portuguese colonization beginning in 1961 was followed, after independence in 1975, by 27 years of civil war.

"They know what conflict is. They had their own internal conflict. So that will help the organization hammering an agreement," said Lukman, who is also a former Nigeria oil minister.

During the Cold War, at a time when many crude-producing nations were nationalizing their oil industry, Angola's Marxist government kept the country's main concession in the hands of Gulf Oil, later acquired by Chevron Corp., but its giant Malongo field was guarded by Cuban troops while its royalties paid for Soviet weaponry. The unusual combination effectively kept the regime afloat during the war.

This history of dealing with conflict should have a bearing on Angola's OPEC strategies, observers said. "They have a pragmatic approach of listening to different parties and not giving a clear signal until a consensus is reached," Vines said.

Another factor driving Angola's policies is its huge exploration and production potential.

The country's decision to enter OPEC and its quota system was, in many ways, counterintuitive: It has to stick to a quota despite a huge potential for output growth. Its proven reserves of oil have more that doubled since 1997 and stood at 9 billion barrels at the end of 2007, according to the BP Statistical Review. According to political risk consultants Eurasia Group, production is expected to peak at 2.5 million barrels a day in 2015.

The growth potential is a rare blessing at a time when large producers such as Mexico or Russia are seeing their output decline. Angola "brings a voice to expand production into the system," said William Ramsay, director of the energy program at the French Institute of International Relations.

In times of economic growth, oil consuming countries have battled with producers to increase crude production while the latter pushed for output restraint to defend higher prices. A voice for rising production should be welcomed by consumers once demand picks up.  

Copyright (c) 2008 Dow Jones & Company, Inc.


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