ANGOLA TO JOIN OPEC

UNCLAS LUANDA 001241 SIPDIS SENSITIVE SIPDIS STATE FOR EB/IEC/ENR AND AF/S NSC FOR AF/BPITTMAN E.O.12958: N/A TAGS: EPET ETRD ECON AO SUBJECT: ANGOLA TO JOIN OPEC ¶1. (SBU) Summary. On November 29, Angola's Council of Ministers approved full membership for Angola in the Organization of Petroleum Exporting States (OPEC). The Council's public announcement said Angola's increase in oil production to more than 1.4 million barrels per day drove its decision. The factors behind the decision include Angola's desire to counter Nigeria as a regional power in the Gulf of Guinea, a desire to maintain high crude oil revenues and the GRA's desire to control the growth of oil production in a more sustainable way. The GRA has also gone out of its way to indicate that joining OPEC was a home-grown GRA initiative. In general foreign oil firms have not reacted negatively, although there is some concern that the OPEC quotas may be used to control expansion of production beyond contracted levels. End Summary. ¶2. (SBU) On November 29, 2006, Angola's Council of Ministers approved full membership for Angola in the Organization of Petroleum Exporting States (OPEC). The Council's public announcement said that Angola's increase in oil production to more than 1.4 million barrels per day (bpd) drove the decision. The timing of the announcement came as a surprise to oil industry insiders as well as to the general public. As recently as May and June 2006 Angolan officials publicly denied news reports claiming Angola had applied to join OPEC. Rumors also flew during Venezuelan President Hugo Chavez's September visit to Angola that Chavez had pressed Angola's President Eduardo dos Santos to join OPEC. ¶3. In conversations with UN officials, Angolan officials noted that Angola's joining OPEC will put it on an equal footing with Nigeria among Africa's oil producers, and serve as a counterweight within the Gulf of Guinea context. On November 30, President dos Santos's Economic Advisor also told Ambassador Efird that Angola has been exploring OPEC membership for some time, but that Chavez's visit had nothing to do with Angola's decision to join OPEC. Angola's leadership decided to join because it now feels convinced that Angola can afford OPEC price and production restrictions. ¶4. (SBU) Angola currently produces approximately 1.4 m bpd, making it the second-largest producer of oil in Sub-Saharan Africa. It may surpass Nigeria in 2007, reaching 2.2 m bpd by mid-2007 as two new wells in Total's Bloc 17, wells in British Petroleum's (BP's) bloc 18 and increased production from Chevron's wells in blocs 14 and 0 (zero) are expected to increase overall production by 755,000 bpd. Angola has attended OPEC meetings as an observer since at least ¶2002. Under OPEC rules, three-fourths of the members must approve full membership in the organization. The next meeting of the OPEC Conference is scheduled for December 14. Current members of OPEC include Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Angola has received USD 43 million from OPEC's Fund for International Development as of September 2006. ¶5. (SBU) Oil companies operating in Angola have had mixed reaction to the news, though mostly positive. Most companies felt that the move would not have a significant impact on operations, especially on projected new production. One concern raised was that as an OPEC member, Angola will not allow companies to produce more than the amount stipulated in existing contracts. In one recent case, a company was told to bring its production back down after increased efficiencies had allowed it to exceed the agreed-upon production. The company was given no reason for this decision, but the OPEC announcement was made only a short while later. ¶6. (SBU) Comment. Angola is a natural candidate for membership in OPEC because it consumes only a small fraction of its own production. Its decision to join OPEC means the leadership has decided that keeping oil prices high will serve Angola's long-term interests even better than production increases. Even so, growing world demand may allow Angola uninterrupted increases in production over the next two years. Membership in the international organization will come as Angola's output begins to rival Nigeria's and should confer on Angola some of the stature it craves as an international and regional player. End Comment. EFIRD