The visit of Angolan President Jose Eduardo dos Santos to China comes at a critical stage for Angola, which has seen its economy struggle since crude oil prices fell sharply in the past year.
Santos arrived in China this week and is expected to sign economic agreements in the financial, education, and energy sector.
Angola is hugely dependent on its oil exports and particularly demand for its crude oil from China, which is its biggest customer.
This is Santos’ first official visit in China in more than seven years, and he will be in the country the entire week, with some meetings focused on the petroleum sector.
Santos met with Yu Zhengsheng, president of the National Assembly, June 9, to discuss areas of common interest between the two countries, according to reports from ANGOP, the Angolan state-run news agency.
A business forum is set to take place with the purpose of attracting investment in order to carry out the government’s economic diversification program, with the aim of alleviating the crisis that has resulted from the fall in oil prices, a ANGOP report said.
The Angolan oil sector is heavily dependent on China, with almost 45-50% of Angolan crude exports going there every month.
“We are selling about 50% of our exports to China. We [hope] to keep this level,” the country’s oil minister Botelho de Vasconcelos told reporters on the sidelines of last week’s OPEC meeting in Vienna.
Almost 65% of Angolan crude exports last year went to Asia, with 49% of that volume going to China, according to data published earlier this year by the US Energy Information Administration.
Angola, Africa’s second-largest crude oil exporter, produces almost 1.7 million-1.8 million b/d of heavy, sweet crude, which is low in sulfur, but, when refined, yields a lot of fuel oil and residual fuels.
China is the biggest consumer of this heavy to medium sweet crude oil from Angola and Chinese refineries have a huge appetite for crudes of these qualities.
China likes crude oil that is heavy and sweet, as it fits the appetite of its refineries that produce a lot of fuel oil to keep its industrial and manufacturing economy marching on.
One of the reasons that Angolan crude has been selling well in the past few months, despite the oversupply in the current physical oil markets, is because Chinese demand for Angolan crude has remained largely steady.
Unipec, the trading arm of Chinese state-owned Sinopec, is by far the largest buyer of Angola crude, buying almost 35-40% of the monthly export program.But China is continuing to diversify its crude buying and its demand for Angolan crude is not growing as steadily as it was a few years ago.
China is now looking increasingly toward Latin America, and its crude imports from countries like Brazil, Venezuela, Colombia and Ecuador have jumped sharply in the past year.
Crude from this region is also beginning to compete with West African crude in finding homes in Asia.
The Angolan oil minister last week admitted that the fall in oil prices had hurt the country’s economy.
“Yes, you know very well [that] in our budget we keep $40/b for oil and you know that oil represents in Angola about 98% of our [export] revenues and this is a lot,” Vasconcelos said.
Another worrying trend for Angola has been that oil output has not grown as expected in the last two years, and this has hurt the economy as it has coincided with the fall in oil prices.
Angolan oil production is currently averaging around 1.79 million b/d and is expected to rise only slightly to 1.8 million b/d in 2016, Vasconcelos said at the OPEC meeting.
Angola’s government has been striving to maximize output levels, but has been struggling with technical problems at several of its fields in recent months.
Angola was expected to increase its crude production to 1.84 million b/d this year from an average 1.67 million b/d in 2014, according to the government budget for this year.
It now looks likely that Angola will again miss its long-held target of 2 million b/d it hoped to achieve as soon as next year.
Source: Business Day