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Cablegate: Angola to Join Opec

VZCZCXRO5469
PP RUEHBZ RUEHDE RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLU #1241 3381417
ZNR UUUUU ZZH
P 041417Z DEC 06
FM AMEMBASSY LUANDA
TO RUEHC/SECSTATE WASHDC PRIORITY 3510
INFO RUEHHH/OPEC COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RHEHNSC/NSC WASHDC

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

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