Me on Extracting Gas in Angola
Hydrocarbon production accounts for 88% of Angola's GDP. The country ranks second in oil reserves in sub-Saharan Africa, falling behind Nigeria only, and third in gas reserves, with Nigeria and Mozambique ahead. However, the Republic of Angola halted the production of natural gas in 2015. A graduate of St. Petersburg Mining University, now employed at Angola-based Sonangol, shares his insights into the reasons and consequences of this decision.
What does a Russian person associate Angola with? Civil war, diamonds and oil. Armed conflicts started off immediately after the country had gained independence from Portugal and lasted from 1975 to 2002. At some point, the USSR was involved in them, meaning Angola was often mentioned in the Soviet press. After the collapse of the Soviet Union, then-Russian newspapers ceased to write about the republic. Yet, people never stopped seeing it as a troubled region.
Nowadays, the country is entirely safe, at least by African standards, and its economy is growing tremendously. According to Mercer Human Resource Consulting, in 2017, Luanda, the capital of Angola, was somewhat surprisingly ranked the world's most expensive city for ex-pats. Why is that so? Here is an explanation: unlike the war, which is over now, diamonds and oil are still there and actively exploited by major commodity companies.
OPEC notes that Angola also has remarkably sizeable reserves of natural gas. Why is it not on the list of the leading gas-producing countries then? Not even in its own region?
"I graduated in 2006 and was offered a job at Sonangol right away. It is a state-owned company, a monopoly that controls the country's oil production. I started as an intern, but after a couple of months, I was promoted to engineer and transferred to a new department. There was a strategic task ahead of us: to explore and start developing the first gas fields. Plenty of reserves had been discovered, but we lacked technology, qualified personnel and financial capacity. Therefore they remained untapped for a long time. Finally, the corporation was ready to begin exploiting the fields. And so I found myself in a team; we were the pioneers of natural gas production in Angola. And I must admit it was my CV that helped me get on board.
It has to do with the fact that all of our presidents - three so far - graduated from Russian universities. Studying in Russia has become a sort of tradition, observing which results in reaching great objectives. My uncle was a secretary at the Embassy of Angola in Moscow. I was a schoolboy when I left with him. I completed the ninth, tenth and eleventh grades here, acquired new knowledge, and after graduation, entered Mining University. I once visited a mine in my home country, and ever since, all I wanted is to become a mining engineer. It's a profession that guarantees a promising career and a high income," says Antonio Luther Lopez, Senior Technical Project Manager at Sonangol Gas and Renewable Energies.
Angola's proven gas reserves amount to 383 billion cubic metres. The hydrocarbon deposits are located in the coastal zone, mainly in the shelf area of the Atlantic.
The fresh graduate was initially involved in designing and building the infrastructure needed for offshore production. His next role was to choose suitable pipelines, drilling fluids - in short, help the senior engineer with technical matters.
"At the start of the project, when the production process had not yet been set up, I had to use knowledge and skills from very different areas of oil & gas engineering. It was quite a demanding environment - 28 days offshore, two weeks off, at home, and then back to work again. Nonetheless, we had an important business to do; we knew it, and because of it, we did not feel tired. Unfortunately, this attempt to get production going ended up in failure. Due to formations lying at great depths, producing natural gas turned out to be too expensive. Thanks to the market oversupply, gas prices kept falling year on year. In the end, it made production unprofitable, and the company decided to postpone all activities in this field," explains Mining University's graduate.
This did not affect the Angolan government's plans to open a supported by foreign capital LNG facility. How is it even possible?
Associated gas, captured and then stored, accounts for over 45% of the country's identified reserves. It is recovered in the process of developing offshore oil production. Over the past 5 years, gas resources have, in fact, grown in volume only through entrapping larger amounts of associated gas.
As EIA notes, in 2009, 68 per cent of the gas produced in Angola was flared, 24 per cent was re-injected into oil reservoirs to maintain pressure, and only 8 per cent was commercially exploited. These 8 per cents were notably used solely at the domestic level. Considering that these days in Russia, like in many other countries, fines are paid if less than 95% of gas is used beneficially, the figures above seem unbelievable…
Some adjustments took place with the construction of the LNG plant.
In 2013, Chevron launched the then-largest energy project in Africa known as Angola LNG. The LNG facility's capacity was 5.2 million tonnes of product per year. The shareholders - Chevron Corporation (36.4%), Sonangol (22.8%), BP (13.6%), Eni (13.6%), and Total (13.6%) - planned to supply associated gas from their offshore oil fields. Sonangol built seven LNG tankers with a capacity of 160,000 cubic metres each to serve the venture. The first shipments occurred in June that year.
The idea was warmly welcomed by ecologists. Liquefaction is a highly energy-intensive process. A substantial proportion of the gas should be burnt off to generate energy to cool the remaining gas. Nevertheless, LNG production is far more environmentally friendly than flaring.
"Implementing that project also allowed to use the by-product of oil production for commercial purposes - that is, produce LNG and export it to other countries. Similar projects are being developed across Africa - in Nigeria, Mozambique, Algeria, Cameroon... Experts say that by 2025, Africa's total liquefaction capacity will have reached approximately 44 million tonnes per year. But there are still several factors hampering the development of the market. For example, funding shortage and internal political instability," notes Luther Lopez.
For Angola, the main constraints were the initial high cost of the project ($10 billion) and the lack of long-term contracts. Angola LNG was built for exporting gas to the US. The subsequent shale gas boom shut that door on the possibility of making deals with US customers. The Asian market is dominated by Australian and Papua New Guinean plants. In Latin America, Trinidad and Tobago, Peru, and once again, the US prevail. It actually leaves no other opportunity for the project operator than sell gas on the European spot market to satiate regional demand in winter.
Partly, APG goes to meet the domestic needs of the country.
As works in exploration and production of natural gas had been put to a halt, Antonio Luther Lopez, Mining University's graduate, decided not to leave gas engineering. He is now responsible for running and maintaining 14 of Sonangol's plants that produce gas cylinders for domestic and industrial use.
"Although the topic of alternative energy comes up here all the time, just like everywhere else, the market share of green energy sources in Africa is negligible so far. Hydrocarbons will remain a major energy carrier for decades to come, which explains why so many want to earn a job in the mineral resources sector. A mining engineer in Angola makes 5-6 times more than in the country on average. The diploma makes a difference, too. Local universities don't provide high-quality education; hence, a degree certificate obtained at a Russian, European or American institute leads to a significant increase in pay. Foreign staff earn even more: their rate is up to four times higher than that of locals in comparable positions. Luckily for us, there aren't many ex-pats here. They are usually offered only executive positions," sums up Sonangol's Senior Technical Project Manager.
Angolan companies need less external help since the number of qualified African engineers is growing each year. It is worth mentioning that Russian higher education school is at play here.