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Angola’s Oil Major Sonangol Faces New Crisis


The President of Angola Joao Lourenço has fired Sonangol CEO Carlos Saturnino, as well as the whole board of directors. Now there are several things which seem wrong at first with the above fact. Firstly, after Carlos Saturnino took over from Isabel dos Santos, the daughter of former Angolan president/autocrat José dos Santos, Sonangol seemed to finally move in the right direction with a leaner approach to things and optimized asset portfolio. Secondly, investor confidence has just started to rise lately after international investors came to appreciate the Angolan government’s quest to bring more transparency into the oil sector and to sweeten up a bit its terms and conditions. Thirdly, it might seem somewhat trivial to fire the national oil company’s directors during an acute fuel shortage crisis, not afterwards after the blaze was doused.

When President Lourenço (oftentimes called J-Lo in a somewhat tongue-in-cheek manner) fired Isabel dos Santos in 2017, the move hardly raised any eyebrows – after all she was the living display of a past regime. Carlos Saturnino, the Sonangol-insider manager appointed in her stead, did not reveal himself to entertain political ambitions and was thus a very fitting substitute. Two years later Saturnino is fired for “public service convenience” and replaced by Sebastião Gaspar Martins. The firing took place a day after the President convened a sudden meeting with Sonangol’s board, bemoaning Sonangol’s inadequate communication with state ministries and financial institutions in the face of a deteriorating fuel deficit.

The fuel shortage came about out of the blue, the first signs of it manifested themselves on May 05. Virtually within a couple of days, the panic spread throughout Luanda to such an extent that most service stations were empty and the ones on the outskirts which still had fuel were crowded by people intent on taking home at least some stocks in jerrycans. The situation is by no means unknown to inhabitants of Luanda and other major Angolan cities – Sonangol was conditioning fuel this March when it incorrectly assessed the amount of fuel that residents would need and had a major crisis in December 2017, too.

Sonangol has argued that the fuel shortages were caused by a combination of “limited access to foreign exchange”, logistical problems across the country and piling debts from industrial users. The first claim sounds quite ridiculous from a NOC that received almost 3 billion in Q1 2019 solely for exporting crude and is generally selling off its cargoes sooner than equity holders in Angolan projects (for instance, Sonangol has already sold off all its June-loading cargoes when equity holders still have at least a dozen). The other two, however, are perfectly valid and can be traced back to the fact that Angola relies for more than 80 percent on oil product imports, despite being Africa’s second-largest crude producer (in this, it shares many similarities with Nigeria).

How is that even possible, you might ask. Angola currently only operates one refinery in the capital city of Luanda, yet even this need a double caveat – it is very rare that Sonanref (the NOC’s refining subsidiary) can run it up to its 65kbpd nominal capacity and it is very unfortunate that the refinery dates back to the Portuguese colonial times, being commissioned in 1958, with no grand-scale upgrades made since. The new Angolan government has been promoting the idea of upgrading the Luanda refinery and building two new refineries across the country for quite some time, yet its implementation seems to be highly susceptible to ever-present delays.

The first step, building a fluid catalytic cracker at the Luanda refinery is expected to be completed by the end of 2021 even though it is the Italian major ENI who is responsible for carrying it through. The second step, building a 60kbpd refining capacity refinery in Cabinda (i.e. close to the production hubs) is also slated for the end of 2021 yet many question marks sully the prospects of this endeavor. For instance, Sonangol has chosen the United Shine consortium to carry out the construction and owns 90 percent of the refinery, yet no one really knows who belongs to this consortium and on what grounds did it win the 2017 tender. Sonangol officials did not particularly aid in understanding who stands behind United Shine either, paving the way for a plentitude of rumors.

The third tenet of the government’s refining strategy is the revival of the 200kbpd Lobito refinery, a project which was on the table throughout the dos Santos years yet never made it into real life because of its exorbitant costs. The Lourenço government brought it back onto the agenda, fixing a 2025 completion date to it. It is still unclear who would be willing to participate in the project (estimated to be in the 8-10 billion range) as Sonanref keeps on trying to get majors onboard for a joint venture. Thus, until at least late 2021 there will not be any easing of fuel production constraints and Angola might experience further shortages along the line.

When the new Sonangol leadership was inaugurated May 10, President Lourenço stated that the nation’s “imperative need is to have the capacity to refine its own crude oil for products”. One can only imply that if there was any malfeasance from the part of previous Sonangol CEO Saturnino, it was most likely related to the refinery construction process which, albeit launched in late 2017, has barely moved an inch forward. Angola is in no way alone in struggling to operate refineries on a sustainable and commercially viable level – Nigeria’s best hope of self-sufficiency is the 100-percent privately owned Dangote refinery, whilst Ghana, Uganda, partially Algeria, Zambia and others have been fighting stiff headwinds to bring their refineries onstream.


Major African nations have instead traditionally opted for a “crude-for-products” swap scheme, one of the last safe refuges of international trading houses. Just as Nigeria, Angola did it too, allocating volumes of crude to Trafigura and Vitol for incoming products. Hypothetically speaking, an elegant way to circumvent future fuel shortages would be to increase output, hence raise the incoming product volume, yet there is very little the new CEO can do in terms of kick-starting production. Angola’s deepwater saw the commissioning of the Total-operated 115kbpd Kaombo Sul FPSO (its crude is labeled Gindungo after one of the fields) this year which did alleviate concerns about a decline too rapid to handle, however, there is very little additional upside potential going forward.


The new Sonangol top management will make sure to remain on track with projects of national importance, i.e. Angola desperately needs to get its 2019 licensing round moving and to finalize fiscal changes which would ease the burden on producing majors (producing in deepwater offshore in itself is very capital-intensive, the Kaombo project cost a total of $16 billion so far). The new leadership would also bring Sonangol closer to the state itself – something which international investors need not necessarily feel straightaway or even at all in the future. This is to say that the divestment program, comprising the sale of 52 joint ventures and divestments of assets outside of Sonangol’s core region (Africa), would go ahead yet the proceeds might be diverted for national use should the situation require so.

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