Angola's Oil Refining: A Step-By-Step Guide

Angola is one of the largest oil producers in Africa, with an output of approximately 1.37 million barrels of oil per day (bpd). However, despite its vast oil reserves, the country faces a challenge in reversing the decline in oil production observed in the last decade. The country's economy relies heavily on the oil industry, with around one-third of its GDP rooted in this sector. To address the decline in production and boost the economy, the Angolan government has implemented various measures, including releasing a strategic plan for hydrocarbon exploration and introducing new tax incentives to encourage investment in the oil industry.

A key challenge for Angola is its limited refinery infrastructure, with only one operational refinery in Luanda, resulting in a dependence on imported refined petroleum products. The government has recognized this issue and is prioritizing refinery development, with upgrades to the existing facility in Luanda and three new refinery projects in the pipeline. These initiatives aim to reduce the country's dependence on imported refined petroleum and increase self-sufficiency in refined hydrocarbons through public-private partnerships.

The new refinery in Cabinda, a joint venture between Gemcorp and the national oil company Sonangol, is expected to supply around 10% of Angola's domestic demand for refined oil products. Additionally, new refineries are planned in Soyo and Lobito, with the overall goal of increasing the country's oil refining capacity to 425,000 bpd by 2025. These developments in Angola's oil refining sector are significant steps towards reducing the country's dependence on imported fuel and boosting the local economy.

Angola's oil refining capacity is set to increase

Angola is one of the largest oil producers in Africa, but it has faced a decline in oil production over the last decade. In 2020, Angola produced 1.3 million barrels of oil per day, the lowest level in the last decade. The country's finances rely heavily on oil, with around one-third of its GDP rooted in the industry. Crude oil, natural gas, and refined oil account for almost all of Angola's exports.

To address the decrease in oil output, the Angolan government has implemented several measures to increase its refining capacity and reduce its dependence on imported refined petroleum products. Angola currently has only one operational refinery, the Luanda Refinery, which is operated by Fina Petroleos de Angola and the national oil company, Sonangol. The refinery has a capacity of 65,000 barrels per day, but it only meets 20% of the market's needs.

To boost its refining capacity, Angola has planned several new refineries and upgrades to the existing facility in Luanda. Here are the key developments:

• Luanda Refinery Expansion: A $235 million project is underway to expand the Luanda refinery to 72,000 barrels per day, helping Angola save $200 million in energy export costs.
• Cabinda Refinery: MIREMPET is developing a $920 million plant in Cabinda that will increase Angola's refining capacity by 60,000 barrels per day. The contract for this project was awarded to the United Shine consortium, a joint venture between United Shine and Sonangol.
• Soyo Refinery: The Ministry of Mineral Resources, Oil and Gas has awarded the tender for constructing a 100,000-barrel-per-day refinery in Soyo city to the US-based Quanten Consortium Angola.
• Lobito Refinery: Sonangol is in negotiations with a group of companies to establish a joint venture for a 200,000-barrel-per-day refinery in Lobito, expected to be completed by the end of 2025.
• Luanda Refinery Upgrades: Sonangol plans to install two additional processing units at the Luanda refinery, increasing gasoline production four-fold to 1,100 tons per day and reducing the market deficit by 20%.

These developments are expected to significantly increase Angola's refining capacity, reduce its reliance on imported fuel, and strengthen its position in the global energy market.

Luanda refinery is being upgraded

Angola is one of the top two crude oil producers in Africa, but it only refines about 20% of the petroleum products it needs. To address this, the country is prioritizing refinery development, with upgrades to its only operating facility in Luanda, and three new projects in the pipeline.

The Luanda refinery is operated by Italian oil company ENI, under a joint venture agreement with the state-owned company Sonangol. The refinery has an installed capacity of 65,000 barrels per day (bpd) and has been supplying refined products to the domestic market, but it has been unable to meet the full demand of the population.

To improve capacity, Sonangol announced plans to upgrade the facility through the installation of two additional processing units, as well as other utilities and offsites. The EPC contractor for the upgrade is KT-Kinetics Technology, which is responsible for the engineering, procurement, and construction services. The upgrade is estimated to cost US$235 million and will enable the refinery to increase gasoline production four-fold, from 280 tons per day to approximately 1,100 tons per day. The upgrade is expected to reduce the market deficit by 20% when it becomes operational.

The project also has environmental benefits. According to ENI, "The Combined Cycle has been rehabilitated so as to be fed by hydrogen produced by the new Platforming unit. Power is now produced recycling gas with a net reduction of pollutant emissions."

New refineries are planned in Soyo, Cabinda and Lobito

Angola is planning to build three new refineries in Soyo, Cabinda, and Lobito, and to refurbish its Luanda facility, which was constructed in the 1960s. The government first announced in 2015 that it was teaming up with a consortium led by China Tianchen Engineering to build the Soyo plant. This project, which was billed as a US $14 billion, 400,000 bpd scheme, was later put on hold.

The Soyo refinery is expected to have a capacity of 100,000 barrels per day (bpd) and will be developed by the US-led Quanten Consortium, which includes Cisco Systems and KBR Inc. The project is expected to cost $3.5 billion and will include the construction of a tank farm, a marine terminal, and all associated infrastructure, including a power plant, a potable water plant, and a wastewater treatment plant. The refinery is slated to start producing in the fourth quarter of 2025.

In Cabinda, the government of Angola, through state-owned Sonangol EP, and partner Gemcorp Capital, have taken the final investment decision to proceed with the construction of a greenfield refinery with a capacity of 60,000 bpd. The refinery will be developed in three phases, with Phase 1 scheduled for completion in the first quarter of 2022, followed by Phase 2 in the second quarter of 2023, and Phase 3 in the second quarter of 2024. The total cost of the project is estimated at $920 million, with $220 million for Phase 1 and $700 million for Phases 2 and 3.

In Lobito, Sonangol is advancing on its long-planned project to build a new refinery with a capacity of 200,000 bpd. The project was temporarily suspended in 2016 and is currently under reassessment based on new technical and financial assumptions.

Angola's oil production is declining

The COVID-19 pandemic and a sharp decline in crude oil prices amid an international price war have impacted the industry. However, Angola remains the second-largest oil-producing country in sub-Saharan Africa and a leading producer on the continent. The oil industry is vital to Angola, accounting for almost three-quarters of the country's revenues and a third of its GDP.

The country has an estimated 9 billion barrels of proven oil reserves and 11 trillion cubic feet of proven natural gas reserves. However, there has been a lack of private and public investment in recent years, which has contributed to the decline in production. The government has implemented reforms and released a strategic plan for hydrocarbon exploration to address this, including bidding on 50 oil blocks and investing 800 million dollars.

Angola has also prioritized refinery development to reduce its dependence on imported refined petroleum, with upgrades to its only operating facility in Luanda and three new projects in the pipeline. The country aims to increase its oil refining capacity to 425,000 barrels per day by 2025.

The high production costs, which average $40 per barrel, have also deterred new players and limited new investments. The industry needs a more competitive business environment with reduced costs and increased efficiency.

Angola is the second-largest oil producer in Africa

Despite being a leading oil producer in the continent, Angola's refining of crude oil and distribution of refined oil remains below domestic demand. The country has only one active refinery in Luanda, with a capacity of 65,000 barrels of refined oil per day. Additionally, 15,000 barrels of fuel are generated in the Malongo-Cabinda area. To address this imbalance, the Angolan government is prioritizing refinery development, with upgrades to the existing facility in Luanda and three new projects in the pipeline. The aim is to attain sufficiency in refined hydrocarbons through public-private partnerships (PPPs), with private companies financing investments in midstream projects.

The government of Angola has implemented a series of reforms to boost the oil sector, including transferring concessionaires' rights from the national oil company Sonangol to the National Agency for Petroleum, Gas and Biofuels (ANPG). The ANPG is responsible for regulating upstream operations and awarding concessions blocks for onshore and offshore exploration and production fields. To stimulate investments, the ANPG planned a six-year licensing round from 2019 to 2025 to auction a total of 50 new blocks.

The refining and distribution of crude oil in Angola is well below domestic demand. Angola has recently surpassed longtime leaders Nigeria and Algeria in oil production but is heavily dependent on imported refined petroleum, spending over $2 billion annually on petroleum imports. To reduce this dependence, the Angolan government has plans for the construction of national refineries, with the goal of increasing refining capacity to 425,000 barrels per day by 2025.

The Angolan government is taking steps to attract more foreign investment in the oil sector, with inflows of foreign direct investment in the petroleum industry amounting to $1.6 billion in the first quarter of 2021. The country faces challenges such as high production costs, restrictions on foreign exchange, and bureaucratic processes that hinder investments. However, the government is working to address these issues and create a more competitive business environment to boost the oil industry and the overall economy.

Frequently asked questions