Oil output squeezed by LNG plant closure

The lengthy shutdown of a liquefied natural gas (LNG) plant is helping push Angola’s crude oil exports to their lowest levels since 2006, having clogged offshore platforms with unwanted gas supplies and forced operators to limit extraction.

The major reconstruction required to fix design flaws at the LNG plant and replace nearly-new equipment that has already corroded could keep it shut beyond a planned restart in mid-2015.

With few alternatives available to unblock oil flows, the highly polluting practice of burning off gas in flare stacks, which the plant was built to prevent, looks set to return for as long as it takes to carry out repairs.

But a more far-reaching consequence of the constraint on oil output could be to deter investor appetite for Angola’s frontier pre-salt blocks, which are deep and therefore costly to exploit, as the government prepares to launch licensing rounds next year.

Before the LNG plant started up, Western oil majors would mostly re-inject gas back into the oilfields to boost flow, a method that had grown in use since the government clamped down on large-scale flaring about a decade ago.

As nearly all Angola’s wells contain gas mixed with oil, the gas pile-up means that oil output suffers. For now, data shows oil production declining. Over the year so far, oil exports average 1.62 million bpd, their lowest since 2006, at a time when the price of oil has fallen to its lowest level for around four years.

The government has repeatedly said that new production will push output above 2 million barrels per day, though it has rowed back from estimates of when this will occur.

The five offshore oil and gas blocks supplying the LNG plant are Exxon’s Block 15, Total’s Block 17, BP’s Block 18 and, once pipeline links are built, the Chevron-operated Blocks 0 and 14. Some fields in Blocks 17 and 18 have hit their capacity limits for gas re-injection, while Exxon’s Block 15 is getting close.