LONDON/BEIJING (Reuters) - Angola is expanding its long-term oil sales deals to China, signing a 10-year agreement with Sinochem Group that would make the Chinese firm one of the largest contract buyers of Angolan oil.
The deal, with state energy company Sonangol, will help the west African oil producing nation raise funds to withstand the low oil price storm.
The agreement will help Angola secure an even bigger share of the Asian market as West African oil grapples with the long-term displacement from the U.S. market by the shale oil revolution.
A statement on the Chinese company’s website did not give financial or volume details, but trading sources said it would take five cargoes per month.
Sonangol already has a contract with China’s Unipec, but the total number of cargoes given to all term buyers in any month rarely surpasses 15. The new contract is the first between Sonangol and Sinochem.
Already, Angola sells as much as half of its 1.7 million barrels per day (bpd) of crude oil exports to China, but competes for buyers worldwide with OPEC rivals such as Saudi Arabia and Iraq.
Sources said the deal directly related to loans that the Chinese government has given to Angola as its commodity-reliant economy struggles with the slump in crude oil prices over the past year.
“This should be a pre-financing deal under which the producer uses its oil as collateral, and China is poised to win construction or engineering contracts there in return,” a senior Beijing-based crude oil trader with a state firm said. “In terms of quality and geopolitics, Angolan oil seems a safe bet.”
Along with the chairman of Sonangol, Angola’s financial minister, Armando Manuel, was present at the signing of the deal, as was Zheng Zhijie, president of China Development Bank.
China agreed a year ago to lend Sonangol $2 billion to expand oil and gas projects, and Angolan President Jose Eduardo dos Santos was in China in June seeking a two-year moratorium on debt repayments along with financing for a range of projects, including a $4.5 billion hydropower scheme.
The deal is also likely to push out another term contract holder, sources said, as Sonangol has to trade some of its oil on a spot basis in order to establish prices for term agreements.
But the loss of a term buyer could be worth it in exchange for a bigger foothold in China. Sources said Sinochem, which has investments in three refineries, was likely to use some of the oil to supply the country’s new crude importers.
The government earlier this year granted almost 700,000 bpd of new crude import quotas to domestic refiners as part of efforts to reform the industry, and also authorized more of these refineries to export oil products.
Editing by David Holmes and Louise Heavens
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