focus: south sudan seeks new role as oil exporter

FOCUS

South Sudan seeks new role as oil exporter

On July 9, 2011, the Republic of South Sudan becameAfrica’s 53rd independent state and its newest exporterof oil. Independence came following a long struggle withthe north. The split from the north sees most of the oilproduction of the former unified state concentrated inthe south. The north is trying to force the south to handover at least half its oil revenues to the government inKhartoum. In default of an agreement with the south-ern government in Juba on oil revenues, Khartoum hasbegun to charge exorbitant fees for the use of the south’sonly export pipeline, which runs to the northern port ofPort Sudan.

The south is exploring other ways of exporting itsoil. The north, however, maintains a stranglehold oversouthern exports and is likely to continue to press fora large share of the south’s export revenues. If no dealcan be reached it has threatened a range of measuresranging from closure of the export pipeline to all-outwar (Table A).

Independence struggle

Tensions have existed between the northern and south-ern halves of Sudan for a number of decades. The largelyChristian and animist south has resented dominationby the Muslim north which has produced a concen-tration of wealth in the north, centred on the capital,Khartoum. Relations between the north and south dete-riorated rapidly in the early 1980s, breaking out intocivil war in 1983. In the subsequent fighting, the northwas accused of several violations of human rights in thesouth. The US government imposed a range of economicsanctions, which led to the withdrawal of its companiesfrom the country. Sudan was also the subject of sanctionsby the United Nations from 1996 for its failure to handover suspected terrorists. Khartoum was also accused ofinvolvement in the bombing of US embassies in Kenya

Table ASudan: Oil Profile, 2010

Proven Reserves 5.0 bn bbl∗

Reserves Remaining 29.7 years†

(bpd)Production 462,000Consumption 70,000Net Exports 392,000

∗As at 1.1.2011†Based on 2010 productionTotals roundedSource: (Reserves) Oil & Gas Journal

(Production) Sudanese Ministry of Petroleum(Other) Pearl Oil estimate

and Tanzania in 1998, which resulted in considerableloss of life.

The effect of international sanctions was to curtail theplanned growth in Sudan’s oil production. In 2007, thecountry’s Oil Minister, Dr Awad al-Jazz claimed thatSudan was producing 500,000 bpd and was on-trackto produce ‘more than 1 mn bpd’ as early as 2009-2010. Actual production in 2007 was slightly lower thanclaimed, since when it has remained below 500,000 bpd(see Table B).

The Ministry of Petroleum revised its target down-wards to 600,000 bpd–to be achieved in 2009–but actualoutput in that year was 475,000 bpd: some 125,000 bpd,or 21%, below target. By 2010, the target had been furtherreduced to 475,000 bpd. Last year’s provisional figuresshow output of only 462,000 bpd: still 13,000 bpd, or3% off-target.

The Khartoum government turned to companies inAsia to replace the US firms that were forced to departfrom Sudan. The main Asian participant has been thestate-owned China National Petroleum Corporation(CNPC), which has the largest shareholding in threeof Sudan’s four oil-producing areas. Another Chinesestate-owned company, Sinopec, is a minor shareholderin one of the areas. India’s Oil and Natural Gas Cor-poration (ONGC) is represented in two blocks, andMalaysia’s national oil company, Petronas, has threeshareholdings (see Table C).

Southern reserves

South Sudan holds about 80% of the former Sudan’sproven oil reserves and accounts for just over 75% ofits output. This year, that could give the south total

Table BSudan: Oil Production, 2000-2010

ProductionYear (th bpd)

2000 1192001 2092002 2362003 2642004 2622005 2822006 3282007 4842008 4632009 4752010 462

Totals roundedSource: (2000-2005) Ministry of Finance

(2005-2010) Ministry of Petroleum

© Blackwell Publishing Ltd, 2011

4 FOCUS OIL AND ENERGY TRENDS, SEPTEMBER 2011

Table CSudan: Oil Producers, 2010

ShareholdersProduction(th bpd)Companies Blocks Company Shareholding (%)

Petrodar Operating Company 3 & 7 254 CNPC 41Petronas 40Sudapet 10Sinopec 6Kharafi 3

Greater Nile Petroleum Operating Company 1, 2 & 4 151 CNPC 40Petronas 30ONGC 25Sudapet 5

Petro-Energy 6 41 CNPC 95Sudapet 5

White Nile Petroleum Operating Company 5A 17 Petronas 69ONGC 34Sudapet 7

Total Production 462

Totals roundedSource: Ministry of Petroleum; Oil Press

Table DSouth Sudan: Oil Profile, 2011

Proven Reserves 4.0 bn bbl∗

Reserves Remaining 31.3 years†


∗As at 1.1.2011†Based on 2011 forecast productionTotals roundedSource: (Reserves) Based on 80% of Oil & Gas Journal estimates for

the whole of Sudan(Other) Pearl Oil estimate

output in the region of 350,000 bpd (see Table D). Thesouth also has most of the low-sulfhur and lighter crudesthat make-up the 34◦ API Nile and 25◦ API Dar exportblends.

The estimate of proven reserves in Table D is based onthe Oil & Gas Journal estimate for the whole of Sudan, asat January 1, 2011. The figure given by the Journal may,however, be an overstatement. The figure of 5.0 bn bblhas not changed since January 1, 2007. The year before,proven reserves were assessed at only 563 mn bbl.

It is most unlikely that Sudan exactly replaced the vol-ume of oil produced to give it a constant reserves’ figureof 5 bn bbl. That figure may well, in any case, have beenan over-estimate in 2007. The former national oil com-pany for the whole of Sudan, Sudapet, estimated Sudan’sproven reserves at the start of 2011 at a more modest2.2 bn bbl–though its estimate was not necessarily onthe same basis as that of the Oil & Gas Journal.

Using Sudapet’s figures, South Sudan would haverecoverable reserves of only 1.7 bn bbl, which would be

sufficient for 13.3 years at current rates of extraction. Indefault of precise data on each field it is impossible tosay which reserve estimate–if either–is accurate, but itnevertheless remains likely that the proven reserves ofSouth Sudan are less than 4.0 bn bbl.

Southern prospects

South Sudan hopes to increase its production. Anyincrease, however, will almost certainly have to comefrom new fields since most of the south’s existing oil-fields appear to be in long term decline. A numberof other foreign firms have exploration acreage in thesouth. One of the most prospective areas is Block B.US Company Marathon had a 33% shareholding untilforced to withdraw because of US sanctions. The twomain foreign shareholders are now Kuwait’s Kufpec andTotal–the only major European company involved inthe Sudanese upstream so far.

The Block is thought to have the potential to produceup to 300,000 bpd, based on preliminary seismic infor-mation. No drilling, however, has taken place. There areseveral other exploration blocks on offer in the south.These include Block E where 75% is held by Spanishindependent Star, with a further 5% held by a smallNorwegian company.

The south, however, remains under the threat ofan invasion by North Sudan, which for three decadesresisted the granting of any autonomy to South Sudan.In the weeks before the south became independentthe northern army seized the border region of Abyeiand began to expel the local population. The Abyeiregion contains three oilfields–Bamboo, Heglig andNeem–which produce around 55,000 bpd of oil.


OIL AND ENERGY TRENDS, SEPTEMBER 2011 FOCUS 5

Unrest is also reported along South Sudan’s otherborders, notably in Darfur, on its north-western edge.Darfur–like South Sudan–has been seeking indepen-dence from Khartoum, and it too has been ravaged bynorthern forces.

Southern exports

Another problem for potential foreign investors is thesouth’s lack of an export route that is independent of thenorth. At present, all its crude exports are transportedby a pipeline to a terminal at Port Sudan on the Red Seacoast of North Sudan, where it is blended with crudesfrom the north.

South Sudan’s Ministry of Roads and Transport saysit is discussing the possibility of building a 450,000 bpdpipeline to Kenya where it would connect with a Kenyanline to the port of Mombassa. It is not clear, how-ever, how such a link might be financed. Moreover,the chances for a new southern export route at presentappear slight unless production from the southern fieldscan be considerably increased.

Most of South Sudan’s crude oil is exported to Asia.Destinations include China, India, Malaysia and Japan.Some of its crude is burned directly in power stationsin Japan. Some crude is also exported to Latin America.The principal buyer is China. In the first quarter of 2011,Sudan was the fifth-largest foreign supplier to Chinawith 290,000 bpd.

New venture

For now, South Sudan’s new national oil company,Nilepet, is relying on a new joint-venture with the oiltrading company Glencore to handle the export of thesouth’s crude oil. The venture–known as Petronile Inter-national–is 51% owned by Nilepet and 49% by Glencore.Its role is to market South Sudan’s crude oil exportsinternationally and to provide training for Nilepet’semployees. Under the terms of the joint-venture agree-ment, Glencore is also committed to investing in theoil infrastructure in South Sudan and helping to raiseinternational finance for the government.

Petronile International will not be fully effective, how-ever, until South Sudan agrees on a long-term solutionwith the north about its exports. The north is tryingto impose harsh terms on its new neighbors. The lossof three-quarters of the combined Sudan’s oil produc-tion has greatly reduced the income of the governmentin Khartoum, which recently announced a three-yearausterity program to deal with the situation.

Under an agreement signed in 2005, designed to endthe decades-old civil war, the south agreed to handover 48% of its oil revenues to the north. Followingindependence, the south tried to renegotiate the north’sshare down to about 25%. Khartoum, however, rejected

Table ENorth Sudan: Oil Profile, 2011

Proven Reserves 1.0 bn bbl*Reserves Remaining 24.1 years†


∗As at 1.1.2011†Based on 2011 forecast productionTotals roundedSource: (Reserves) Based on 20% of Oil & Gas Journal estimates for

the whole of Sudan(Other) Pearl Oil estimate

their proposals, asking for ‘‘50% or more.’’ In the absenceof a new agreement North Sudan imposed swingingcharges for the use of the export pipeline to Port Sudan.

Before independence, companies exporting fromsouthern fields were charged from about $6.00 to $7.50a bbl. Following the south’s independence, the north hasraised the fee by more than 200% to a reported $22.80per bbl. The government in Juba has accused Khartoumof waging economic warfare against the new state. Khar-toum meanwhile continues to make life difficult for Jubain other ways. In August, the export of a cargo of oilfrom the south was delayed by a dispute of the paymentof new customs fees imposed by the northern authoritiesat Port Sudan.

Sharing production

Relations between north and south are further compli-cated by the fact that some oilfields straddle the boundarybetween the two new states. There is also the possibilityof disputes over the ownership of areas that the southhas earmarked for exploration.

One of the issues still to be discussed is the share-holdings in the consortia that produce the oil in thesecross-border regions. The government of the SouthSudan has hastened to reassure foreign members of therelevant consortium-groups that the exploration andproduction-sharing contracts signed with the formernational oil company for the whole of Sudan, Sudapet,will be honored by Juba. The issues concerning share-holdings are between the two new national oil companiesestablished to serve North Sudan and South Sudan. Thenew northern company continues to be named Sudapet,while Nilepet acts as its equivalent in the south.

Sudapet continues to hold the shareholdings obtainedby the company when it covered the whole of Sudan. Itis present in all four current oil-producing consortia (seeTable C). Nilepet wants some or all of Sudapet’s share-holdings transferred to itself where these consortia oper-ate in the south. Khartoum, however, wants Sudapet toretain a shareholding in each of the consortia, althoughthis could, in some cases, be smaller than at present.


6 THE MONTH IN BRIEF OIL AND ENERGY TRENDS, SEPTEMBER 2011

Northern outlook

Under almost any settlement between the north andsouth, North Sudan looks likely to lose a significantportion of its export earnings. Output of 110,00 bpdleaves it with net exports of only 70,000 bpd (see Table E).

As with South Sudan, the reserve estimates in Table Emay well overstate the position in North Sudan.Sudapet’s estimate of the north’s recoverable reserves isabout half that shown in Table E, at 532 mn bbl, givinga reserves:production ratio of only 13.3:1. The north’sfields are old and declining, and most of the prospectiveundeveloped acreage lies in South Sudan. There maybe two or three promising sedimentary basins inlandin the north, but Sudapet is mainly pinning its hopeson offshore acreage in the Red Sea. Some drilling has

already taken place but no commercial finds have beenreported.

Southern prospects

While there has not been much exploration of potentialnew basins in South Sudan, many there are encour-aged by finds made in neighboring countries, especiallyUganda. There is talk of building a refinery in Ugandathat might provide South Sudan with an alternativemarket for its crude oil to exporting it via North Sudan.Another option might be to export South Sudanesecrude across the border to Ethiopia–perhaps in returnfor hydro-electricity produced in Ethiopia’s highlands;but what is needed to make any of this happen is aprolonged period of peace.

THE MONTH IN BRIEF

This section summarizes downstream developments of the previous month. Exploration & Production are covered in‘‘Upstream Review’’.

Tripoli falls, oil installations bombed in Nigeria and Yemen

Armed forces of the Libyan Transitional National Coun-cil (TNC) captured the Libyan capital, Tripoli. TheTNC announced that oil contracts signed with the Qad-hafi regime would be honored, although there weresuggestions from private rebel sources of possible dis-crimination against companies from China, Russia, andother countries that had opposed military action byNATO in support of the rebel uprising. Discussionswere held in Benghazi over a timetable to restart oil pro-duction across the country. Most oilfields were reportedto have sustained little damage. The main problemappeared to be damage to pipelines and export terminalsalong the coast where there had been some of the fiercestfighting. Eni announced it was to supply the TNC withrefined products to help relieve severe shortages in Libyafollowing damage to refineries. The products would bepaid for subsequently with Libyan crude.

Some of Syria’s oil terminals and pipelines wereaffected by increasing unrest, disrupting both exportsand imports. The main effect was on the import of gasoil.The US meanwhile banned its companies from dealingwith Syria’s state-owned oil exporter and importer,Syrtol. The European Union (EU) then announced it wasworking on proposals to ban the import of crude oil fromSyria. Two EU members–Germany and Spain–accountfor 65% of Syria’s crude exports of 150,000 bpd.

A number of bomb attacks were reported on oilpipelines in Nigeria, disrupting supplies to refineriesand causing exports to be cut. A report by the UnitedNations’ Environmental Programme (UNEP) said that

pollution caused by Shell and other oil companies wasmuch worse than estimated. In Ogoniland, drinkingwater was found to be heavily contaminated by hydro-carbons, including benzene. Yemen’s main oil exportpipeline–the 300,000 bpd line from Marib to Ras Issa–was attacked only a month after it was repaired follow-ing an earlier attack, although production was initiallyreported to be unaffected. There was also a bomb attackon an oil pipeline in Iran’s Khuzestan province and amore serious incident when an attack on a gas pipelinetemporarily halted Iranian gas exports to Turkey.

Iraqi politicians accused the Kuwaitis of conductinghorizontal drilling from their own side of the border intoIraq’s Safwan oilfield. Some OPEC ministers expressedconcern at falling oil prices. On August 4, promptBrent futures fell by more than $6 per bbl as stockmar-kets crashed worldwide on fears of a new economicrecession. Iran’s new oil minister, Rostam Ghasami,said that Saudi Arabia played too dominant a role inOPEC, and called for it to cooperate more with othermembers. Lukoil agreed to restart its 196,000 bpd Bur-gas refinery in Bulgaria to prevent local shortages ofjet fuel. The Russian company shut the refinery fol-lowing a dispute over customs duties, which remainsunresolved.

Lonrho is to build a new oil port in Ghana to servethe country’s growing oil production. ConocoPhillipsannounced it had secured a buyer for its 260,000 bpdWilhelmshaven refinery in Germany. The plant is to goto Dutch investor Hestya Energy.


focus: south sudan seeks new role as oil exporter

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