Future of Sudan’s oil resources hangs on secession vote

If the people of the south choose to secede from the north, the new country, where most of Sudan's oil is located, will have to make big choices about getting its crude to market safely.

Southern Sudan could become a new state, but with independence will come the inevitable challenges especially for the potentially lucrative oil sector. Roberto Schmidt / AFP
Powered by automated translation

Officials in south Sudan hope separation from the north, if voters opt for it, will attract oil-sector investment that has been prevented by sanctions against Khartoum.

Residents of south Sudan today start voting in a referendum that may result in a new African nation that will join the ranks of the world's largest oil exporters.

With an influx of capital and technical expertise, south Sudan's oil production can "absolutely" double within three years, from today's 450,000 barrels per day (bpd) to 1 million bpd, says Garang Diing Akuong, the minister of energy and mining for south Sudan.

"We are looking for companies from Europe and America," Mr Akuong says. "We are open to investment from all over the world - from the Middle East we wouldn't mind."

The only problem is getting the oil out. Although the south holds an estimated 80 per cent of Sudan's oil, the only route to export now is through a pipeline that goes through the north to a port on the Red Sea.

"We don't have infrastructure in southern Sudan, we don't have a pipeline, we don't have a refinery," Mr Akuong says. "We have oil."

If no new wells are drilled, south Sudan's production is projected to decline to 150,000 bpd in 20 years, says Egbert Wesselink, the co-ordinator of the European Coalition on Oil in Sudan. Mr Wesselink is advising the energy ministry in Juba, the capital of south Sudan.

Without new wells, south Sudan might have to shelve ambitions of joining OPEC, the smallest producing country of which, Ecuador, puts out 480,000 bpd.

An overwhelming majority of the 5.5 million people eligible to vote in Sudan and other countries, including the UAE, are expected to choose to split from the north.

But voters will have to make that decision without knowing the ultimate location of boundaries, the division of oilfields or the use of a key pipeline the south relies on to transport its crude to international markets. How the north and south share those resources will depend on the outcome of talks between the two sides.

A round of negotiations closed last month in Khartoum and will pick up in Juba after the week-long secession referendum. Officials from both governments will discuss how to divide Sudan's oil resources, manage the oil industry and infrastructure, and ensure environmental responsibility.

"We think the oil of the south belongs to the southern peoples and the oil of the north should belong to the northern Sudanese people," Mr Akuong says.

The government in Khartoum draws 90 per cent of its income from oil, the highest percentage of any country. But there is uncertainty over exactly how much oil is produced.

Khartoum has reported production rates between 9 and 26 per cent lower than the figures reported by the Chinese National Petroleum Corporation, the largest investor in the industry, according to a report by Global Witness, a rights group based in the US.

Last month, Khartoum hosted representatives from the Extractive Industries Transparency Initiative, a group that has implemented a resource-reporting mechanism in countries including Nigeria and hopes to bring more civil society monitoring to Sudan.

For now, south Sudan does not know how it will bring its oil to international markets and how much it will have to pay to do so.

The hope in Juba is to reduce dependence on the pipeline running through north Sudan to the Red Sea by pursuing plans for two separate pipelines running south. One plan is to transport crude to a potential refinery near Uganda's Lake Albert, where large oil deposits have been discovered. From there, petroleum products would be transported by truck to the African coast.

Another plan, a US$1.5 billion (Dh5.51bn) project being studied by the trading arm of the Japanese car maker Toyota, would pipe oil 1,400km from Juba to the Kenyan island of Lamu. Kenya has separately invited bids for the construction of a new port in Lamu, part of a planned $22bn transport network that would include a railway line connecting Kenya and south Sudan.

Any new route for Sudanese oil would allow south Sudan, depending on the outcome of negotiations, to lower its reliance on the south-north pipeline and avoid paying fees or a percentage of profits to Khartoum. It would also create the infrastructure necessary if south Sudan is to double its oil production.

But any major development to divert south Sudanese oil will take time, and in the meanwhile the south will have to continue exporting through the north.

"You're not talking about 2011, but more end of 2012," says Catherine Hunter, an analyst with IHS Global Insight in London who specialises in Sudan and the Levant.

South Sudan hopes that an independent country, should it emerge, would be free of the US-imposed sanctions that now impede investment from many international oil companies. The US would be likely to waive sanctions for new companies investing in the south, Mr Wesselink says.

"But they're not there yet and it's a high-risk environment," he says. "Companies like ExxonMobil and Chevron and Shell, they're not interested in working in an environment that's potentially violent."

Mr Akuong insists that reaching 1 million bpd in three years is a realistic goal.

"The security in the producing areas has improved and a lot of wells are entering the production," he says. "There is a potential that production will increase."

He also expects discoveries in large, undeveloped blocks. Total of France has not yet developed its concessions because of a dispute with White Nile, a British company, and concerns for the security of its international employees, says Mr Akuong, who went to Paris in November to meet Total executives.

"We told them that we are ready to provide security to everybody in southern Sudan, foreigners and southern Sudanese, even northerners," he says.

One fifth of the concession in which Total has ownership, block B, is still up for allocation, and Mr Akuong says the ministry plans to conduct seismic studies to seek new oilfields.

But south Sudan's immediate focus will be on reversing damage to oilfields that may have been exploited too quickly, says Mr Wesselink, who plans next month to go to Juba to continue work with the southern energy ministry.

"The policy of Khartoum has been to make as much money as quickly as possible," he says. "Common sense would say that as of next July, they have a shared interest to start pumping more carefully. But then common sense has not always prevailed in Sudan."