Sudanese oil, could it now bring about the peace

By The Middle East

July 31, 2005 — Despite the ongoing conflict in Darfur, it looks as if the north-south peace deal could finally bring an end to the long running Sudanese civil war. The south is to be allowed self-government for a period of seven years before a referendum on the fate of the region is held. Several economic questions still need to be addressed, not least the division of the country’s hydrocarbon revenues.

Sudanese President Omar el-Bashir with ex-President Gaafar Nimeiri and Hassan Turabi among others during the inauguration of an oil pipeline on Monday May 31, 1999, in Heglig, central Sudan. (AP) .

The future of the oil sector was obviously of paramount interest to the two sides in the peace negotiations. An agreement to divide the revenues has been reached although the final percentages have yet to be determined. The oil sector is likely to provide the lion’s share of revenues for both sides for a long time to come and it is vital a deal is struck that will take into account fluctuating production.

With average output of 343,000 barrels a day (b/d) in 2004, Sudan is now the seventh biggest oil producer in Africa, after Nigeria, Libya, Algeria, Angola, Egypt and Equatorial Guinea. According to the country’s minister of energy, Awad Al Jaz, output could top 500,000 b/d by the end of this year, reaching 750,000 b/d by early 2007.

While disputes over the split of oil revenues could lead to renewed conflict between the two sides, the hydrocarbons sector could equally serve to improve relations between the two. Most oil is exported via pipeline from southern Sudan to Port Sudan on the Red Sea coast. It would profit neither side if intensification of the conflict resulted in the pipeline’s closure; as a result of improved pumping technology, pipeline capacity is being increased from 150,000 b/d to 450,000 b/d, further strengthening the north-south economic ties.

In addition, the China National Petroleum Corporation (CNPC) has begun work on construction of a new 200,000 b/d pipeline from the Melut Basin fields on Block 6 in Western Kordofan to an oil refinery in Khartoum. However, further export pipelines – probably connecting oilfields with the oil export terminal at Port Sudan – may be required if any new finds are made. Several projects already under development are expected to take up all existing oil transportation capacity in the country. With 40% equity, CNPC is the biggest stakeholder in the Greater Nile Petroleum Operating Company (GNPOC), which accounts for most production in the country.

The other shareholders in the company include Petronas of Malaysia (30%), India’s Oil and Natural Gas Corporation (ONGC) (25%), and Sudan’s national oil company Sudapet (5%). GNPOC controls the key Unity and Heglig fields on blocks 1, 2 and 4. The government’s production target for this year will be met if another CNPC-led consortium is able to bring production on blocks 3 and 7 in the Malut Basin on stream as planned. Output on the two blocks is expected to rise sharply to 170,000 b/d before increasing to 300,000 b/d within two years.

Sudan’s proven oil reserves stand at just 563m barrels, which does not place the country among the world’s, or even the region’s, most important oil powers. However, remarkably little exploration work has been carried out in the country as a result of the civil war so the eventual figure could be many times greater than this. Geologists have talked enthusiastically for many years about Sudan’s potential and if the peace deal holds, oil companies could return in force to explore large swathes of the country that have so far been almost inaccessible.

Oil revenues notwithstanding, a great deal of work remains to be done to turn south Sudan into an economically viable state. The international community is acutely aware that Africa has more than its fair share of failed states and seems prepared to help finance the new territory, partly in order to prevent a return to war in Sudan. A south Sudan donors’ conference was held in the Norwegian capital of Oslo in April with the aim of raising $2.6bn to help establish the new territory. In the event, a total of $4.5bn was pledged, although such conferences are notorious for generating far more in pledges than is ever actually handed over.

Southern Sudan has always looked to East Africa more than to Khartoum and the North African states beyond. The war in southern Sudan and the Lord’s Resistance Army (LRA) rebellion in northern Uganda effectively cut all links between the region and the rest of eastern Africa but the new south Sudan government is likely to seek to forge closer ties with Uganda, Kenya and Tanzania and perhaps eventually join the East African Community (EAC). The new government is likely to comprise a number of the main south Sudanese factions, although it is almost certain to be headed by John Garang’s Sudan People’s Liberation Army (SPLA).

The greatest symbol of the region’s future is the proposed rail link with the Kenyan port of Mombasa. A tender has recently been launched to manage services on the existing line that runs from Mombasa to Nairobi and on to the Ugandan capital Kampala. Plans have been drawn up to construct a new railway from the south Sudanese town of Juba to connect with the Kampala-Mombasa line. Not only would this give south Sudan access to the sea via one of Africa’s most important ports, but it would also help to bond the region psychologically with East Africa. The New Partnership for Africa’s Development (Nepad) is particularly keen to support cross-border infrastructural projects along these lines and seems eager to champion the railway.

Under the terms of the peace deal, hammered out over several years in Nairobi, southern Sudanese are guaranteed 30% of all jobs in the Khartoum administration and civil service. In practice, the south will have to look to itself for employment and to East Africa for trade. Creating a viable country out of a
war-torn region will not be easy but analysts believe Sudan may have taken the first steps on the road to a peaceful future.