Oil not enough to protect Sudan’s govt for ever

June 21, 2007 (LONDON) — Few countries owe so much, over so little time, to the magic of black gold as does Sudan. From near-bankruptcy in the early 1990s, Sudan has trebled its GDP in the past seven years thanks to the discovery and exploitation of oil; it is now one of Africa’s fastest-growing economies. Sparkling office blocks are beginning to crowd the skyline of Khartoum, the capital. Oil has also brought vital political dividends. China, which buys about 80% of Sudan’s oil exports, has proved a loyal friend at the UN when Sudan has been criticised for murder and mayhem in its Darfur region.

With so much resting on oil, the government of President Omar al-Bashir likes to talk up the industry’s prospects. Production now stands at 480,000 barrels a day, with proven reserves estimated at 1.6 billion barrels. The bullish oil minister, Awad Ahmed al-Jaz, often says he expects output to rise to about 1m b/d next year.

But this scenario may be too rosy. The country’s original and most reliable oilfields, which produce valuable low-sulphur crude marketed as Nile Blend, are maturing. Their output dropped from a peak of 300,000-odd b/d in early 2005 to 254,000 b/d in the first quarter of this year. Prospects for pushing production back up using better oil-recovery techniques are poor, and this dip will be only partly offset by output from new fields that have begun to be exploited in Sudan’s south (see map).

For though oil from a number of new fields began to flow last year, there have been setbacks. Much of the new oil is of inferior quality, selling for less than a third of average international prices. Sudan has some scope to raise production from these fields, but it has less incentive to do so. So exploration for further reserves (and even for offshore gas) is being conducted across the country. In recent months, a flurry of new oil concessions have been awarded.

But many of them have been granted to small and inexperienced operators, often partners of local companies tied to the government. A consortium exploring one southern block is made up wholly of Sudanese firms. A new concession in north Darfur was also given last year to six companies from Arab countries. In both, a substantial stake is held by Hi-Tech Petroleum Group, a company set up by a former oil minister, Abdel Aziz Osman. This firm, in which a brother of President Bashir has a senior post, was recently named as a target of new American sanctions against Sudan.

Many of the big Western oil companies are being scared off by the prospect of more sanctions and humanitarian divestment campaigns over Darfur. In 2003 a Canadian firm, Talisman, was forced out by pressure from campaigners. Similar reasons were cited for the departure of the Cliveden Group, a Swiss firm, last year. There is speculation that Marathon, an American oil company, may dispose of its 32.5% share in Block B, in southern Sudan.

Without the big internationals’ wealth and experience, smaller local and regional players may struggle. If, for example, they have to build export facilities, the lengths of pipelines in a country the size of western Europe are daunting. And any company wanting a secure export route in case the southern half of the country chose to secede in a referendum promised in 2011 would have to lay a pipeline to the Kenyan port of Lamu—another huge challenge.

(The Economist)