South Sudan Oil Hopes Thwarted Once Again by Civil War

A month after announcing oil production would resume, Sudan's peace agreement is cracking. Five days of heavy fighting have forced tens of thousands of people, mainly from South Sudan’s capital, Juba, to flee the bloody violence and attempt to cross borders.

The fighting comes after South Sudan announced in late May that it would resume oil production this month, after two years of civil war—over oil—had finally come to a close. Those plans are now once again placed on the back burner.

Yesterday, the BBC reported that Germany, the UK, Italy, Japan, India, and Uganda are working to remove their citizens from South Sudan in the wake of the fighting to ensure the safety of their citizens.

Although a “ceasefire” has been reached between President Salva Kiir’s forces and Vice President Riek Machar’s forces, the likelihood that South Sudan will stick to its plans to resume oil production in July is slim.

South Sudan gained its independence from Sudan in 2011, also gaining control of about 75 percent of Sudan's oil production.
Unfortunately for South Sudan, it is landlocked, and must depend on Sudan’s pipeline through Sudan to get the oil to the Bashayer port along the Red Sea. Sudan, who lost 75 percent of its oil revenue in the deal, managed to retain pipelines and facilities, allowing it to levy transfer fees on South Sudan for the transport of that oil through its territory.

In January 2012, South Sudan shut down its oil fields in protest of what it thought was unfair fees. The oil production was stymied until March 2013, resuming after another agreement was reached, only to be halted once again that December after an armed civil conflict began.

Shortly thereafter, the Oil &Gas Journal predicted that Sudan had 1.5 billion barrels and South Sudan had 3.5 billion barrels of proved oil reserves, as of January 1, 2014. China’s state-owned National Petroleum Corporation (CNPC), one of three companies that previously operated in South Sudan, holds a 40% stake in a joint venture that once operated there, along with operating a 1,600 kilometer export pipeline that carries crude through abutting Sudan to Port Sudan.

The recent bloodshed once again makes South Sudan oil production unlikely---a situation that negatively impacts both South Sudan and Sudan—along with China, who has been waiting in the wings for years.

By Julianne Geiger for Oilprice.com

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