South Sudan Oil

It was a little over a year ago that the Republic of South Sudan became an independent nation.

On July 9, 2011, the African nation declared independence from its northern neighbor after 21 years of civil war.

But the fighting is far from over. Border disputes and tensions over oil have kept the two nations at odds since the war ended in 2005 and right up until today.

On Friday, however, the North and South began to make headway. With tensions still running high, they have named price tags for South Sudanese oil exports through Sudan’s pipelines.

Before January, South Sudan exported 350,000 barrels per day of oil. But the dispute over exports, which relied on Sudan’s pipelines, put a stop to this output at the start of 2012.

Now, however, production will begin again, albeit slowly.

From Reuters:

“The production will begin from 150,000 (bpd)… and within three, four months, it would go to 180,000, 190,000 (bpd), and then it will go to the (old) level, and possibly higher than the time (before shutdown) within one year,” [Pagan Amum] said.

Amum is the lead negotiator for South Sudan’s talks with Sudan at the African Union. He set September as the deadline for bringing the wells online.

But they will need some work. Some were improperly closed, while others are currently full of water to prevent gelling.

And shipping will cost the new nation a fair bit. According to the agreement, South Sudan will pay $9.48 per barrel of oil transported through Sudanese oil infrastructure.

In addition, it will pay $3.028 billion for the national income lost by Sudan in the split.

Sudan had long relied on oil fields in the South as part of its finances. Tensions rose to dangerous levels with the South’s independence because of this financial loss.

The $3 billion and export fees will cover some of it, but not all of it. Sudan wants an additional $3 billion over three and a half years.

The United States currently has sanctions imposed on Khartoum, Sudan’s capital. Though it wants to help with the funding, the sanctions are preventing it from doing so. So it has appealed to nations like China and Arab states.

China was a big importer of South Sudanese oil before production shut down earlier this year. It would certainly benefit from facilitating South Sudan’s return to production.

And the U.S. is on the hook as well. It had promised to remove sanctions on Khartoum if it allowed South Sudan to declare independence. But war crimes simply caused an extension of those sanctions.

From the Financial Times:

“There are two things Khartoum is looking for out of the oil deal: a concerted effort by the international community to get them [the $3bn] – much from Arab countries and China, and they would also like sanctions lifted,” a senior western diplomat told the FT.

“The US has some leverage on this because most financial transactions are in dollars and subject to sanctions. If the US doesn’t grant waivers it can make life difficult for the Kuwaitis and Qataris,” he said of two Khartoum’s main Arab allies.

In the meantime, oil exports will be allowed to begin again under the conditions.

The border dispute still remains. Talks will be readdressed in late August, though little headway has been made so far.

Violence and accusations are ruling the discussions, making agreement difficult.

But Amum seemed positive, saying to Reuters:

“We’re aiming at a comprehensive deal…We will establish the demilitarized zone, we will deploy monitors.”

“We will ensure full compliance by the two countries of non-interference in the affairs of the other.”

The agreement could stabilize price increases caused by supply disruptions from the North Sea and Middle East. If the lost oil supply from South Sudan begins flowing again, prices could slip.

Benchmark U.S. crude rose to $93.67 on Tuesday, while Brent crude went up 2.2% to $112.

That’s all for now,

Brianna Panzica

@brianna_panzica on Twitter

Energy & Capital’s modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends.