18 January 2013

South Sudan: Petroleum - Could Have Been the Fuel of Our Economic Engine

opinion

It is unfortunate South Sudan has fallen into the trap of the dreaded 'Dutch Disease'. We cannot now escape from oil. Every thought, every plan, every dream about righting our economy is attached to oil, and yet we could have avoided this.

We could have avoided this by diverting our attention to other channels to fuel our economy: agriculture being the easiest; forestry or fisheries is another. Heavy industrial mining is another one loaded with Dutch Disease. But it is too late now, and it is worthless talking about 'Ifs'. Unfortunately, we are now left to grope for any straw just to survive - like a sinking swimmer. Many countries that discover petroleum deposits within their territories normally approach it tactfully.

First, by understanding this 'animal': petroleum. This they do by rigorous training of their youth to understand the chemistry behind petroleum far before they even think of extracting it. Khartoum did it since 1982 when the oil was discovered. We did not, and that is the unfortunate part. The second unfortunate part is that once the disease of 'rent seeking' infects you, you are finished. There is no cure. The disease will always make you look for easier pickings even against the weirdest odds, especially when those odds spell 'unearned' revenue.

That is our problem now. We rely on revenue we have not worked hard for, or intend to work for in order to earn it. Earning revenue would have been easy and we wouldn't be accused of suffering from unpronounceable diseases if only we had done the simplest thing: improve on the value chains of the already available raw material from crude oil through training of our youth on petrochemical sciences, but as I said, this is water under the bridge. Starting another sector all together will set us aback a little. Let's try to examine how easier it is to work on the petroleum value chains.

The wastewater is already available. Instead of pouring it carelessly on the ground to pollute our farms, streams and watering holes and later the dissolved solutes poising our animals and children when they drink or play in such water, we could extract the necessary chemicals to make pesticides of all kinds and sell to make money for the economy. But because we consider this wastewater as 'waste' we waste it by throwing it away. Agriculture is only good for the short-term alleviation of food insecurity. As for commercial agriculture, it will require expensive inputs none of us are willing to talk about. Relying on rainfed agriculture is a thing of the past and will not happen to pump enough revenue into the government coffers.

It is a relatively expensive way to go to raise effective income. In comparison to turning oil into a private-sector lead economic fuel, agriculture has numerous hic-ups. Forestry too requires expensive inputs to be purchased and established by government. It is an expensive way to establish business in that line especially when immediate results are needed. Fisheries are another matter. Where will you sell the fish? Anyone who has been to Juba and seen how we treat the River Nile will gag at the site of our fish in the market as most fish occurs downstream of Juba. It is not easy to convince a buyer to pay and consume fish full of the 'sins' of Juba.

It is worrying to a few of us that some people have resorted to shunning the science behind petroleum as mere theories and myths not realizing that it is this ignorance that is making the outside world, Khartoum included, to jump up and down excited about our lack of knowledge of the enormous benefits the crude has to an economy. As long as we continue considering the 'crude' in the African sense - 'rubbish' our economy will continue to suffer. This is the most unfortunate part. Perhaps, in the face of poor knowledge on petroleum we should have left the petroleum alone until our science sobers up and until every citizen understands the benefits of knowledge in the oil sector. Those who think this is a myth are those possessed with the unforgiving disease already. But, as a nation we have to survive, and survive we must, not by instituting expensive mechanisms to revitalize the economy but by improving on readily available raw material 'petroleum crude' but not falling for careless suggestions.

Just for the fun of it, let us examine what is utterly incredulous and absurd with the latest suggestion. In the first instance, the proponent of the idea to truck the crude by road has never been to Africa, let alone South Sudan. In this proponent's mind, when the word road is mentioned he must be recalling the Miami-New York Highway, The Belem-Rio Highway, or the Berlin-Hamburg autobahn, or the Wulu Street in Beijing; and that a poor African road must (therefore) be like the Nimule-Juba highway. The fact that the roads here are actually worse or none-existent is pure fantasy. Secondly, the proponent had no idea that we get rain most of the year; with only a short dry spell in places between October and April. This is the only time trucks may venture out of town. Thirdly, the proponent of this absurd idea has no idea the distances involved between the oil fields of South Sudan and either the seaports of Djibouti on the Read Sea or Mombasa in Kenya are prohibitively long, let alone the lengthy bureaucracy of crossing African borders.

Let us take a quick look at the arithmetic involved in trucking our crude. At the rate of extracting 200,000 barrels per day (at a minimum), with the payload of 150 barrels per truck we will field 1,333 trucks everyday to transport the crude. With our subterranean base of clay hardpans we are already toying with environmental disaster. This kind of pressure will pulverize our so-called roads. Clearing such a huge number of trucks at border points is another nightmare. With the bureaucracy at border points clearing 1,333 trucks will take 25 hours every day (borrowing an extra hour from the next day). This is just clearing at one border. Between here and Mombasa we have two borders: Nimule and Malaba. That amounts to 50 hours, tops. The Nadapal road is questionable as some of the bridges are rickety. On the Djibouti corridor, there is that painfully grinding climb from Gambella to almost the centre of Ethiopia. To use this road 1,333 trucks laden with heavy crude will require an army of mechanics armed with spanners stationed along the steep gradients to prod the trucks on. Then there is the turn-around time during loading at the ports. In the first instance, crude is so viscous it will need heating up inside the trucks before offloading to try and liquefy the crude. To heat every container may need close to 20 minutes. Each truck will take 40 minutes (at a minimum) to heat up the crude before offloading. The whole process will take 53,333 minutes. This is equal to 889 hours, which translates to 37 days - one whole month and some, just to offload one trip. During that time crude waiting to be picked up will have reached 7,400,000 barrels. There is no way this can be practicable, after all no port authorities on planet Earth can afford such messy business holdups.

However, since we are now in this tight situation and cannot run away from the oil, given the stark realization, I suggest the proponent comes back to speed up the construction of the refinery, a huge underground reservoir and a few industrial shells around the refinery. The refinery will help in reducing the weight of the final crude that will be loaded to the trucks. This is to make light the payloads of each truck so that our roads are not bombarded beyond imagination, also so that no heating is required at the ports. This way the turnaround time for each truck will be reduced perhaps by 40%. Failure to do so is courting disaster. The underground reservoir will be for sequestering the separated 'impurities' from the semi-finished crude only to be pumped back again to the surface once we have our own battalion of petrochemical scientists to process the impurities into the various petroleum products. The industrial shells are to attract the attention of petrochemical industries.

The only 'crude', a semi-processed crude we shall be sending to the ports will then be refined further by the importing countries into consumer products: petrol (or gasoline), kerosene and the variety of chemical reagents. We shall have removed the solid suspension material, bitumens, which we so badly want to construct our roads and the other dense chemicals for our own domestic use. In its strictest sense, the term petroleum describes only crude oil, but in common usage it includes all liquid (pentane, hexane and heptane); gaseous (methane, ethane, propane and butane); and solid hydrocarbons (composed of volatile and stable crude oils, such as long-chain alkanes, cycloalkanes and various aromatic hydrocarbons). It is the liquid and gaseous components that are relatively easy to transport and will need very few trucks too. Probably this is the portion of the crude the proponent of the trucking idea was alluding to.

The hydrocarbons in crude oil are mostly organic compounds. Some inorganic components include nitrates and nitrites, sulphur and metals such as iron, nickel, copper and vanadium. These add to the weight component of the solid crude. The wastewater contains many water-soluble minerals. If used effectively and with the thorough knowledge of petrochemical sciences all these components can give birth to not less than 116 industries, each capable of employing not less than 500 employees, that totals up to 58,000 individuals. It will have reduced unemployment by 30%. The manufactured products from 'impurities' of crude include pharmaceuticals, solvents, fertilizers, pesticides, asphalt, tar, paraffin wax, lubricating oils, motor oils, greases, petroleum coke vulcanized rubber and plastics. This huge potential can be transferred to our private sector to grow the industrial sub-sector.

The days of thinking that crude oil was only for providing fuel oil alone are gone and buried. Granted, 84% by volume of the hydrocarbons present in petroleum is converted into energy-rich fuels (petroleum-based fuels) in the form of petrol, diesel, aviation or jet fuel, kerosene and liquefied petroleum gas (LPG). To produce these other products is complex and expensive. This is the process we should leave for the developed economies that import our crude. The simpler processes of extracting heavy oils and bitumen should be left to our domestic oil refineries to feed into our local private sector efforts.

No country throws away crude the way we do any more. Countries out there, including developing partners are more than willing to partner with us in developing the private sector based on oil industrial processes. We have the comparative advantage of having the raw material at our fingertips. All we need to do is attract the right investors in the field and voila! Transporting everything away should not be entertained as this makes the already debilitating Dutch Disease worse and uncurable.

The Author is an environmental economist, international trade specialist, and private sector development consultant based in Juba, South Sudan.

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