10 January 2014

South Sudan: Fighting Could Cripple Oil Industry for Decades

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If the fighting intensifies in Unity and Upper Nile in the coming months, it will have two devastating consequences for South Sudan's oil industry.

The first will be for the 1,300 kilometer oil pipeline stretching from Upper Nile across the border to Sudan's Red Sea coast.

In January 2012, a dispute with neighbouring Sudan over pipeline fees led South Sudan to close its oil production for 15 months.

Chemically treated water was used to flood and fill the Upper Nile pipeline in the interim, but the solution and residual oil only increased the normal rate of corrosion to the pipeline's interior. If the conflict leads to another closure of Upper Nile oilfields, a second shutdown will do significant damage to the billion-dollar pipeline, or even render it obsolete.

The second consequence will be for South Sudan's future oil production. Output levels at Unity state oilfields were already in steep decline before the conflict.

From a peak of nearly 288,000 bpd on average in 2004, they fell to below 125,00 bpd by June 2011, one month before South Sudan's independence from Sudan.

A Norwegian study found that the oil recovery rates could be pushed up, and generate billions in new revenue, but the investment in technology was estimated to cost up to $300 million for a single field.

Oil companies will be reluctant to sink sizable new capital investments in such a politically instable environment where security risks have grown. As a result, the current conflict is likely to precipitate the decline of South Sudan's oil production, forecast in 2013 to fall below 100,000 bpd in the next decade.

Rebels may think that by capturing oilfields they can attain a lucrative bargaining chip in negotiations with the government. The more oil areas they control, the weaker the President Kiir becomes without his main source of income.

At the same time, the South Sudan government is currently launching a major offensive to take back oilfields in Unity state. But the goal of the South Sudan government and rebels to control oil areas may backfire and escalate the conflict even further as the two sides exchange blows near their most coveted resource.

If the fighting does not stop soon then the two sides will be responsible for crippling South Sudan's oil industry for years, if not decades to come.

On top of the death and destruction, they will be remembered for burying their country's economic future. The prize is big enough to share, but only if they stop fighting.

Luke Patey is a senior researcher at the Danish Institute for International Studies. His book 'The New Kings of Crude: China, India, and the Global Struggle for Oil in Sudan & South Sudan' will be launched at the RAS on 21st January.

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