South Sudan: Fighting Could Cripple Oil Industry for Decades

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analysis

Rebels also targeted Upper Nile's oilfields, located some 200 kilometers northeast of the capital. The Adar Yale oilfield has come under attack on multiple occasions and the China National Petroleum Corporation (CNPC), the biggest player in South Sudan's oil industry, evacuated hundreds of personnel from the Palogue oilfield, South Sudan's largest oilfield, and arguably the crown jewel of its economy.

South Sudan's oil ministry is adamant that production from Upper Nile has not been affected by the conflict. But traders of its heavy sweet, acidic Dar crude blend have been instructed that January cargoes will be delayed, indicating that production has dropped by 50,000 bpd to date.

Without Chinese and other foreign staff, a limited number of South Sudanese technicians will struggle to keep production levels high. Sudan, which planned on generating 10% of its 2014 budget from oil fees and transfers from South Sudan, has offered to send its own personnel.

In Unity state, the oil industry has completely shut down. The Greater Pioneer Operating Company (GPOC), made-up of the China National Petroleum Corporation, Petronas of Malaysia, and India's ONGC Videsh, hastily halted production, about one-fifth of South Sudan's total, and evacuated staff when fighting erupted at the Unity and Thar Jath oilfields. Major General James Koang, commander of the fourth division of South Sudan's army, then defected to the rebel side and took control of the oil town of Bentiu.

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.

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