1 April 2018

Sudan: Oil Worries

analysis

The recent crisis of oil products supplies that hit the country refocuses the attention on the domestic issue of the oil industry and its political, economic implications. Again the topic of energy security in Sudan is resurfacing, but at the time the oil industry in the world markets is going through one of its cycles that is about to enter into an era of tight supplies coupled with geostrategic concerns and eventually high prices.

The alliance of 24 oil producing countries from OPEC and outside the organization succeeded in curbing the glut and bringing inventories to the intended level of five years average. Led by both Saudi Arabia and Russia as the top oil producers and exporters, the group applied successfully and in an uncharacteristic way its program to cut 1.8 million barrels a day (bpd) for the past 15 months. Oil prices are currently hovering more than $70 a barrel despite the growing American domestic oil production. It was helped with remarkable surge in the shale oil thanks to applying fracturing technology to tap unconventional oil reserves. With more than 10 million bpd, American domestic oil production is catching up with that of Saudi Arabia and to the extent it started to export crude oil and gas to various parts of the world.

Yet despite increased supplies, clearly there is growing demand that pushed the prices to soar and that is where Sudan needs to take a serious note.

Sudan oil industry was established mainly according to available data at the time that the main reserves are located in the South, now a separate country. For whatever reason not much of an effort was exerted on exploration and development in the North despite the writing in the table for six years that the South would most likely opt for separation taking with it some 75 percent of the country's known oil reserves.

It was ironic that the only oil minister who gave some attention to activity in the North was Lual Deng, the only and last southerner to manage the oil portfolio in the last year before the South ceded into an independent state.

Sudan is currently producing 88, 000 bpd and has plans to raise that volume to 180, 000 bpd in two years' time if enough finance is secured. On the other hand and based on todays' prices, the oil products bill costs the country some $2.2 billion a year, though domestic production covers close to 40 percent of the local demand. The percentage could have been higher if it was not for limitations related to the performance of Khartoum refinery. The refinery needs to undergo an overhaul maintenance program that requires upfront payment of $90 million that the finance ministry failed to provide because it does not have enough foreign resources.

The crisis of oil supplies shortages that the country witnessed showed the seriousness of the energy security given the political and economic ramifications bearing in mind that it came at the time of the peak of the agricultural season, whose exports provides the only source of hard currency earnings. And that is why there is an urgency to treat the energy security as a strategic issue that has to be dealt with at the highest and most serious level. At stake is an ambitious program to close the gap of the trading imbalance undertaken by the private sector; and at stake is the new trend to market Sudan's strategic location and develop its ports at the Red Sea to serve landlocked countries. Both could be crippled by fuel shortages.

With the way the oil market is currently performing, it is most likely going towards tight supplies and higher prices and turn into sellers' market, which will make it even more difficult to handle for poor countries like Sudan. And that places the energy security issue on the forefront of any national agenda.

Oil has always been connected to politics and what is happening in Sudan is no exemption. It was oil production that fuelled the civil war in Sudan and later pushed for peace through the CPA, but also it was oil, which was one of the main factors luring the southerners to vote for separation.

And that is where a political breakthrough is needed in dealing with opposition inside the country and those resorting to arms, achieve a degree of stability to venture into tackling the country's problems into a serious, sustained manner.

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