The story of South Sudan’s petroleum industry is one of vast potential, held back by political upheaval and conflict over the past decades. The building blocks are in place, if peace can be attained, for South Sudan to take its place as the energy hub for East Africa.
South Sudan’s discovery and development of oil prior to independence predates that of any other East African country. Although conflict has repeatedly damaged production facilities and held back advances such as gas development, enhanced oil recovery and new exploration, the government is committed to re-opening oilfields and asserting a new pro-business image.
Chevron was the first oil and gas company to seriously explore southern Sudan in 1975, and was granted a concession in what is now the border area between South Sudan and Sudan. In 1979 the American company hit pay dirt with an oil discovery on the border between Darfur and Kordofan. Additional discoveries followed quickly in what is now Block 1, containing the Unity and Heglig fields. The concession was split by the new border when South Sudan became independent in 2011.
Shortly after the discoveries of the late 1970s and early 1980s Sudan revoked the south’s limited autonomy and fighting restarted. The Second Sudanese Civil War was well underway by the time Chevron suspended its operations, prompted by the deaths of expatriate oil workers killed by rebels in February 1984. The oil major completely pulled out by 1988.
Chevron sold its concessions in Blocks 1, 2 and 4 to Canadian-based Arakis Energy in 1992, which then sold 75 percent of its interest to China National Petroleum Corporation, Petronas and Sudan’s national oil company, Sudapet. These companies formed the Greater Nile Petroleum Operating Company. Arakis was acquired by another company and its 25 percent stake was sold to ONGC Videsh in 1998.
The Greater Nile Petroleum Operating Company constructed the 1,610-kilometer pipeline that extends from the north of South Sudan to the port of Marsa Bashayer in Sudan. This is South Sudan’s only route to market for its crude oil and the pipeline has been operational since 1999.
Production peaks with peace agreement
The Comprehensive Peace Agreement of 2005, which ended the civil war and paved the way for South Sudan’s secession from Sudan, allowed oil and gas activity to intensify. By the year before independence, 2010, Sudan was producing 490,000 barrels of oil per day and was Africa’s fifth largest producer of oil. The historic peace agreement laid the framework for dividing the country’s vast oil and gas resources, with South Sudan gaining control of three-fourths of Sudan’s oil production, though five areas are still disputed, including the oil-rich region of Abyei. The agreement also allowed South Sudan to begin preparing an independent industry, and the national oil company, Nile Petroleum Corporation (Nilepet), was incorporated in 2009. Nilepet owns stakes in all three of the country’s operating companies: Sudd Petroleum Operating Company, Dar Petroleum Operating Company and Greater Pioneer Operating Company.
Though expectations were high, South Sudan’s oil industry has struggled since the nation gained its independence in 2011, beginning with a dispute over tariffs to export crude via Sudan’s pipeline. The disagreement, which escalated to reports of the north siphoning oil from the pipeline, led to a shutdown of production in South Sudan for much of 2012. With 98 percent of the economy based on oil revenue, South Sudan quickly felt the pinch of the shutdown — inflation soared, government revenues dried up and a host of planned social and infrastructure projects were delayed.
Production resumed in 2013 with an average production of 260,000 barrels per day, but the outbreak of civil war in South Sudan in December 2013 slowed development and stopped production at some fields. Rebel activity in some areas of the country keeps oil production at 130,000 barrels per day today, almost all from Dar Petroleum facilities.. Sanctions against Sudan by the United States also hit South Sudan. Since South Sudan exports its oil through the north, US and European companies were prevented from investing in South Sudan even after it gained independence. As a result, Asian companies (already on the oilfields pre-independence) still dominate the industry. President Barack Obama’s administration altered the sanctions against Sudan in December 2011, allowing US companies to invest in South Sudan for the first time. To date, however, none has entered the country.
South Sudan wasted no time in passing oil and gas legislation after independence, with the Petroleum Act of 2012and the Petroleum Revenue Management Act of 2013 following in rapid succession. Both are considered to create an attractive industry for investors — offering more favorable tax regimes and regulations for companies when compared to some of South Sudan’s neighbours in an effort to bring investment to the country.
In 2017 the fees and tariffs for exports of oil through Sudan, while appearing high in the context of low oil prices since 2014, are undisputed and the government has been willing to negotiate for imports of goods and equipment to the northern oilfields via this hard border. There is huge potential for oil production increases, if security can be guaranteed, with blocks 3 and 7 in southern South Sudan currently producing about 110,000 barrels of oil per day and others waiting to begin producing at full capacity again. Though this is the only area producing, many others are already held by investors, including Block 1, operated by the Greater Pioneer Operating Company; Block A, operated by Sudd Petroleum Operating Company; and Block B3, which is being explored by Oranto Petroleum.
The government is keen to promote oil and gas exploration, as around 70 percent of the country is under- or unexplored. Gas utilization is also a priority and enhanced oil recovery technology could vastly improve the performance of existing fields.