Wednesday, June 5, 2013

South Sudan oil output target needs at least a year


South Sudan oil output target needs at least a year

·         REFILE-UPDATE 3-South Sudan cuts oil output, sees new problems with Sudan

Tue, May 21 2013

Fri, May 17 2013


Wed Jun 5, 2013 10:00am EDT

* Former foes agreed in March to resume cross-border flow

* South Sudan needs Sudan port for exports

* Costs increase for oil companies

* Scepticism over alternative pipeline plans

By Ulf Laessing and Hereward Holland

KHARTOUM/JUBA, June 5 (Reuters) - South Sudan will restart oil exports this month but will need at least a year to restore output fully after fighting with Sudan damaged facilities and hit the performance of oilfields, industry sources say.

Production is unlikely to get much higher than 230,000 barrels per day this year after the restart in April, the sources say.

South Sudan had hoped to have an output of 200,000 bpd in place by mid-April but new tensions with Sudan led to delays.

"There is a possibility that by next year, June, we will have reached the levels we had before the shutdown," said Henry Odwar, head of the energy and mining committee at South Sudan's parliament.

The landlocked producer agreed in March with Sudan to resume exporting oil through two cross-border pipelines, ending a shutdown started in January 2012 in a row with Khartoum over pipeline fees. Oil is the lifeline for both nations, formally one country.

Fields in South Sudan's Unity state and a treatment plant in Heglig in Sudan were both damaged during border skirmishes between the two countries last year.

Two months after turning on wells, these fields near Bentiu produce only between 10,000 bpd and 20,000 bpd, said Odwar. An oil source said production there would not exceed 30,000 bpd in the next months, less than half of previous output.

Engineers have struggled to restart some wells, which were not closed properly when the government rushed operators to turn off the oil in January 2012.

Last month, the oil was briefly halted at Jebelain, a Sudanese processing facility at the border, where it has water removed before continuing through the eastern pipeline to Port Sudan, where it is loaded for shipment.

Sudan said the waxy Dar Blend oil had not yet reached the necessary quality to be sold abroad. But, oil sources say, while there might have been a technical issue, Khartoum also halted flows to warn South Sudan to sever ties with rebels on Sudanese soil.

"We came close to disaster because South Sudan almost had to shut down its output as it lacks storage," said an oil insider. South Sudan was forced to halve output to 105,000 barrels a day.

Oil officials in Juba were worried the pressure would blow a hole in the pipeline, or wreck oil facilities.

After two days of frantic phone calls between the African neighbours and international mediators the oil is back on its way to Port Sudan, but Southern officials are under no illusion that more disruptions might occur.

"Sudan has yet to prove that they are going to be a reliable partner in terms of the oil flow," Odwar said. "We don't know what the next surprise will be."

Sudan's President Omar Hassan al-Bashir warned last week he would shut down the pipes if Juba kept supporting insurgents operating across the shared border, claims denied by the South.

South Sudan used to put its pre-shutdown output at 350,000 bpd but recently officials have said it was closer to 300,000 bpd.

Both governments have made little effort to disclose accurate production figures, wary of corruption charges from critics, said Nhial Bol, editor of South Sudan's Citizen TV, the country's only private channel.

"There is no transparency about the capacity. This is a government-designed policy," he said.


South Sudan's oil sales are also suffering from surging costs for the operating companies, dominated by China National Petroleum Corp (CNPC), Malaysia's Petronas and India's ONCG Videsh.

Analysts say the foreign firms are entitled to a share of the oil production but have not been paid much during the shutdown, during which they maintained the fields. Costs have jumped particularly since September when Juba ordered them, after a first oil deal with Sudan, to prepare wells - only to wait another seven months.

"Sudan and South Sudan took their time with tactical games so now there is a nice bill to be paid," said an industry source.

Some light quality Nile Blend crude, produced from small fields in Unity state, is also not going to Port Sudan to be sold abroad, oil sources say. Instead it is flowing to a refinery in Khartoum which is co-owned by CNPC, which also dominates the oil sector in Sudan.

For transparency and to avoid disputes both sides should set up, as agreed, metering systems and phone links between oil facilities, said Endre Stiansen, Special Envoy of Norway which advises Khartoum and Juba on oil issues.

"Some of it has been done," he said. Both sides have finally agreed on a chairman for an oil monitoring body.

Diplomats hope that both Sudans, which fought one of Africa's longest civil war ending with a 2005 peace deal, understand they have to work together to avoid economic disaster.

Last week, South Sudan's President Salva Kiir was in Japan to discuss building an alternative pipeline through Kenya with Toyota Tsusho Corp. Germany's ILF Consulting is also conducting a feasibility for a pipeline through Ethiopia and Djibouti.

But after years of planning some officials admit the project might not be financially viable given dwindling known reserves.

"Maybe in the next 20-30 years it is just finished and we're left with a hollow pipe," said Odwar, adding that other plans to export oil by train or trucks were completely unfeasible.

Analysts are equally sceptical about Sudan's plans to boost production to become an oil exporter itself again. Its output now barely covers domestic demand.

Sudan has signed new exploration deals but has trimmed forecasts. It had planned to pump 180,000 bpd by the end of last year but now official output stands at around 136,000 bpd - a figure diplomats say is up to 15,000 bpd too high.

"I don't think they will make big discoveries," said Harry Verhoeven, Sudan researcher at Oxford University. "Both sides always say they don't need each other, they can manage without oil but in the end it's a mutual dependency."


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