Sudan to Split Oil Revenues: Oil Has Frequently Been Identified as the Cause of the Conflict in Sudan, but Could It Now Bring about the Peace?

Article excerpt

DESPITE THE ONGOING CONFLICT in Darfur, it looks as if the north-south peace deal could finally bring an end to the long running Sudanese civil war. The south is to be allowed self-government for a period of seven years before a referendum on the fate of the region is held. Several economic questions still need to be addressed, not least the division of the country's hydrocarbon revenues.

The future of the oil sector was obviously of paramount interest to the two sides in the peace negotiations. An agreement to divide the revenues has been reached although the final percentages have yet to be determined. The oil sector is likely to provide the lion's share of revenues for both sides for a long time to come and it is vital a deal is struck that will take into account fluctuating production.

With average output of 343,000 barrels a day (b/d) in 2004, Sudan is now the seventh biggest oil producer in Africa, after Nigeria, Libya, Algeria, Angola, Egypt and Equatorial Guinea. According to the country's minister of energy, Awad Al Jaz, output could top 500,000 b/d by the end of this year, reaching 750,000 b/d by early 2007.

While disputes over the split of oil revenues could lead to renewed conflict between the two sides, the hydrocarbons sector could equally serve to improve relations between the two. Most oil is exported via pipeline from southern Sudan to Port Sudan on the Red Sea coast.

It would profit neither side if intensification of the conflict resulted in the pipeline's closure; as a result of improved pumping technology, pipeline capacity is being increased from 150,000 b/d to 450,000 b/d, further strengthening the north-south economic ties.

In addition, the China National Petroleum Corporation (CNPC) has begun work on construction of a new 200,000 b/d pipeline from the Melut Basin fields on Block 6 in Western Kordofan to an oil refinery in Khartoum. However, further export pipelines--probably connecting oilfields with the oil export terminal at Port Sudan--may be required if any new finds are made. Several projects already under development are expected to take up all existing oil transportation capacity in the country.

With 40% equity, CNPC is the biggest stakeholder in the Greater Nile Petroleum Operating Company (GNPOC), which accounts for most production in the country. The other shareholders in the company include Petronas of Malaysia (30%), India's Oil and Natural Gas Corporation (ONGC) (25%), and Sudan's national oil company Sudapet (5%). GNPOC controls the key Unity and Heglig fields on blocks 1, 2 and 4. The government's production target for this year will be met if another CNPC-led consortium is able to bring production on blocks 3 and 7 in the Malut Basin on stream as planned. Output on the two blocks is expected to rise sharply to 170,000 b/d before increasing to 300,000 b/d within two years.

Sudan's proven oil reserves stand at just 563m barrels, which does not place the country among the world's, or even the region's, most important oil powers. …