Challenges of Oil and Gas Industry in South Sudan
By Ater Yuot Riak, Ph.D.(courtesy of gurtong)
Oil exploration in Sudan was first initiated by Italy’s Agip, France Total, and Dutch Shell oil companies in the red sea region but they were not successful in their exploration efforts. After the end of the first civil war in 1972, the American oil company Chevron was granted concession in the southern regions of Sudan.
The first oil fields in South Sudan were discovered at the region of Bentiu but Chevron suspended its operations in February 1984 as the second civil war erupted in South Sudan in 1983. In1994, the Canadian Arakis Energy Corporation started operations in the Sudan oil industry. In 1996, Arakis sold 75% of its shares to the China National Corporation Petroleum Company (CNPC).
The oil production started with only 2000 barrel/day in 1993 and increased to more than 434,000 barrels/day by the late of 2006. Oil production peaked up at an average of almost 500,000 barrels/day in 2007. This made Sudan by then the Africa’s fifth largest oil producer.
Greater Nile Petroleum Operating Company (GNPOC) began to build a 1,540 km oil pipeline, which started in 1997 and completed by 1999 from the oil fields inside South Sudan to a marine export terminal on the Red Sea (Port Sudan). From 2006 the Thar Jath oil field south of Bentiu began exporting oil through the GNPOC pipeline. A pipeline (1,400 km) from Adar Yale oil field through Paloch and the Central Processing Facility (CPF) in Al Jabalayn (Sudan) to Port Sudan was constructed between 2004 and 2006.
After independence by 2011, South Sudan holds more than 75% of the total oil reserves of the previous Sudan. However, South Sudan remains and still in need of Sudan oil infrastructures facilities and ports in order to export its crude oil to international market.
New consortia (operating companies) were formed for oil production and further exploration. South Sudan created Nile Petroleum Corporation (NILEPET) to replace Sudan Petroleum Corporation (SUDAPET) in consortia. With Dar Petroleum Operating Company (DPOC) operating in Northern Upper Nile State, Sudd Petroleum Operating Company (SPOC) and Greater Pioneer Operating Company (GPOC) are operating in Ruweng State and Northern Liech State respectively.
At present, the CNPC, PETRONAS Malaysia, India’s Oil and Natural Gas Corporation (ONGC) are the major oil producers in South Sudan. NILEPET is the only state owned company represented in the oil industry with a limited function of recruiting nationals into oil operating companies (DPOC, GPOC, and SPOC).
Before 2013 crisis, the oil production stands at around 250,000 barrel/day in South Sudan. 200,000 barrel/day produced by block 3 and 7 Melut Basin Oil field in Northern Upper Nile State and the rest of 50,000 barrel/day produced by block 1 in Ruweng State and Northern Lich State.
After crisis of 2013, production dropped to 160,000 barrel/day. Ruweng State and Northern Liceh State oil fields are not any longer operational. The current and only operating field is Melut Basin Oil field Northern Upper Nile state. At the moment, block 3 & 7 is producing around 125,000 barrels/day. This amount is decreasing month by month despite of many efforts introduced to increase it.
Oil industry in South Sudan is faced with many serious challenges. The country national budget is badly dependent on oil revenues, making it the most oil dependent country in the world. Current oil facilities are aging, for instance, in block 3 & 7, water cut of total gross production stands at 77%, and that by end of the year 2020 this rate will reach 90%. Operation is still being disturbed by rebels and this makes security of oil operations in Block 3 & 7 extremely important.
The most challenge factor to the future of oil industry in South Sudan is the management of its operations. Since 2012, the managing company of oil industry (NILEPET) focuses on downstream, the sale and commercialization section of oil products and ignored the exploration and production (E & P) section. This technical section of the industry is the core of the oil industry in South Sudan and should be understood for this industry to flourish. Focusing only on cashing and ignoring the core technical part of the industry may lead to a serious mismanagement phenomena known as kleptocracy. A phenomena if not seriously and well address could make collapsing of oil industry in South Sudan as a great potential. Thus, the oil industry in South Sudan would be discussed as part of the event which occurred and ended sometime.
Share negotiation with major contributors, CNPC (41%) and PETRONAS (40%) should be continued to raise NILEPET current share 8% for example to 15%. It is then recommended that talented South Sudanese with technical qualifications (engineers, geologies, technicians, etc.) are to be trained and gradually to take over critical responsibilities especially in E & P section. This could be the beginning for South Sudan to start establishing her own operating company by South Sudanese when put the national interest of our country first.
The paper is also intending to achieve, low ostentatious spending, government trust, tax money spend wisely, giant saving, invest before spending and long term plan. The current and successors of NILEPET managements are advised to start the initiative and improved production and operations of oil industry in South Sudan for public high gain by considering the following points:
-Trust to be maintain that money is not going to be mismanaged
-Investment in public projects such as, roads, schools, hospitals, etc.
-Saving and reduce unnecessary spending
-High levels of trust make economic growth easier and created homogeneous society
-Oil will run out, find out other sources of income by investing in other commodity than oil such as agriculture and mining sectors
-Current facilities are aging, new facilities to be built such as refineries, wells, pipelines, technology change
-Spending on research, training and development of South Sudanese to oil industry
The historical review and challenges of the oil production and operations in South Sudan might not be news to other readers. However, sharing such discussion will make information on oil industry in South Sudan public. Last and not least we need to ask ourselves this question: what are we doing in the oil industry and not what are we getting?
The writer is a leading energy expert reachable via: E-mail: email@example.com