Analyst: Conflict Continues To Stifle South Sudan’s Oil Sector
Continued armed fighting, trade disputes, and low oil prices are having a considerable negative effect on South Sudan’s oil industry, with existing asset holders reducing investments and potential investors being deterred by instability in the region, says an analyst with research and consulting firm GlobalData.
According to Jonathan Markham, GlobalData’s analyst covering upstream oil and gas, reported production in South Sudan was approximately 240,000 B/D at the end of 2013, before the start of the conflict, but this is believed to have fallen to approximately 165,000 B/D in 2014.
At current oil prices of USD 60–65/bbl, South Sudan is earning approximately USD 100 million in profit per month from oil exports, approximately 90% of the government’s income. However, it is likely that 2015 production will fall even further following the recent conflict escalation around the oil regions.
Markham said, “Neither government nor rebel forces are in full control of the locations in key oil regions. Ineffective ceasefire agreements and declining oil exports mean operations in South Sudan will continue to be affected in the short to medium term. Damage to infrastructure will set the country back at least 7 years, with production not expected to return to 2013 levels, of approximately 240,000 B/D, until 2020.
”Furthermore, despite proven reserves of 3.5 billion bbl and potential for further exploration, oil companies are not willing to invest until the political and security situation in South Sudan improves.”
The situation is further exacerbated by South Sudan’s reliance on two Sudanese pipelines to export crude oil. While the government has explored the possibility of building new pipelines through Uganda and Kenya, these plans have not progressed past the feasibility study because of the ongoing conflict.
Markham added, “South Sudan pays between USD 9.1 and USD 11 per barrel to use Sudan’s facilities and an additional UD 15 per barrel as compensation for the country’s lost oil revenue after independence.
“The country currently has no other export routes if the existing pipelines are cut off. Without alternative routes, South Sudan will remain vulnerable to shutdown threats and unfavorable transportation contracts.”