|Thursday, June 20, 2013|
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OIL & GASReady to take its place
03/21/12, Biodun Omojola
New kid in town: a member of the South Sudan delegation to the United Nations dances after the flag of his country was raised. South Sudan is also now joining the league of Africa's major oil producers. Getty Images
South Sudan wants to flex its muscle as a major oil player in Africa.
Newly independent South Sudan is slowly trying to make its presence felt as a major player in the oil industry. It recently made its debut at a U.S.-backed conference aimed at setting Africa's newest country firmly on the path to economic development. South Sudan was engulfed in years of war with its neighbour Sudan from whom it finally secured its independence in 2011. The war led to decades of poverty and conflict. Part of the sales pitch by South Sudan President Salva Kiir to entice western oil majors consisting of the likes of Royal Dutch Shell, Exxon Mobil and Chevron at the conference include plans to regulate investment, organise public finance and boost the transparency of oil revenue management
In other to place the new country right on track the U.S Treasury Department has eased sanctions permitting foreign investment in the country's oil sector. With the lifting of the ban, the Treasury Department's Office of Foreign Assets Control (OFAC) issued two general licenses to back the policy change. "As such, (South Sudan) is no longer subject to the Sudanese Sanctions Regulations," the OFAC said. The U.S. imposed sanctions on Sudan in 1997 in response to concerns over support for terrorist groups. The separation of the north and south into two countries in July 2011 led to the removal of sanctions. OFAC said U.S companies are now free to export equipments into South Sudan's oil sector and ship oil and other equipment through Sudan to or from South Sudan. However, north Sudan is still not free from U.S sanctions as OFAC emphasised policy change does not mean U.S companies can do business in Sudan's oil sector.
Before the two-day conference, Rajiv Shah, head of the U.S. Agency for International Development (USAID), chief sponsor of the conference, said "We're seeing a strong outpouring of interest amongst investment partners in the private sector in their oil economy. I expect you will see significant private investment in the sector, which is why it is important that South Sudan abide by international norms around transparency and makes sure that the proceeds of those investments are invested back to improve the lives of the people."
The Obama administration is keen to jump-start South Sudan's economy after its independence last July from Khartoum. America and two other countries, Britain and Norway, are the guarantors of the 2005 peace deal that presaged the breakthrough. All three have agreed to offer assistance in specific sectors of South Sudan's economy. Britain will help it improve public management and anti-corruption efforts; oil-rich Norway will help develop governance of its oil sector while the U.S. will lead on encouraging private sector investment and boosting agriculture - seen as one of the country's most promising sectors.
The new country is poor and desperately needs investment in almost every sector. Reports say South Sudan needs almost everything "from bridges and banks to office furniture and private security." Infrastructure is almost non-existent - the country has about 100 kilometres (60 miles) of tarred roads, while hospitals and schools are inadequate for the population. However, it sits on vast reserves of oil. Revenues from oil could transform it into one of the wealthiest countries in sub-Saharan Africa. However, tension is still brewing with Khartoum, its former war adversary, especially over the sharing formula for oil. Khartoum insists it will take 23 percent of revenues until a final deal is reached on how to share out oil money.
China, a major buyer of oil from both countries, has urged the two nations to resolve their differences amicably but a week of negotiations in Ethiopia failed to produce a deal acceptable to both parties.
After secession, South Sudan accounts for around 75 percent of the former united Sudan's 500,000 barrels per day of oil output. Both economies depend greatly on oil revenues - oil revenues constitute more than 98 percent of the new country's budget. So far it has earned more than $8 billion from oil since the signing of the peace agreement according to its ministry of finance and economic planning. Both, therefore, are keen to get the best deal. Halting exportation will damage both countries revenue greatly.
According to the 2008 BP Statistical Energy Survey, Sudan had proven oil reserves of 6.614 billion barrels at the end of 2007. This represents 0.53 percent of world reserves. The country is also rich in natural gas with reserves estimated at three trillion cubic feet (tcf). The survey says Sudan produced an average of 457,000 bpd in 2007, 0.57 percent of world total and a change of 38 percent when compared to 2006 production data. Statistics also indicate that Sudan produces more oil than Equatorial Guinea (330,000 bpd), Congo Brazzaville (244,000) and Gabon (237,000). Only Nigeria (2.2 million) and Angola (1.4 million) produce more oil. So far Sudanese oil exploration has been limited to the central and south-central regions. Although the country is considered to be vastly under-explored, it has been a producer of oil and gas for a number of years.
Stephen Hayes, head of Washington-based Corporate Council on Africa, a business association, said companies are interested in South Sudan but are realistic about the prospects for operating in one of the least developed regions in the world. "The positive thing is the amount of attention that it is getting from other countries. There is a lot going into it to make it work," Hayes said. Among those at the Washington conference were Marathon Oil, Halliburton and Google.
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