Pipe-dreaming over oil in South Sudan - By Luke Patey
February 7, 2012
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President Kiir's stand on oil shows political strength, but economic suicide
Across South Sudan demonstrations have been held in support of President
Salva Kiir's decision to shutdown its 350,000-barrel daily oil production.
This came after Sudan's confiscation of several shipments through the only
existing pipeline out of the landlocked country, and as ongoing negotiations
on a possible transit fee for South Sudan's oil have failed. In Bor, the
state capital of South Sudan's largest state Jonglei, hundreds protested the
oil 'looting'. Primary and secondary school students were among the
thousands that took to the streets of Rumbek in Lakes state, calling
Sudanese President Omer al-Bashir a 'great thief'. Peaceful demonstrations
outside the National Assembly in the capital Juba urged South Sudan to 'turn
on' its agricultural potential as the oil taps were turned off. Together, it
was a remarkable show of support for Kiir's bold move to suspend the
country's largest revenue earner in defiance of its former foes in Khartoum.
This is however not the first time southern Sudanese have protested over an
oil pipeline.
In the spring of 1978 the then President, Jaafar Nimeiri, announced the
decision to build a pipeline from freshly discovered oil fields in the
south, to Port Sudan on the Red Sea. Nimeiri and his oil minister made the
plans while visiting the San Francisco headquarters of Chevron, the American
oil company which made the first discoveries of Sudanese oil. The decision
infuriated southern Sudanese, who wanted to see the oil head southeast to
Mombasa on the Kenyan coast. While it would take another 20 years to build,
ultimately by Chinese not American oil companies, and South Sudan has since
won its political independence from Khartoum, the oil pipeline still stands
in the way of full economic independence. A revival of this 30 year-old
dream represents the final step in gaining economic independence for many of
South Sudan's political leaders, but building a southern pipeline through
Kenya is fraught with challenges.
To understand some of the main technical and security challenges facing the
construction of a southern pipeline, it is useful to compare the possible
route with the existing pipeline through Sudan. South Sudan's main oil
production is connected to Sudan by a 1,360 km pipeline from the Melut basin
of Upper Nile state. The proposed alternative, ending at an expanded port of
Lamu, would be around 1,800 kilometers (depending on the exact route through
Kenya) and the topography of the routes differ vastly. The existing pipeline
runs across quite a flat landscape, requiring only six pumping and heating
stations to keep the highly-acidic crude flowing, the new pipeline would
cover diverse terrain, possibly including the highlands of northern Kenya.
This will require significantly more investment in pumping stations to speed
crude up the inclines and slow it down on the declines.
Additionally, there are also significant security concerns for the new
pipeline. The existing route is mostly though northern Sudan, where the
heavy hand of the Sudanese military and pro-government militias has laid
waste to communities in and around oil areas. The new route may cross the
impoverished, and bandit-riven territories of northern Kenya, where
Nigerian-style oil theft and pipeline sabotage could potentially be a
problem, requiring considerable time for due diligence in pipeline
construction and routing. In fact, the proposed pipeline has already been
threatened by rebel groups in South Sudan. The technical and security
challenges for the new pipeline amount to a year or two of construction time
at best and a potentially insecure construction, and later possible security
threats once the pipeline is operational. Last but not least, an estimated
price tag of anywhere from $1.5 to $3 billion, which is a tidy sum to wager
for even the most audacious investors, but not an impossibility.
Late last month, South Sudan signed a memorandum of understanding with Kenya
to build the long-discussed oil pipeline. Such broad agreements are often
not worth the paper they are written on, but nonetheless represent an
important initial step. Japan's Toyota as well as Chinese companies and
investors have shown some willingness to support the venture. The French oil
major Total, which has rights over the largest oil block in South Sudan, has
said it is interested in linking possible new discoveries in Sudan to its
growing interests in Uganda. But production from existing oil fields in
South Sudan has peaked, and barring new discoveries and significant
investment in secondary recovery, will sharply decline from current levels
over the next five years. A new pipeline would only make economic sense if
Total or others operating in South Sudan were to make impressive new
discoveries in the coming years.
Regional developments are however working in favour of the new pipeline.
Kenya is serious about making Lamu a major international port and, more
importantly, the discovery of 3 billion barrels in oil reserves along Lake
Albert in Uganda opens new possibilities for South Sudan's oil in a regional
network of pipelines. Current disputes between oil companies and the Ugandan
government will need to be smoothed out first, but the face of East African
oil will change in the years to come, making it possible to imagine an
environment in which such a pipeline could be constructed.
Economically, the best scenario for South Sudan's oil is undoubtedly to stop
pipe-dreaming, work out an agreement with Sudan, and continue to send its
oil north. Investing in a new multi-billion dollar southern pipeline is, in
the current climate, financial insanity. But South Sudan feels that it has
been backed into a political corner in negotiations with its Northern
neighbour on pipeline transit fees. Sudan's oil sector has always been more
about politics than productivity. Even with an agreement, the history of
consistent political bickering and brinksmanship between the two sides over
oil will most likely continue. But the longer it takes to foster stable
relations over oil, the more likely the people of South Sudan will one day
hit the streets in celebration of a new pipeline.
Luke Patey is a Research Fellow at the Danish Institute for International
Studies and co-editor of Sudan Looks East: China, India and the Politics of
Asian Alternatives (James Currey, 2011)
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Received on Tue Feb 07 2012 - 18:38:52 EST
