Sudan needs peace to lure Western oil investment

Western oil companies will delay vital investment in Sudan at least until after a referendum on partition of the country in 2011 in the hope that the vote brings peace to the region.
Asian national oil companies are prospering in Africa’s largest country but Western investment has been deterred by US sanctions and political instability surrounding the referendum.
Foreign investment is vital to Sudan’s oil industry but many companies are reluctant to enter the country that has suffered a bitter civil war for much of the last 50 years.
“Some companies are using very inferior technology,” south Sudan’s Minister for Presidential Affairs Luka Biong told Reuters, adding 30-40 percent of drillable oil in some areas was wasted.
South Sudan will hold a referendum in 2011 on proposed secession and the country could then be divided.
With more than 80 percent of the country’s known oil reserves in the south, but most infrastructure including pipelines and refineries in the north, Sudan needs cooperation from both sides if it is to maximize its oil potential, whatever the result of the referendum.
A lack of planning for the referendum and for how assets, especially the oil, could be divided afterwards is increasing the chances of a return to full blown north-south war, which is likely to end Western interest in Sudan’s oil.
A report by the UK-based Global Witness group said some oil production figures published by Khartoum were lower than those given by a major Chinese company operating there.
This could mean the north is short-changing the south by millions of dollars, it said, adding lack of transparency over oil sales and sharing had eroded trust between the two sides.
“If the process or outcome (of the referendum) is contested, few have any doubts that the result will be a violently contested partition of the country,” Sudan expert Alex de Waal said on his blog. “A new war of this kind would … drag the entire region into the conflict.”
Most of the southern acreage in Sudan has been licensed and is held by Asian national oil companies, but analysts say an independent southern government could re-sell these blocks or create new blocks from unlicensed areas as a way of bringing in new investment.
“Post-2011, assuming there are no US sanctions on the sovereign southern government, there is the potential for US service companies to return to southern Sudan,” said Monica Enfield at PFC Energy.
“American oil companies could also return to the new country, but that would be contingent on whether the new administration respects the currently licensed blocks.”
But analysts said foreign operators, including Malaysia’s Petronas, Chinese oil firm CNPC and India’s Oil & Natural Gas Corp would cling on to their positions.
“I doubt the big three players will sell large stakes to Western firms. Sudan is highly important for CNPC, Petronas and ONGC, and by extension China, Malaysia and India,” said Philippe de Pontet, Africa analyst at Eurasia Group.
“China gets about 5 percent of its total imports from Sudan, and a lot of its investment is equity oil, meaning it goes directly to China.”
Multinational expertise
De Pontet said Western oil investment could be valuable in developing Sudan’s oil industry:
“If offshore fields show real promise, that could be an area where Western multinational expertise may be missed,” he said.
Asian oil firms have made clear they want to continue in the country, whatever the outcome of the referendum.
“I don’t know about other companies but we want to remain even after 2011 whether it is one country or two,” said a source working in the industry.
The source said the government in the north would prefer companies did not engage the south too much, but many had already started making connections and building a relationship with the south ahead of 2011.
Western oil companies are likely to take a lead from French oil major Total, which leads a consortium that has owned a large concession since the 1980s but has never been properly explored because of the war.
Total looks set to wait for a peaceful conclusion to the referendum.
“Total’s approach is based on its acceptance by all parties our best guarantee is the achievement of such acceptability,” Total E&P Vice President of Public Affairs Jean Francois Lasalle said in an email to Reuters.
This month, the Total-led consortium was ordered to pay $11 million in compensation to a firm forced out two years ago, illustrating the uncertainties of operating in the country.

Pic: Oil substation