Industry Trend Analysis - Export Route, Stability Key To Oil Recovery - MAR 2018

BMI View: With increasing political stability and cooperation between Khartoum and Juba, supported by the agreed use of Sudan's pipeline network , we expect South Sudan's oil output to increase in the coming years, amid gradual return of smaller industry players .

Six years after the secession, Sudan and South Sudan have agreed to cooperate in order to boost oil production and restart direct trade along the border. The deal, which marked a considerable step forward in improving relations between Khartoum and Juba, will serve as an economic lifeline to both countries highly dependent on oil revenues and transit fees. The agreement will help South Sudan restore output in a key northern region and allow the country to use Sudan's pipeline network. It will also help its northern neighbour support its budget by allowing the government to derive revenue from transit fees. Transit fees were set at around USD25 per barrel, though a 2016 provisional agreement outlined that there would be a fixed component to repay national debt of the former Sudan, and a flexible transit fee depending on oil prices on a per barrel basis. To discourage South Sudan from seeking other export routes, Sudan has also offered help to restore South Sudan's oil production by providing electricity, building materials and safe lodging for workers.

Most of South Sudan's oil is currently produced by China National Petroleum Company ( CNPC), Petronas and ONGC Videsh. Due to South Sudan's political uncertainty, the country's international oil conference hosted in October failed to attract major industry players. Although Total expressed its interest in South Sudan's oil sector, the French major has not undertaken exploration of blocks B1 and B2 in Upper Nile State, citing political instability as the reason for staying away. Following the conference, Britain's Tullow also expressed willingness to invest in Total's oil blocks. Both Total and Tullow are involved in building the Hoima-Tanga pipeline in neighbouring Uganda and Tanzania ( see 'Pipeline Project Constrains Upstream Developments', 30 October) which could potentially be connected to provide an alternative outlet for South Sudan's crude. This could boost competition giving South Sudan more leverage in future transit fees negotiations with Sudan. To reduce its dependence Khartoum, South Sudan previously explored options for alternative pipeline export routes, reaching an agreement with Kenya to build a pipeline linking Juba and the port of Lamu on the Indian Ocean. However, due to financial constraints, the project has failed to progress.

see'Ongoing Conflict Will Slash Growth Hopes'26 April

Oil Output Set To Increase
Crude Oil Production, 000b/d
f = BMI forecast.Source: BMI, EIA

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