South Sudan and its oil sector have been buffeted by low prices and the pandemic, but plans to hold a licence round in 2021 and pay off debts to Sudan. 

The world’s youngest country is also one of the world’s most dependent on oil – and as such has had a rocky time of it in 2020.

Lower oil prices have taken their toll on South Sudan and COVID-19 has disrupted logistics and supplies.

Total production is 170,000-172,000 barrels per day, South Sudanese under-secretary for the Ministry of Petroleum Awow Daniel Chuang told Energy Voice. This is below the projected total of 190,000 bpd, he noted.

South Sudan’s oil comes from three areas but only two are currently producing.

“Blocks 3 and 7 in Great Upper Nile is operated by Dar Petroleum Operating Company, and they are producing around 130,000 bpd, which sometimes drops due to logistic and other challenges. In Blocks 1, 2 and 4 we are producing around 52,000 bpd at the moment, which is projected to be around 60,000 bpd,” he said.

Production fluctuates by the day, with some signs that Greater Pioneer Operating Co. (GPOC) may be lower.

South Sudan’s commitments to reduce output to OPEC+ came before GPOC’s Blocks 1, 2 and 4 had resumed. “These production levels and cuts are being reviewed and coordinated with OPEC + based on monthly production levels.”

Needs

Chuang said there was value for the country to be part of the OPEC+ forum. “The future of OPEC+ will depend on the way it manages the oil prices, because sometimes people have different opinions about the production cuts that are being suggested to ensure a good oil market price.”

The official went on to say it was “very important” for the oil group to understand the importance of different countries’ needs.

“Many of the other member countries are very big, with well-developed infrastructure and different economic sectors. But when countries like South Sudan, which have less-developed oil sectors, are forced to cut production, this affects income and threatens the development and economic future of these countries,” he said.

“Asking a country producing 10 million or 8 million bpd to cut production is very different to asking another country that is producing 100,000 bpd to cut production. It’s unfair if you ask both countries to cut production by the same percentage. It doesn’t make any sense. At the end of the day, the difference between the two countries’ oil production is huge – and the cuts have a far greater effect on the one producing less oil.”

Growth

Production is expected to start soon at a third block, Chuang said.

Speaking on a recent Africa Oil & Power webinar, Nile Petroleum Services’ CEO Michael Makear Dot said Juba was particularly keen to restore output from Block 5A. Dot noted that price would likely be the determinant of when production was restored.

South Sudan had hoped to launch a licence round in the first quarter of this year. The pandemic has pushed back these plans. “Hopefully we can possibly launch the licensing round early next year, in 2021. The pandemic has caused the delay as no-one would have been interested in the launch if we had continued with it,” Chuang said.

COVID-19 has also had an impact on the proposed environmental audit. Companies have been invited to bid, Chuang said, the final step.

“Recently the new minister also expanded the environmental committee, which was put together last year. The committee oversees the audit tender process, and now includes representation from the Ministry of Health and civil society in the form of non-governmental organisations.

“It’s critical for us to ensure that the environment is being looked after and taken care of. The environmental audit will assist us to do just that. So, this process is continuing, but has been delayed by the Coronavirus pandemic.”

Politics

The block – and others – ran into difficulties in 2013 amid an alleged coup. Conflict between South Sudanese President Salva Kiir and his arch rival Riek Machar sparked a civil war.

“If South Sudan’s political situation is unstable and if there’s a perception that there are political problems, investors will stay away from the country, especially from the hydrocarbons sector,” acknowledged Chuang.

“We think right now the political situation has improved, following the signing of the peace agreement and formation of the new government. We believe the situation for both South Sudan and the hydrocarbons sector will improve in the future.

“Over the years we have suffered because of political instability, but now the time is right because the political process is going very well. This will help attract more investors to South Sudan.”

Once the COVID-19 outbreak has passed, the official said that “many investors” would come to the country. “They have been waiting for the right opportunity. We know it is a lengthy process, but with increasing political stability, we hope to attract more investors to the oil and other sectors.”

Neighbours

South Sudan, as a landlocked oil exporter, is reliant on a good relationship with its northern neighbour Sudan. While this has sometimes been difficult, Chuang was positive about recent developments.

The country is “currently on very good terms with Sudan. We are connected to Sudan through the oil pipelines and even facilities. We treat the oil we produce partially, up to 10% water cut, and then send it to Sudan.” Juba pays Sudan “fees, or tariffs, as set out in the agreement.”

Sudan has also had some dramatic changes of late, which has helped the relationship with Juba. “We did have some problems with the previous administration. Things have improved since the change of government and there is generally a better understanding and an improved relationship.”

Chuang noted that South Sudan would soon be able to complete all payments under the transitional financial arrangement (TFA). The country expects to make its last TFA payment in 2021.

This political deal, dating back to the secession of South Sudan, imposed an additional cost on oil exports.

“There are four fees that South Sudan pays for every barrel produced. A transportation fee, a processing fee, a transit fee and the non-commercial tariff, the TFA. The first three fees are commercial.

“These fees have a major impact on the economy of South Sudan and the oil industry, particularly the political TFA fee as it amounts to US$15 per barrel. The three commercial fees combined are between US$9 and US$11. Often, people talk about South Sudan having a lot of oil money but forget how much we pay Sudan. They don’t understand where this money goes.”

Book balancing

Low oil prices leave little left for South Sudan. When South Sudan’s oil is sold at $30 per barrel, Sudan receives $24.1 per barrel for Dar Blend and $26 per barrel for Nile Blend.

In May, when it was selling crude at $18 per barrel, South Sudan was producing at a loss.

“Currently, we can’t even pay Sudan in cash, as we don’t have the funds, so we pay them with oil of an equal monetary value. This is deducted from our production volumes, and obviously affects our oil revenue. So, every day, Sudan takes 28,000 barrels of oil, which is equivalent to about 840,000 barrels per month.”

This leaves South Sudan with 600,000 barrels per month. “We are running short and sometimes are unable to even pay salaries because we don’t have enough funds. We will be able to breathe again once the TFA is fully paid up. Even during difficult times, South Sudan has never failed to pay our northern neighbours.”

The Khartoum refinery processes 10,000 bpd of South Sudanese crude, while another 18,000 bpd goes to the Kosti power plant. “This is our payment, it is not for free. We have never failed to pay. We produce and reconcile the invoices, as does Sudan.”

 

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