China's Africa envoy says South Sudan oil may flow by November - Reuters

China's special envoy to Africa Zhong Jianhua has made several trips to the landlocked African nation that seceded from Sudan in mid-2011, holding talks with officials from Khartoum and Juba where Chinese oil companies are heavily invested.

South Sudan halted oil flows in January during its dispute with Khartoum over how much it should pay to export crude through pipelines in Sudanese territory to a Red Sea port.

Fighting along the 1,800-km (1,200-mile) border threatened to turn into a full-scale war in April when the South seized the Heglig oil-producing region long held by Sudan.

Tensions have lowered to a point where Beijing envisions "several agreements" being signed in September, Zhong told Reuters in an interview on Friday.

"If the two presidents (of Sudan and South Sudan) meet sometime around the twentieth of September and sign several agreements, I will not be surprised," said Zhong, who made his third trip to South Sudan several weeks ago.

"We would expect that they will probably still carry out negotiations for other matters such as demilitarisation, cushion zones between borders, and the withdrawal of troops, so that by the end of the year -- the resumption of oil production by November -- that is what we expect," he said.

Sudan and South Sudan have held border security talks in the Ethiopian capital Addis Ababa, facing a U.N. Security Council deadline of September 22 to reach a deal or risk sanctions.

PRELIMINARY DEAL

Zhong's outlook is slightly more optimistic than projections by South Sudan oil officials, who have said resuming output in Upper Nile state, home to South Sudan's most productive oilfields, was possible by year's end. Turning on wells in the state of Unity would probably take longer.

The South reached a preliminary deal on transit fees with Sudan last month that could open the way to resuming oil exports, but Khartoum still wants a deal to secure the volatile shared border before crude flows resume.

China, heavily invested in the oil sector of both nations, has found itself caught between its long-time ally in Khartoum in the north and its new partner in the South, which inherited three quarters of Sudan's oil output after the split.

The military standoff earlier this year was evidence of how China's hunger for resources and expansion abroad has at times put it in an uncomfortable position when dealing with other countries' disputes. Sudan had been one of China's top foreign suppliers of crude oil.

Zhong credited the United States with helping to bring the two feuding nations back from the brink.

"The tension has already been dramatically reduced since the conflict in the Heglig oil fields because of the tremendous pressure applied by the American government on the South Sudan authorities," he said.

South Sudanese officials have said the country was producing about 350,000 barrels per day (bpd) before the shutdown. Much of that went to China, the biggest buyer of South Sudan's oil, which last year imported 260,000 bpd of crude from the two countries, according to the International Energy Agency.

China had called for restraint between the two sides when South Sudan President Salva Kiir visited Beijing in April at the height of tensions, claiming that Beijing's long-time ally had declared war on the South.

"We told President Kiir, we are very willing to help ... but our experience tells us that if there is not a peaceful environment it will be very difficult to do," Zhong said.

South Sudan had criticized China after that visit for not playing a more active role in a north-south settlement.

The South has welcomed China's offers of development funds and its investment in the oil industry, but many still view Beijing with a degree of suspicion after years in which it acted as one of Sudanese President Omar Hassan al-Bashir's strongest supporters.

Zhong said officials in Juba had not fully understood the damage halting oil production would do to its already struggling economy.

South Sudan relied on oil for about 98 percent of state revenues before the shutdown and has struggled to make up for the loss through loans and boosting taxes.

"South Sudanese leaders have felt more directly than we have the problems created from ceasing oil production," he said.

(Reporting by Michael Martina; Editing by Paul Tait)