The Sudanese war that has been raging for nearly two years has shed light on the oil sector in the state of South Sudan, which has become one of its “collateral victims” with the escalation of confrontations between the two sides of the war, and the oil infrastructure being exposed to severe damage, which led to the cessation of the export of South Sudanese oil for nearly 10 months.
The oil industry is the lifeblood of the economy in South Sudan, with a contribution of 90% of state revenues. However, this excessive reliance on this sector has made the country vulnerable to the economic and political fluctuations associated with this global commodity.
Fluctuating production
South Sudan has a large amount of proven oil reserves that place it in third place in Africa. In 2020, the total of these reserves reached about 3.5 billion barrels, most of which are untapped due to weak infrastructure and lack of investments. Recently, Oil Minister Pot Kang Chol announced that his country will resume crude oil production at a rate Up to 90 thousand barrels per day.
This number had previously witnessed significant fluctuation, as production reached its peak in 2011 with the separation from Sudan at 350,000 barrels per day, later declining to 148,000 in 2015, while it reached 150,000 before the outbreak of the Sudanese war in April 2023.
According to a report issued by Murder Intelligence, an institution specialized in studying markets, this disparity is due to a group of factors, most notably the ongoing civil war and political instability, which have undermined the country’s ability to reach peak production, as low investor confidence and the situation constitute Security issues pose insurmountable obstacles to the government’s ability to boost crude oil production.
The most important oil fields
The oil fields are concentrated in the north of the country, and oil reserves are distributed among a group of blocks, the most important of which are those in the Melut Basin, which contains major fields such as Baluj and whose reserves are estimated at 900 million barrels, and the Muglad Basin blocks, which include the fields of Al-Wahda, Heglig, and Touma, and Block 5, whose most important fields are Tharjat and Mala.
A group of foreign companies operating in the oil industry are active in South Sudan, and among the main players in this market are the Nile Petroleum Company, Akon Refining Company Limited, the China National Petroleum Company, Petrolium Nasional Berhad (Petronas) and others.
The oil sector in South Sudan includes a number of important refineries that work on refining crude oil, the most prominent of which is the Bentiu refinery in the oil-rich Unity State, which aims to produce 10,000 barrels per day, according to statements by Ian Malong, Deputy Director General and Director of Downstream Administration at the Nile Petroleum Corporation. .
The cost of building the refinery amounted to $100 million, and it is one of five refineries whose total planned refining capacity is scheduled to reach 127 thousand barrels per day to cover the needs of the local and regional market.
The landlocked country depends on Sudan to export its oil production through two pipelines, one of which extends more than 1,500 kilometers from the Melut Basin in Upper Nile State to the Sudanese port of Bashayer on the Red Sea coast, while another pipeline transports oil from Unity State to the same port.
Challenges facing the oil industry
The oil sector has been the backbone of the economy in South Sudan since it announced its secession in 2011. Oil constitutes about 98% of total government revenues, 60% of gross domestic product, and the main source of foreign exchange, a reality that faces many challenges:
- One of the most important challenges facing the oil industry in South Sudan is the weak infrastructure that affects production capacity.
- The landlocked country relies on its northern neighbor, Sudan, to export its production, making it vulnerable to the repercussions of political tensions between the two countries and high transportation costs, which at some points reached nearly $25 per barrel.
- Another aspect of the challenges was produced by the state of security instability and the civil war that has been going on for years, which has destroyed the infrastructure and has also led investors to refrain from engaging in the country’s oil market.
- Corruption and lack of transparency constitute another challenge that is no less serious, as an assessment issued by the market consultancy “Jain Integrity” indicates that the natural and extractive resources industries in South Sudan are rife with corruption, as mismanagement of the country’s oil resources has allowed senior officials within the government to drain money without Punishment. In 2012, President Salva Kiir Mayardit accused a large number of officials of stealing $4 billion from the public treasury.
It seems that the situation has not changed much after more than a decade, as a report issued by Transparency International classified South Sudan among the list of the most corrupt countries, according to its Corruption Perceptions Index for the year 2023, a threshold that did not stray far from it, according to the same index, among Years 2013 and 2023.
The risks of dependence on oil
The heavy dependence of the South Sudanese economy on the oil sector carries with it many risks, most notably the fluctuations in crude prices in global markets, which cast a shadow on the economic and social reality, especially the poor and vulnerable groups. A World Bank report indicated that 76% of the country’s population lives below the line. National poverty in 2022.
On the other hand, the transformation of South Sudan into a state dependent on oil revenues hinders the development of other economic sectors in the absence of plans to move towards economic diversification policies. It also creates many challenges related to sustainable development, with the difficulty of directing oil revenues towards serving this goal.
The environmental reality was one of those affected by the pollution associated with oil extraction, which greatly affected the quality of water, air and soil, causing health and environmental damage to local communities.
The weak infrastructure of the oil industry in the country and its dependence on Sudan for exports not only keeps the country’s economy hostage to relations between Khartoum and Juba, but is also linked to security stability in the northern neighbor and in the Red Sea.
This fragile reality was clearly evident with the outbreak of war in Sudan, the repercussions of which led to the cessation of the flow of a large amount of oil from South Sudan to the Sudanese port of Bashayer for export on the Red Sea, bringing with it a loss to the treasury in Juba, estimated by Sudanese economic expert Muhammad Ibrahim at 100 million dollars per month. .
As a result, Finance Minister Awu Daniel Chuang stated that the government would find it difficult to pay employees’ salaries due to the revenue deficit, while the exchange rate of the local currency declined against the dollar, which directly led to higher costs of living in a country that imports almost everything from abroad.
Government actions
In the face of previous challenges and risks, the government has taken a number of steps, including introducing competitive bidding to grant oil concessions instead of direct grants, which leads to increased transparency in this sector. Juba is also working to attract donor funding and foreign investment in the energy sector, and encourage partnerships between the public sectors. And private.
On the environmental level, the government has undertaken an environmental audit to measure damage to the land and local communities, emphasizing strict enforcement of laws such as the Petroleum Law of 2012, which requires compliance with environmental health and safety standards in oil extraction operations.
Juba also plans to establish an oil pipeline to Djibouti via Ethiopia, in a step that would find solutions to the crisis of the cessation of oil exports through Sudan, as Silva Kiir Mayardit discussed with the Chairman of the Chinese National Petroleum Corporation, Dai Houliang, the establishment of this line to enhance export capabilities to expand extraction in Blocks 3 and 7.
Although these measures aim to address challenges such as transparency, attracting investment, developing the sector, and reducing environmental impacts, there are many risks present, including security instability, the inability to curb the corruption that is ravaging the state’s economy in light of the presence of a beneficiary political and bureaucratic class, and the urgent need To more effectively manage state-owned companies in the oil sector.
