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Sudan: How Khartoum Uses Oil to Advance Its Agenda


East African (Nairobi)

ANALYSIS
23 October 2007
Posted to the web 23 October 2007

Zachary Ochieng
Nairobi

Since it was first discovered in 1979, oil has been a growing factor in politics and governance in Sudan.

When production first came online in 1999, it revived the government's ability to wage war against the Sudan People's Liberation Army (SPLA) in the South and ushered in external investment that stimulated rapid growth in an economy that had been under US economic sanctions since 1997.

Oil is literally the fuel that drives the CPA. Though it was only one of several core issues negotiated in Naivasha, Kenya, the 50 per cent share of Southern oil money that the GoSS now receives accounts for nearly all its revenue.

A drop in that revenue in March 2007 caused huge problems for the GoSS and SPLA to meet salary demands. Though national income sources are more diversified, petroleum exports remain the single largest source of foreign currency, allowing the National Congress Party to wage its war in Darfur and buy off challengers as it pursues divide and rule tactics throughout the country.

The oil sector is not transparent and is still controlled by the National Congress Party. Corruption is rampant, though the layers of National Congress Party-affiliated companies and security agencies thriving on state resources make it appear relatively subtle.

Corruption is an equally worrying problem in the South - within the GoSS - where it is a lot more visible. The GoSS is waking up to the threat posed by the vice. The entire Ministry of Finance staff has been sacked, including the minister, and an anti-corruption commission established.

Yet, the centrality of oil in Sudan's economy means that changes must be made at the national level if they are to take hold. The National Petroleum Commission, the joint National Congress Party-SPLM oversight body created in the CPA, which finally got off the ground after more than a year of procedural roadblocks, is an important place to start.

The SPLM still is largely shut out of the oil sector, reliant on calculations and figures delivered by the National Congress Party-dominated finance and energy ministries.

Given Abyei's unique political status, defining its oil resources is vital to better understanding the actions and calculations of the parties, as well as avoiding conflict and finding possible solutions.

Sudan's oil production was only able to reach significant levels after the completion of the export pipeline from central Sudan to the Red Sea coast in 1999.

Exploration began in the mid-1970s, and Chevron drilled several successful wells in the Abyei area in the early 1980s, beginning with Taiyib 1 in 1981.

Chevron pulled out in 1984, after an attack on its installations by the SPLA, and Sudan did not have the technical or financial resources to develop its own resources.

Serious investment began in the mid-1990s, including in Abyei. In 1996, Canadian independent Arakis Energy began development of the Heglig, Unity, and surrounding fields, then estimated to contain recoverable reserves of 600 million to 1.2 billion barrels.

Arakis entered into a consortium with several other companies called the Greater Nile Petroleum Operating Company in order to raise money for the 1,590-km Greater Nile Oil Pipeline from the fields to the Suakim oil terminal near Port Sudan.

The pipeline passes through the middle of Abyei's main oil producing area. The consortium brought in Chinese companies, which provided most of the engineering, equipment and construction for the field facilities and the pipeline, as well as 70 per cent of the line supplies. In September 1999, the first cargo of "Nile Blend" crude departed the export terminal.

After 1999, Sudan's production took off. About 181,000 barrels per day was achieved in 2000, with steady increases in all the fields of the concession until around 2003, when production was about 262,000 barrels per day.

During this time, production began at fields in Block 4, a large portion of which is also in Abyei. By 2003, more than one quarter of Sudan's oil production was coming from Abyei. Since then, production at most of the fields in the concession has begun to decline, including all the fields within Abyei.

A few new fields came online in other parts of the Greater Nile Petroleum Operating Company's concession, stemming the overall decline, and more importantly, additional fields and infrastructure (including new pipelines and refineries) began to come online in other areas of Sudan starting in 2003.

By the last quarter of 2006, oil production from fields in the Melut Basin, as well as Blocks 5A and 6, represented about half the country's production, which had in effect doubled in only three years.

Abyei's oil production is declining, and estimates drop sharply after 2006. Abyei's relative importance to Sudan's oil sector has also declined.

From over a quarter of all oil production in 2003, it will likely be less than 8 per cent in 2007.

To counter these problems, there are reports of horizontal drilling, indicating that the fields are already at the tertiary recovery stage.