Oil industry driving ahead despite bumps in the road
The Sudanese oil industry is moving into an era in which it is attracting growing Arab investments at a time of continuing domestic political problems, which in turn are translated into threats to the industry. But given the country's dependence on oil revenue, the tight oil market and worrying signs of non-OPEC supplies, the impact of these negative developments is expected to be minimal as internal needs and the main players will push more for cooperation than fighting. In March 2008 Al-Kharafi Group of Kuwait announced that it bought out the share of Dubai-
based Al-Thani in the Petrodar project that operates Blocks 3 and 7. The 5% share that initially cost Al-Thani $2 million netted $500 million after all, Petrodar is currently pumping some 200.000 barrels per day (bpd), some 40% of Sudan's total output. But Al-Kharafi is not going to acquire the whole 5%, only 3%, while the remaining 2% will go the state-owned company Sudapet, and Al-Kharafi will be awarded licenses in agricultural and animal projects. The deal raises Sudapet's share to 10% in the block that covers an area of 72.000 square km. More significantly, there is a great possibility that an Emirati company, Mubadala Development Co., will emerge as the front runner to get into the consortium handling Block B, operated by Total, the French oil giant. Mubadala is fully owned by the government of Abu Dhabi and is expected to acquire the 32.5% share of US Company Marathon, which is banned by US sanctions from operating in Sudan.
Mubadala's day
This development is confirmed by the new Energy and Mining Minister Al-Zubair Ahmed Al-Hassan, who told Dow Jones newswire in April 2008 that Mubadala is "the strongest" candidate to enter into Block B, although there were other bidders like the Chinese firms CNPC and SINOPEC. When the dispute concerning Total's concession was settled last year, Marathon sold its share to Total as a temporary arrangement to be given to the new owner. The arrangement also included South Sudan oil company Nilepet, which will have a 10% share, like Sudapet, while the remaining 20% will go for public bids. If these developments are to materialize they will mark a new shift in Sudan's oil industry that so far has been Asianized. In the meantime the Swedish firm Lundin Petroleum AB announced in early May 2008 that the second well Wan Machar-1 did not record any oil shows in Block 5- B, in the southern Muglad Basin. Two months earlier the first well Nyal-1 was also abandoned as dry after reaching a depth of 2,363 meters.
Assessing the experience, Ashley Heppenstall, President and CEO of Lundin, said that "the drilling results to date are disappointing. However, the wells provide important data that will allow us to develop our understanding of this part of the basin." The block covers 20.000 square km. Lundin's program includes digging four wells this year. The third well will be close to the central part of the basin.
It is anticipated that source rock quality and maturity will improve. Despite this, there are signs of a possibility of raising the current 500,000 bpd by another 100,000 bpd by the middle of next year. The addition will be a direct result of increased investment by the Chinese company CNPC, mainly in Block 6 in southwestern Sudan, where it starts this year by increasing production from 40,000 bpd to 60,000 bpd. And there are indications that the new additions will be of better quality. CNPC has stake in two new blocks, 13 and 15, and initial information show indications of gas.
However, on the other hand the issue of the contested Abyei area came to the fore when there were renewed clashes between the Sudan People's Liberation Army (SPLA), the former rebel army now in control of South Sudan and the Missieriay tribe. The Abyei protocol is regarded as the only part of the Comprehensive Peace Agreement (CPA) that did not find its way to implementation yet because of different approaches of how to handle it.
Prized pipeline
Abyei is also significant given the oil dimension. It has its extensions in blocks 1, 4, and 5-A and when oil production started it accounted for the bulk when 181,000 bpd were pumped out of it back in 2000, the first full year of production. But from a peak of 23% of oil coming out from Abyei in 2003, last year that percentage had dropped to 8%. But of greater significance is the fact that Abyei is the place through which the main pipeline owned by Greater Nile Petroleum Operating Co. (GNPOC) passes that connects various pumping stations to the 1,610 km pipeline that takes Sudan's oil to Bashayer terminal on the Red Sea and eventually to world markets. To what extend these clashes could go out of hand remain to be seen, but three factors work towards pushing the two sides to join hands.
The first is that geology has put most of oil reserves in the South, while geography handed the North with the outlet to the outside world. Landlocked South Sudan will find it almost impossible to ship its oil to the markets unless it uses North Sudan's facilities pipelines, terminals etc and those facilities are almost useless in the absence of crude pumped out from the South. Second, both governing bodies in the North and South are dependent on oil revenues to conduct their businesses. For the federal government in Khartoum, oil income accounts for more than 50% of its revenue, while the percentage for the South is a staggering 99%. The third factor is that with dwindling supplies from non-OPEC producers, the tight oil market is in no mood to accept declining exports especially if one of the main lifters is China, the second largest oil consumer in the world. Its lifting from Sudan oil has more than doubled last year to 10.1 million tones over 2006, making Sudan the sixth largest crude supplier to China.
Alsir Sidahmed is a free lance journalist, trainer and media consultant.
© Executive 2008
