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South Sudan warns oil shutdown could destroy pipelines

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Energy Global,

South Sudan has warned its neighbour Sudan that turning off oil flows through pipelines between the two countries could destroy the link unless production resumed within a few months.

Last week, South Sudan started shutting down oil production after Sudan said it would close the pipelines within 60 days unless South Sudan ended support for Sudanese rebels. Juba, the capital and largest city of the Republic of South Sudan, denies backing them.

South Sudan: landlocked and facing imminent cut off

Landlocked South Sudan exports oil through Sudan's Red Sea terminal in the absence of its own export facilities.

Oil Minister Stephen Dhieu Dau said South Sudan had urged Sudan to reverse its threat to close the pipelines.

Sudan's Oil Minister Awad al-Jaz said it was up to South Sudan to cut ties with insurgents operating across the shared border if it wanted oil flows to continue, state news agency SUNA said.

"The ball is still in South Sudan's court," he said.

The African Union is trying to mediate in the row between the neighbours, which came close to war in April 2012, the worst violence since the South seceded in 2011.

Potential pipeline damage

Dau said pipelines would have to be flushed with water to avoid galling, which was accelerating the rusting of the metal.

He said if oil did not flow within several months, the pipeline would be a "total loss for the investors and the owners. It is not much our concern."

The pipelines and other facilities in both countries were mainly built by China before formerly-united Sudan split in a messy divorce in 2011.

China National Petroleum Corp, Malaysia's Petronas and India's ONGC Videsh run the oilfields in South Sudan together with the government.

South Sudan only restarted oil production in April after ending pumping around 300 000 bpd in January 2012 when the former civil war foes failed to agree on pipeline fees.

Current production shutdowns

Dau said engineers had so far started closing wells in the Palouge field in blocks 3 and 7, while the shutdown of other smaller blocks in Unity state would start on 25th July.

He gave no new production figures, saying only it was less than 180 000 bpd last measured on Friday.

South Sudan relies on oil and foreign grants for most of its budget.

The shutdown is also likely to hit Sudan, which has been struggling with turmoil since losing most of its oil reserves with South Sudan's secession. Oil fees from Juba are essential to bring down soaring inflation.

Halting production in South Sudan

South Sudan has said it would halt oil production, which provides some 98% of its revenue. Officials said South Sudan intends to end oil production by August amid the renewed dispute with the Khartoum regime in Sudan.

Officials said the Juba government has been trying to sell 6.4 million barrels of oil surplus before the shutdown. “This will represent our entire reserve and bring in at least US$ 300 million in revenue,” an official said.

The Khartoum regime has confirmed the blockade of North Sudan oil amid a dispute over pipeline fees and the border war.

Khartoum said the pipeline from South Sudan to the Red Sea port of Port Sudan would be turned off unless Juba ended support to anti-Khartoum rebels.

Bad for both countries

The shutdown is bad news for both countries, which fought one of Africa’s longest civil wars before separating in 2011.

Diplomats worry South Sudan might collapse without oil, the main source for the budget apart from foreign grants. They point to recent looting of aid agencies by soldiers as a sign that Juba is struggling to pay salaries.

Closing the wells is also grave news for Sudan, which has been struggling with turmoil since losing most of its oil reserves.

Oil industry insiders say once the pipelines are closed it will take several months to restart production as they would have to be flushed of water and cleaned first.

South Sudan sold 1 million bbls of crude in June and had contracted further sales of 2.2 million for shipment in July and 3.2 million in August, Dau told Reuters.

“There is enough crude in the pipeline to meet this,” he said. Sudan has said it would allow the sale of oil which has already reached pipelines on its territory or the export terminal on the Red Sea.

Dau repeated that South Sudan was not backing any Sudanese rebels. “We are committed to the flow of the oil. It is in the interest of the two countries. We don’t see that this shutdown can bring any peace or stop internal rebellions in Sudan.”

“It will have a negative impact on Sudan and South Sudan. Our economies will suffer,” he said. Sudan will get pipeline fees of around US$ 100 million until the shutdown, he added.

Edited from various sources by Elizabeth Corner

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