Conflict continues to stifle South Sudan’s oil sector, GlobalData analyst says

7/8/2015

LONDON -- Continuing armed fighting, trade disputes and low oil prices are having a considerable negative impact on South Sudan’s oil industry, with existing asset holders reducing investments and potential investors being deterred by instability in the region, says an analyst with research and consulting firm GlobalData.

According to Jonathan Markham, GlobalData's analyst covering upstream oil & gas, reported production in South Sudan was approximately 240,000 bopd at the end of 2013, prior to the start of the conflict, but this is believed to have fallen to around 165,000 bopd in 2014.

At current oil prices of $60–65/bbl, South Sudan is earning around $100 million in profit per month from oil exports, approximately 90% of the government’s income. However, it is likely that 2015 production will fall even further following the recent conflict escalation around the oil regions.

Markham said, “Neither government nor rebel forces are in full control of the locations in key oil regions. Ineffective ceasefire agreements and declining oil exports mean operations in South Sudan will continue to be affected in the short to medium term. Damage to infrastructure will set the country back at least seven years, with production not expected to return to 2013 levels, of approximately 240,000 bopd, until 2020. Furthermore, despite proven reserves of 3.5 Bbbl and potential for further exploration, oil companies are not willing to invest until the political and security situation in South Sudan improves.”

The situation is further exacerbated by South Sudan’s reliance on two Sudanese pipelines to export crude oil. While the government has explored the possibility of building new pipelines through Uganda and Kenya, these plans have not progressed past the feasibility study due to the ongoing conflict.

Markham added, “South Sudan pays between $9.1 and $11/bbl to use Sudan’s facilities and an additional $15/bbl as compensation for the country’s lost oil revenue after independence. “The country currently has no other export routes if the existing pipelines are cut off. Without alternative routes, South Sudan will remain vulnerable to shutdown threats and unfavorable transportation contracts.

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