South Sudan, New Country, New Oil Plays!

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Will South Sudanese benefit from oil?

Welcome to the  Republic of South Sudan which has become the world’s newest state today. What’s interesting here is that the new government in Juba will be to assessing how it can establish secure independent routes to market for the  vast oil reserves that South Sudan has. Before Sudan’s partition,75% of crude exports, were running at 350,000 bopd, this production came from oil fields in the south of the country. The route to market was via two pipelines leading through northern Sudan to an export terminal on the Red Sea. 98% of the newly independent nation’s revenues come from crude oil exports, a workable agreement on how to share the oil with the north hasn’t been reached. The peace treaty agreed, in 2005, that revenue from the south’s production should be divided 50% with the Khartoum government in the north. This expires today upon secession, no new arrangement on the revenue split has been agreed. The south has little choice but to continue its ties with north Sudan. In the long term, establishing new pipelines that would provide independent export routes, circumventing the north, will be crucial if the fledgling nation is to survive. In general, the south has the following options. Building a pipeline to Ethiopia. On Tuesday, Dr Luol Deng, south Sudan’s oil minister, announced the republic is in talks with Addis Ababa about plans for a pipeline. Sudan as a whole currently supplies 80% of Ethiopia’s oil demand, but the land-locked and mountainous neighbour cannot provide a route for sales to the rest of the world. However, exports to the most populous country in the Horn of Africa would be potentially lucrative for Jubal. An export route via Kenya to the Indian Ocean. In what seems a more viable option, Anthony Makana, the south’s minister for roads and transport, announced designs for a 200 km pipeline from Juba to Kisumu in Kenya. South Sudanese officials are also in negotiations with Toyota in Kenya. Last year, Toyota Tsusho, the trading arm of the Japanese carmaker, said it was developing plans to build a $1.5 billion pipeline to run from Juba to the Kenyan island of Lamu. “We have been in contact from time to time with Toyota Kenya” confirmed Arkangelo Okwang, the south’s director of energy to Reuters. At present, China, Malaysia and India, are the biggest investors in south Sudan’s oil fields but all international contracts are to be reviewed upon independence. This could make way for Japanese investment. A pipeline to the south connecting Uganda. Newly oil-producing Uganda intends to establish its first pipeline and an oil refinery with the capacity to process up to 200,000 bopd. However, no international oil companies have yet stated their interest. As it stands, a Kenyan export route seems the most viable option. Although the north opposes all attempts by the new state to build an independent export pipeline, south Sudan’s possible success could revolutionise crude exports in the Horn of Africa.

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