Oil plays a major role in the Sudanese economy. In 2009, according to the International Monetary Fund, oil represented over 90 percent of export earnings. For South Sudan (Juba), oil represented 98 percent of total revenues for the year compared to Khartoum at 65 percent. In 2009, there were announcements of natural gas discoveries in Sudan but these have yet to be determined commercially viable.
According to the International Energy Agency (IEA), combustible renewables and waste accounted for 68 percent of Sudan’s total primary energy consumption in 2008, followed by petroleum (32 percent) with hydroelectric power accounting a small share. The large share of biomass in the energy mix represents a large population, located in rural areas with little or no access to the electricity grid, that rely heavily on biomass to meet heating and cooking needs. According to the IEA, approximately 27 million people in Sudan lack access to electricity, the country as a whole has a 31percent electrification rate with urban areas reaching 48 percent electrification and rural only 19 percent.
Sudan has been involved in two major civil wars since 1955 that have impacted the country’s economic development, particularly its natural resources. The first and longest of the two wars was between the northern Sudanese government in Khartoum and the Sudan People’s Liberation Army (SPLA) in the South that ended with the signing of the Comprehensive Peace Agreement (CPA) in 2005.
The CPA provides for some degree of autonomy for the South with equal sharing of oil revenues from oil produced in the South between both sides. Abyei, a significant oil producing region sits on the North/South Border. Under the CPA, Abyei was given special administrative status and has since suffered some clashes. In 2009, the Permanent Court of Arbitration in the Hague ruled on an ongoing border dispute that put two of Sudan’s oilfields (Heglig and Bamboo) in the North rather than as part of the Abyei region, this decision, however, is still being disputed by the South and Abyei.
As part of the CPA, a referendum is scheduled for January 2011 at which time the South will decide whether or not to secede, and the Abyei region will decide on which side to join. The uncertainty regarding these referenda and concerns that delayed or disputed voting and/or further conflict could lead to additional sanctions have kept the oil industry from fully developing. While most of Sudan’s oil is produced in the South, the export and refining infrastructure is entirely in the North.
The second conflict in Darfur brought with it international condemnation, internally displaced populations and sanctions affecting the country as a whole. The conflict has prevented oil exploration in the Darfur region, and the sanctions have prevented some international investment. The fighting itself has led to considerable infrastructure damage further limiting development.
According to Oil and Gas Journal (OGJ), Sudan had five billion barrels of proved oil reserves in January 2010 up from an estimated 563 million barrels in 2006. Some analysts and government reports put the volume of Sudan’s reserves above 6 billion. The majority of reserves are located in the South in the Muglad and Melut basins. Due to civil conflict, oil exploration has mostly been limited to the central and south-central regions of the country. Natural gas associated with oil production is mostly flared or re-injected. In 2009, there were announcements of natural gas discoveries in Sudan but these have yet to be determined commercially viable.
Exploration and development of Sudan’s oil resources has been controversial. International human rights organizations have accused the Sudanese government of financing human rights abuses with oil revenues, including the mass displacement of civilians near the oil fields. Factional fighting in the South and rebel attacks on oil infrastructure have kept oil production and exploration from reaching full potential. China, the largest investor in Sudan, has had facilities attacked while at the same time, the country has faced international condemnation for its investments in Sudan.
The United States prohibits U.S. nationals from engaging in any transactions or activities related to the petroleum or petrochemical industries in the entire territory of Sudan (including Southern Sudan) as a result of the conflict in Darfur. For information on full U.S. sanctions, please see the U.S. Treasury Department’s Office of Foreign Assets Control. Sudan also faces sanctions from the United Nations and the European Union which include arms embargos, travel bans and restrictions on financial activities that may impede the peace process – without specifically addressing the petroleum sector (the full list of U.N. sanctions can be found here).
The Sudan National Petroleum Corporation (Sudapet) is active in Sudan’s oil exploration and production. However, due to its limited technical and financial resources, Sudapet often develops joint ventures with foreign companies in oil projects but remains a minority shareholder. Foreign companies involved in Sudan’s oil sector are primarily from Asia. They are led by the China National Petroleum Corporation (CNPC), India’s Oil and Natural Gas Corporation (ONGC) and Malaysia’s Petronas. Nilepet, South Sudan’s national oil company, has also been involved in allocating licenses which has led to some conflict, specifically in Southern blocks that were licensed by the Northern government.
In October 2005, Sudan established the National Petroleum Commission (NPC) to bolster the development of the country’s oil resources. To accomplish its mission, NPC allocates new oil contracts, and it ensures an equal sharing of oil revenues between the national government in Khartoum and the Government of South Sudan (GoSS). In addition, NPC is responsible for resolving duplicate oil contract issues in which the GoSS has allocated blocks overlapping contracts previously granted by Khartoum.
Exploration and Production
Oil production began in the late 1990s and grew rapidly starting in July 1999 with completion of an export pipeline that runs from central Sudan to the Port of Sudan. In 2009, EIA estimates that crude oil production averaged around 485,000 barrels per day (bbl/d). Recent production estimates reflect an increase in Dar Blend production that has offset declining production of Nile Blend crude.
Production is sourced from two groups of blocks plus output from smaller areas that have recently come on-stream (detailed descriptions are listed below). The first and oldest development is the Greater Nile Oil Project covering Blocks 1,2, and 4 that in 2009 was the source of an estimated 180,000 bbl/d of Nile Blend. The second major field encompasses Blocks 3 and 7, operated by the Petrodar consortium, which produced around 240,000 bbl/d of Dar Blend. Other smaller sources Include Block 6 which produced between 30,000 and 40,000 bbl/d of Fula Blend, and Block 5a, another source of Nile blend, which produced between 20,000 and 30,000 bbl/d in 2009.
Blocks 1, 2, and 4 (Nile Blend)
Blocks 1, 2, and 4 cover an area that straddles the North, South, and Abyei region. Production began in 1996 with the development of the Heglig and Unity Fields. Because the fields lacked access to markets, a consortium was developed to raise investment for a 1,000-mile pipeline from the fields to the Suakim oil terminal near Port Sudan. In September 1999, the first cargo of crude departed the export terminal. The blocks are now operated by the Greater Nile Petroleum Operating Company (GNPOC), a consortium of CNPC (40 percent), with partners Petronas (30 percent), ONGC (25 percent) and Sudapet (5 percent).
In 2009, combined production from Blocks 1, 2, and 4, including Abyei, was estimated to be around 180,000 bbl/d of Nile blend, reflecting a decline from a 2006 peak of over 270,000 bbl/d and is expected to continue to decline in the short-term, mainly from declines in the Heglig and Unity fields. The negotiations over the future of these fields and the Abyei region have delayed investments to offset declines.
Blocks 3 and 7 (Dar Blend)
Blocks 3 and 7 in the Melut Basin, South Sudan, are operated by Petrodar, a consortium of CNPC (41 percent), Petronas (40 percent), Sudapet (10 percent), Sinopec (3 percent), and Tri-Ocean Energy of Kuwait (3 percent). Located in the Melut Basin, the blocks contain the Adar Yale and Palogue oil fields, with estimated recoverable reserves of 460 million barrels. In November 2005, CNPC brought online the Petrodar pipeline linking the two blocks to Port Sudan. The pipeline has current throughput of 150,000 bbl/d and maximum capacity of 500,000 bbl/d.
In 2009, production from these two blocks was close to 240,000 bbl/d of Dar blend. Output rose from the startup of the Qamari field which came online in 2009. However, some analysts stated that full production increases might have been delayed due to the lack of export infrastructure. The heavy and highly acidic quality of this crude makes it less marketable and it trades at a discount to other benchmark crudes such as Brent and Minas.
Block 5a (Nile Blend)
In April 2005, the Sudanese government signed an agreement with White Nile Petroleum Operating Company (WNPOC) for the development of the Thar Jath and Mala fields on Block 5a. First oil from the block came online in June 2006 at an initial rate of 38,000 bbl/d. In 2009, the field was still producing between 20,000 and 30,000 bbl/d, full capacity was initially estimated at 60,000 bbl/d. Oil from the field flows through a 110-mile pipeline to Port Sudan. WNPOC is a consortium of companies, which include Petronas (69 percent and operator), ONGC (24 percent) and Sudapet (7 percent).
Block 6 (Fula)
In November 2004, CNPC brought online its Fula field on Block 6 at a rate of 10,000 bbl/d. Current output on the block is 45,000 bbl/d of highly acidic crude, and is expected to increase from the start up of the Jiake field announced in August of 2010. CNPC has constructed a pipeline that links the Fula field to the Khartoum refinery where it is processed largely for domestic use.
Block B: Block B is located in southeastern Sudan and is licensed to Total. The company has faced several problems resulting from conflict in the area, licensing problems, and, more significantly, the existing consortium continues to seek a third partner to replace Marathon Oil, a U.S. company that was forced to pull out of its 32.5 percent interest as a result of U.S. sanctions.
Block 5B: Block 5B is located in the southern Muglad Basin and was initially under exploration by ONGC Videsh (23.5 percent stake) and Lundin (Sweden 24.5 percent) in partnership with Sudapet (13 percent), and Petronas (39 percent). In early 2009, two major stakeholders, ONGC and Lundin pulled out after negative drilling results. In August 2009, the National Petroleum Commission approved the participation of Ascom, a Moldovan firm in block 5B.
Block EA: The EA block is a relatively new block, marked out along a long narrow strip that runs along existing fields in the Muglad Basin. In August 2010 Star Petroleum (Luxembourg) announced the company was awarded an exploration and production–sharing agreement (EPSA) for Block E. Star Petroleum holds a 75 percent stake while Sudapet holds 20 percent, the remaining 5 percent is held by Hamla (Norway).
In 2009, Sudan produced close to 485,000 bbl/d and consumed around 90,000 bbl/d. The remaining crude was exported almost exclusively to Asian markets. According to international trade data, in 2009 China imported close to 250,000 bbl/d (65 percent of total Sudanese exports and 6 percent of Chinese imports) followed by Indonesia (60,000 bbl/d) and Japan (50,000 bbl/d). Additional importers of Sudanese crude include India, Malaysia, the Netherlands and Thailand. Sudan also exports some processed fuels to neighboring countries. Ethiopia imports most of its fuel from Sudan but official data on trade volumes is not available.
Sudan has two major oil streams, the Nile and Dar Blends. Nile is a medium, sweet crude with an API of 34. Nile blend is exported to Asian markets and trades at a discount to Indonesian Minas, the Asian benchmark crude. Dar blend is also exported to Asian markets and while production of this stream is growing, the heavy sour quality of this crude causes it to trade at a discount to Minas and other benchmark crudes.
Sudan has three refineries located in Khartoum, Port Sudan, and El-Obeid. The Khartoum refinery was expanded in 2006 from a capacity of 50,000 bbl/d to 100,000 bbl/d. The expansion allowed for the processing of both Nile and Fula blends of crude for domestic consumption as well as product exports. The Port Sudan facility is located near the Red Sea and has a refining capacity of 21,700 bbl/d. In September 2005, a contract was awarded to Petronas to build a new refinery at Port Sudan. The refinery was to be designed to process the highly acidic Dar blend but this project has been postponed several times and the status is currently unknown. The El-Obeid refinery is the smallest with an estimated capacity of 10,000 bbl/d.
In the event of a Southern secession the government of South Sudan has announced plans to build additional refining capacity in the South as well as a 2,200-mile (3,600 km) pipeline from the South to Kenya’s port in Lamu.