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South Sudan warns pipe may shut in oil row with Khartoum

Latest export dispute between north and south threatens to further stall Sudanese oil market

Reuters, Saturday 14 Jan 2012
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South Sudan said on Friday that a pipeline to north Sudan carrying its crude oil exports may have to shut down within two days because Khartoum was blocking oil shipments.

Sudan itself accused the landlocked South of being responsible for shipment delays because it had failed to pay duties for two ships held at the Red Sea port of Port Sudan. Its exports mainly go to China and other Asian countries.

Six months after landlocked South Sudan seceded from Sudan, the two countries have failed to agree on how much Juba should pay Khartoum in fees to transport its production of 350,000 barrels per day to port.

South Sudan's minister of petroleum and mining, Stephen Dhieu Dau, said the pipeline may be shut down due to what he called Sudan's blockade of southern oil exports.

"They are holding the oil. The companies are warning all the partners, including the government of Sudan and our government and all stakeholders, that within two days, there will not be space for storage," he told reporters.

"(It) will have to shut down if there is no change. This is a major program," he said. "This is the responsibility of the government of Sudan. They will be responsible for any damages that follow the shutdown."

South Sudan has accused Khartoum of preventing two ships carrying 1.6 million barrels of southern crude oil from leaving Port Sudan, another from loading 0.6 million barrels and two others from entering port to take possession of a further 1.2 million barrels.

But the Sudanese foreign ministry in Khartoum said the reason for the delay was that Juba had failed to pay port duties in Port Sudan.

"Port authorities have prevented the departure of two ships with oil from South Sudan because port fees have not been paid yet," said a spokesman for Sudan's foreign ministry.

Two other oil tankers had not entered Port Sudan and left after approaching the port when they learned that Juba had not paid duties, he added.

"The energy ministry informed firms transporting the oil that the fees must be paid so oil shipments can depart. This is a financial matter like in all ports in the world."

Sudanese President Omar Hassan al-Bashir said this month Khartoum would impose a fee on Juba until a deal was reached on a transit fee but gave no details.

In its latest tender, South Sudan has offered to sell 4.7 million barrels of Dar Blend and 1.6 million barrels of Nile Blend crude for loading in February.

Juba has accused Khartoum it was re-routing all of the new nation's Nile Blend crude oil entitlements for December to refineries in El Obeid and Khartoum.

Analysts say Khartoum needs to keep supplying oil to its refineries or risk damaging its facilities because of the nature of the crude. Sudan's output of less than 120,000 bpd serves only domestic consumption.

South Sudan voted overwhelmingly for independence in a referendum a year ago, the culmination of a 2005 peace deal that ended decades of civil war in which over 2 million people died.

South Sudan on Friday signed new agreements with Asian oil firms to replace existing deals with north Sudan.

China National Petroleum Corp (CNPC) and China Petroleum and Chemical Corp (Sinopec), as well as Malaysia's Petronas and India's Oil and Natural Gas Corp (ONGC), signed new contracts with the oil ministry, officials said.

"The difference is that the government of South Sudan, by managing and overseeing this sector, will follow a transparent policy and good governance," said Dhieu Dau.

He said South Sudan would also review concessions for firms who are still in exploration stage. Among the most prominent firms, France's Total holds a concession in Jonglei state but exploration has been hampered by tribal and rebel violence there.

"We will soon start to negotiate with all companies that have been awarded blocks and we believe that some of these companies have overstayed on these blocks without doing anything and also even their rights of ownership to these blocks is in question," he said

"We will not wait for long. We want to exploit our resources," he said.

South Sudan hopes for new finds as its output is expected to halve within a decade, according to the International Monetary Fund (IMF). Oil insiders say Khartoum was overpumping some fields before southern independence.

The oil minister said the government wanted to double output to 700,000 bpd within five years and considers building a pipeline to Kenya to bypass Sudan.

But analysts are sceptical that new major finds will be made unless the government managed to end tribal violence which has escalated in Jonglei state where Total is active.

Oil insiders say a Kenyan pipeline would not be viable without major new finds because production will decline in the coming years. Building would be also a major challenge in rough territory.

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