South Sudan: A New Oil Player?

Todd Shriber
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Unless one is an avid watcher of the BBC or CNN, a frequent listener of NPR or regularly reads the Christian Science Monitor, there is a fair chance one does not know much about the goings on in the African nation of Sudan. As is the case with much of Africa, Sudan is a country that is home to rampant civil strife and political instability. And like many other African nations, Sudan is also home to abundant natural resources, in this case, oil.

Another tidbit that many Westerners may not be aware of is that on Saturday South Sudan will become Africa's and the world's newest independent country after voting to declare its independence from the north. That is bad news for the north because Sudan, which only started exporting oil in 1999 and by some estimates is the third-largest oil producer in Sub-Saharan Africa behind OPEC members Angola and Nigeria, may be home to as many as 6.6 billion barrels of recoverable reserves, but 75%-80% of that oil lies in South Sudan.

That is a nice haul with which to start a new country, but South Sudan is another prime example of the perils faced by energy producers in this era of peak oil where every precious barrel of added reserves can make a difference. While it is a fact that South Sudan has oil, it is also a fact that the country is far from becoming a major oil player and that Western companies probably will not be lining up to pump crude in the new country.

According to the United Nations, 2,300 south Sudanese have perished in rebel and tribal violence this year and there are believed to be at least seven rebel factions operating in the new country. Believe it or not, rebel violence is a deterrent for oil producers. That is the primary reason why Royal Dutch Shell, Europe's largest oil company, is looking to sell some Nigerian assets despite a presence in the African country that has spanned multiple decades, allowing Shell (RDS-A) to become the Western oil major with the largest Nigerian footprint.

South Sudan's oil aspirations likely face a steeper uphill climb than many other African nations. While Western oil producers continue to tap Angola and Nigeria and seek out new projects in the likes of Ghana and Mozambique, South Sudan could be left behind in the African oil shuffle with civil violence the primary reason why.

U.S. oil companies have barred from operating in Sudan since 1977 due to terrorist-related sanctions imposed on the country, according to the Pulitzer Center. The formation of South Sudan probably will not result in the lifting of those sanctions, at least not in the near-term. France's Total (TOT), Europe's third-largest oil company, has owned part of one of the largest oilfields in South Sudan since the 1970s, but has not been an active producer in that time because of rebel violence.

There is also the contentious matter of sharing oil revenue with the north, just another issue South Sudan has to deal as it hopes to legitimize its status as an oil exporter. Bottom line: South Sudan has the reserves to make it a lucrative destination for oil producers, but these companies already take substantial risks in other parts of the world. Is it worth it to do the same in a new war-torn country?

Todd Shriber