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Uncertain future for Sudan oil revenues

Hydrocarbon Engineering,

From 9 July 2011, a new African state will emerge from Sudan, as the North and South are reconciled via a January referendum declaring the independence of the southern part of the country.

However, both sides’ dependence on oil will mean that talks will need to take place to establish the division of oil revenues between the two states. The country currently splits oil revenues equally between North and South; however, this oil wealth sharing deal as agreed upon in a peace agreement in 2005 is set to expire in July.

Whereas the North holds the infrastructure to export oil to market via pipelines and port, as well as refining capabilities, it is the South that holds the majority of crude oil reserves (approximately 80% of Sudan’s traditional daily output). The allocation of three producing blocks along the border will need to be decided. China’s state oil company CNPC has a 40% share in these particular blocks, along with Malaysian and Indian parties. The consortium has stated a preference for the blocks to be managed by the two states via a joint venture.

45% of North Sudan’s budget is currently derived from oil revenues, meaning that the shortfall in revenues after South Sudan’s secession will have to be met in other ways – most likely by charging the South for use of its infrastructure. However, there are talks underway for constructing a southern pipeline as a way to free the new state from dependence on the North.

With the reconciliation, there will continue to be increased international interest in the region in terms of investment, as Sudan is currently third in its region in terms of confirmed oil reserves. China's CNPC is currently responsible for approximately half of the country’s oil output, and US President Obama has expressed a readiness to recognise the new state of South Sudan. Russia is also set to make a move in expanding its energy interests in Africa. 

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