The Changing Face of Sudan

by Megan Sever
Thursday, January 5, 2012

To say that things are changing in Sudan would be an understatement. With a referendum on secession set for Jan. 9, and expected to pass, and many issues to be negotiated between now and July 9 when the country’s peace agreement ends, a lot will change over the coming months. And everything hinges on Sudan’s most valuable product: oil.

Sudan has somewhere between 5 billion and 6 billion barrels of proven oil reserves, according to the U.S. Energy Information Administration (EIA). The U.S. Geological Survey (USGS) has also recently assessed Sudan’s oil resources. About 70 to 80 percent of the proven oil reserves is in rift basins in the South — the part of the country that is voting to secede. There is also some oil in the central parts of the country, such as near the contested Abyei region, and in the North and offshore in the Red Sea. In 2009, oil accounted for 90 percent of Sudan’s export earnings. It also accounted for 98 percent of total revenues for South Sudan, and 65 percent for North Sudan, according to the International Monetary Fund.

Because of investment from Asia, especially China, oil production began in Sudan in the late 1990s, and expanded rapidly in 1999 when an export pipeline was established between central Sudan and Port Sudan on the Red Sea in the North. In 2009, crude oil production averaged 485,000 barrels per day, of which Sudan exported about 81 percent, according to EIA. Sudan exports almost all of its oil to Asian markets: Some 250,000 barrels per day go to China (which is Sudan’s largest foreign investor, with the Chinese National Petroleum Company helping to produce the oil); 60,000 go to Indonesia; 50,000 go to Japan; and the rest is exported to India, Malaysia, the Netherlands, Thailand and Ethiopia. Sudan produces two primary types of oil: a sweet crude called Nile blend and a heavy, highly acidic crude called Dar blend.

Almost all of Sudan’s current oil production is in the South, especially in the Cretaceous- to Paleogene-aged Muglad and Melut basins, according to USGS. But the South has no way to get its reserves to market except through the North, home to Sudan’s entire oil infrastructure — all three refineries and the pipeline. And therein lies the rub.

For the past five years, the North and South have split oil revenues roughly equally, says Richard Downie, deputy director of the Africa Program at the Center for Strategic and International Studies in Washington, D.C. From 1955 until 2005, Sudan was mired in an on-and-off civil war between the northern Sudanese government and the Sudan People’s Liberation Army in the South. On Jan. 9, 2005, the two sides signed the Comprehensive Peace Agreement, which brought an end to fighting and set up the revenue-sharing agreement. The peace agreement also set Jan. 9, 2011, as the date of a referendum where the South would vote whether to secede from the North and become its own country.

If the South secedes, according to the Comprehensive Peace Agreement, it would demand that it receive 100 percent of the revenue from the oil within its territory, Downie says. That is not a situation that will work. Both the North and South are highly dependent on oil, and because of the split between where the oil is and where the infrastructure is, they are completely dependent on each other, he says. Therefore, whether the referendum passes or not, the North and South are going to have to renegotiate revenue-sharing agreements, he says — something they have been working on for months, with the help of the African Union, the U.S., Europe and other international parties.

Nothing will change immediately following the referendum; the Comprehensive Peace Agreement doesn’t expire until July 9, giving “some breathing room” to the negotiations, Downie says. But the negotiations certainly won’t be easy, he says, given that the South wants more of the oil revenue than it currently gets, and the North isn’t too keen on giving up a third of its land and two-thirds of its revenue.

And there is posturing on both sides: For example, the South says it can build its own pipeline from Juba (the South’s capital) to the Lamu port in Kenya. But whether such a pipeline is realistic is another question, Downie says. World Bank experts have said that Sudan has already hit peak oil, he says, so it may not be economical to build a billion-dollar-plus 3,600-kilometer-long pipeline for a diminishing source of oil. And it may not even be logistically possible, given that the entire southern region — an area the size of France — has only 50 kilometers of paved roads and less than a third of the area has electricity.

Obviously, the South needs the North’s infrastructure as much as the North needs the South’s oil. Therefore, it’s in both sides' best interest to keep the peace and to reach a revenue-sharing agreement, Downie says. Neither side wants to end up in another bloody civil war. “This is one of those situations in which the states' mutual dependence is actually a good thing,” he says.

“I don’t want to gloss over how dire the situation is there,” Downie adds. Negotiations are going to be tough and likely messy. Concerns are justified, he says. “But I think there is cause for optimism. I hope cool heads will prevail, and everyone will do what needs to be done to help Sudan.”

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