[Column] Neil Ford: South Sudan government bets on marketing to bolster oil reforms
The government of South Sudan is seeking to greatly change the way it markets its oil in order to boost revenues and make the process more transparent. Juba announced in January that it would end pre-financing for oil sales in favour of selling crude oil on the open market.
“The new added value and open market bidding process means oil can be sold at premium prices”, it said in a statement. The change had been urged by the IMF and the Ministry of Petroleum now publishes all sale details in its annual marketing report.
China has traditionally been the most important export market for South Sudanese oil, so it will be interesting to see whether the new system sees the country’s crude sold to a wider range of countries.
Hon. Eng. Awow Daniel Chuang, Undersecretary at the Ministry of Petroleum, said: “South Sudan is open for anyone who is interested in trading in oil. Many traders who buy crude oil also supply fuels as they have their own refineries overseas. They take the crude, refine it and then bring it to South Sudan. Whoever is interested in both trading and supplying fuel will always be welcomed.”
The change of policy appears to be partly driven by a desire to increase transparency in the sector but also to maximise oil income, as crude was sold at a discount of about 10 per cent under the previous system. The government hopes that output will reach 350,000 barrels per day by the end of 2023 as the improved security situation sees upstream investment increase but in July it stood at about 15,000 barrels per day below its pre-pandemic level of 185,000 barrels per day because of the impact of lockdown restrictions. At the same time, the big fall in global oil demand caused by the crisis saw global prices plummet for a time.
Juba has more reason than most governments to seek to maximise oil production and revenues. South Sudan had been badly affected by low oil prices, in common with other oil-dependent economies, but Chuang said that the impact had been even greater because of the fees it pays to the government of Sudan to pipe oil through its pipeline network.
According to figures from South Sudan’s Ministry of Petroleum, Juba currently pays Khartoum US$26 for every barrel of Nile Blend it pipes through Sudan and$24.10 for each barrel of Dar Blend, although both include $15 payments to compensate Khartoum for the loss of oil revenue when South Sudan became independent. This compensation is due to be paid off in March 2022.
The new marketing system builds on the growing feeling that the South Sudanese oil industry should benefit from both government reforms and the improved security situation. A peace deal with opposition forces and the creation of the Transitional Government of National Unity have already encouraged the Greater Pioneer Operating Company (GPOC), which is owned by China National Petroleum Corporation, Petronas of Malaysia and India’s ONGC, as well as South Sudanese state oil company Nilepet, to bring mothballed oil fields back into production.
Production on GPOC’s Blocks 1, 2 and 4 was shut down for five years until 2018 because of fighting between government forces and rebel groups. Some damage was inflicted on oil industry infrastructure during the clashes but has now been rectified. At the same time, new environmental protection, development projects financed by oil revenues and local content requirements should ensure that more of the benefits of the oil industry are actually retained within the country.
Dr Neil Alexander Ford is a freelance consultant and journalist, specialising in African affairs, the energy sector and political and security risk.