South Sudan Begins to Shut Down Oil Production, Government Spokesman Says

South Sudan started shutting down oil production amid a deepening dispute with its northern neighbor Sudan over transportation fees for its exports.

The shutdown started in the Thar Jath field in Unity state, government spokesman Barnaba Marial Benjamin said today by phone from Juba, the capital, and will take two weeks to complete. The field is run by the White Nile Petroleum Operating Co., whose partners include Malaysia’s Petroliam Nasional Bhd. and India’s ONGC Videsh Ltd. (ONGC), according to the company website.

South Sudan says Sudan is seizing exports that pass through its territory to an export terminal on the Red Sea and is demanding $32 a barrel in transportation fees. Sudan says it is diverting the crude to cover unpaid bills. South Sudanese President Salva Kiir today said Sudan has “looted” $815 million worth of his country’s oil.

“At this time we have no guarantee that oil flowing through the Republic of Sudan will reach its intended destination,” Kiir told Parliament. “We can’t allow assets which clearly belong to the Republic of South Sudan to be subject to further diversion.”

South Sudan took control of about three-quarters of Sudan’s output of 490,000 barrels a day when it gained independence in July. The crude is pumped mainly by China National Petroleum Corp. (CNPZ), Petronas and and ONGC.

China imported about 250,000 barrels a day, or more than 65 percent of total Sudanese exports, accounting for 5 percent of the nation’s imports in 2010, according to data from the U.S. Energy Department.

Crude Prices

The suspension of oil production by South Sudan, which pumps crude of a similar quality to Libya, may bolster oil prices, Commerzbank AG said.

“Any prolonged discontinuation of South Sudan’s oil production, in combination with the partial shortfall in Iranian oil exports, could lead to a tightening of supply on the oil market and cause prices to rise still further,” Carsten Fritsch, an analyst in Frankfurt, said in a report.

Brent oil for March settlement advanced $1, or 0.9 percent, to $110.86 a barrel at 1:36 p.m. on the ICE Futures Europe exchange in London.

The government also issued a statement today telling companies that if they buy or sell “stolen crude” they will be subject to legal action and said it sent letters to the owners of ships loaded with southern oil.

“The presumed owners now are on notice that they are being treated as trafficking in stolen goods,” the government said in an e-mailed statement.

To contact the reporter on this story: Jared Ferrie in Juba, South Sudan at jferrie1@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net

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