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South Sudan May Take a Year to Reach Pre-Shutdown Oil Output

Photographer: Hannah Mcneish/AFP/Getty Images

South Sudanese soldiers stand during President Salva Kiir's visit to an oil refinery in Melut, Upper Nile State, South Sudan on Nov. 20, 2012. Close

South Sudanese soldiers stand during President Salva Kiir's visit to an oil refinery in... Read More

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Photographer: Hannah Mcneish/AFP/Getty Images

South Sudanese soldiers stand during President Salva Kiir's visit to an oil refinery in Melut, Upper Nile State, South Sudan on Nov. 20, 2012.

South Sudan, which is resuming oil output halted 14 months ago, may take as long as a year to reach pre-shutdown production levels because of possible damage to equipment, said analysts including Paul Tossetti at PFC Energy.

South Sudan on March 12 agreed to restart pumping crude and exporting via neighboring Sudan after the two countries resolved a dispute over transit fees that halted the flow of 350,000 barrels a day. Oil in South Sudan is pumped mainly by China National Petroleum Corp. (CNPZ), Malaysia’s Petroliam Nasional Bhd. (PET), known also as Petronas, and India’s Oil & Natural Gas Corp. (ONGC)

South Sudan expects to resume output by March 31, Oil Minister Stephen Dhieu Dau said in an interview on March 26. Analysts reckon full production will only resume once operating companies have tackled difficulties including cleaning and testing a major pipeline used to transport stickier, heavier crude, as well as repairing any damage to infrastructure incurred during clashes in April along the border.

“With the restart of Libya as a guideline, we estimate another six months before production reaches the pre-war level,” Michael Poulsen, oil risk manager at Denmark-based Global Risk Management, said in an e-mailed response to questions on March 21.

South Sudan halted production in January 2012 after accusing Sudan’s government of stealing $815 million worth of its crude. Sudan said it took the oil to recover unpaid transportation costs and processing fees. That and disputes over border security brought the countries to the brink of war in April.

September Accord

The two countries agreed to resume exports in September via pipelines through Sudan to Port Sudan on the Red Sea. Sudan then demanded that South Sudan stop supporting rebels fighting in the Sudanese border states of Southern Kordofan and Blue Nile before letting oil pass through its pipelines.

After the agreement earlier this month, South Sudan gave oil companies orders to resume work on March 14, with Sudan following suit on March 21. Sudan expects the first shipments of southern oil to reach its territory by April 20, the undersecretary of Sudan’s Oil Ministry, Awad Abdel-Fatah, was cited as saying by state news agency Suna yesterday.

Three operating companies pump and ship oil in the two countries. Greater Nile Petroleum Operating Co. and Petrodar Operating Co., in which CNPC and Petronas are the biggest shareholders, and White Nile Petroleum Operating Co., majority owned by Petronas, declined to comment when they might resume output, when contacted on March 24.

Ramping Production

“Bringing production back on line should be less of a challenge than ramping up production to full capacity, which could take several months to a year,” Tossetti at PFC Energy, the Washington-based energy consultancy, said in an e-mailed response to questions.

Landlocked South Sudan took over three-quarters of the formerly united Sudan’s output of 490,000 barrels a day when it declared independence in July 2011 after a two-decade civil war. Before the shutdown, South Sudan depended on crude exports for 98 percent of government revenue.

South Sudan’s oil flows to Port Sudan through two main pipelines, one operated by Petrodar and the other by Greater Nile. The properties of Dar Blend, a sticky, heavier crude, could mean lengthier preparations are needed for the Petrodar pipeline that transports it.

Oil for May delivery rose for a fifth day, adding less than 0.1 percent to $96.65 a barrel on the New York Mercantile Exchange by 3:05 p.m. in London.

Flushed, Cleaned

“For exports, the main issue is filling the Petrodar pipeline as most of the GNPOC pipeline is already operational,” Tossetti said. “Filling the pipeline is likely to take several weeks after it has been flushed, cleaned and tested and production has been restored.”

Speaking before the latest agreement, Petronas Chief Executive Officer Shamsul Azhar Abbas said a full restart would take time.

“It’s not a matter of switching on the taps, hitting the on-off button,” he told reporters in Malaysia’s capital, Kuala Lumpur, on March 7. “Once you start producing you require at least five to six months to fill up the pipeline before you can achieve your first commercial cargo.”

Fields in South Sudan’s Unity state are likely be among the first to resume operating, as they utilize infrastructure already partially used by the north, Catherine Hunter, North Africa analyst at IHS, the Englewood, Colorado-based energy research company, said in an e-mailed response to questions. A return to previous output levels may take an additional two to six months, according to an IHS report this month.

“A key determinant will be how quickly and easily production from the fields closest to the border, which are the most likely to have been neglected or damaged due to fighting, is restored,” Tossetti said.

To contact the reporters on this story: Michael Gunn in Nairobi at pmrichardson@bloomberg.net; William Lloyd George in Addis Ababa via Nairobi at pmrichardson@bloomberg.net.

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net

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