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South Sudan to Maintain Oil Output as Sudan Delays Shutdown

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July 31 (Bloomberg) -- South Sudan stopped shutting its oil wells after Sudan postponed a plan to halt exports, signaling production of its low-sulfur crude that’s prized by Japanese buyers will continue for at least three more weeks.

The nation began closing its wells on July 17 after Sudanese President Umar al-Bashir announced last month he would block shipments of crude via Sudan unless its southern neighbor stops supporting rebels opposed to his rule. Last week, Bashir’s government postponed the planned Aug. 7 shutdown for two weeks to allow the African Union to probe whether the south is backing the renegade fighters.

“After receiving a formal letter from Khartoum, we will instruct the oil companies operating in South Sudan not to shut down as scheduled,” Nicodemus Ajak Bior, spokesman for the Petroleum Ministry, said in an interview yesterday in Juba, the southern capital. The country had planned to halt output by today. “We will not decrease until the two weeks are over.”

The decline in South Sudanese output is contributing to tightness in the global oil market as it coincides with the maintenance season at North Sea oil fields and compounds disruptions from Libya, Deutsche Bank analyst Soozhana Choi said last week. Front-month Brent crude, a benchmark for more than half the world’s traded oil, has gained 4.5 percent this month and was trading at $106.77 a barrel at 9:31 a.m in London.

South Sudan, a landlocked nation that pumps its oil by pipeline through Sudan to the Red sea, relies on oil for 98 percent of government revenue. The nation produces Nile and Dar blend crudes that are sought after by Asian importers because of their low sulfur and waxy content. Japan uses the oil as clean-burning power-generation fuel.

Falling Output

Production is currently between 100,000 and 180,000 barrels per day, Bior said. Government Secretary-General Abdon Agau Jongkuch said last week production was at about 75,000 barrels per day. That compares with about 200,000 barrels when the country began halting output.

“Oil production will continue at the normal rate until further notice,” Bior said. “We can easily switch off any time.”

South Sudanese President Salva Kiir said yesterday his government will “continue to negotiate with Khartoum in order not to shut down the oil again.” Kiir’s government denies it’s backing rebels in Sudan and has accused Sudan of deploying troops in its oil-producing Upper Nile region.

The African Union on July 23 asked for a six-week period to complete a probe into the claims of the former adversaries and urged the Sudanese government in Khartoum to back down from a threat to close the 1,600-kilometer (994-mile) pipeline.

South Sudan seceded from Sudan in July 2011 and took three-quarters of the formerly united country’s output of 490,000 barrels a day, producing about 350,000 barrels daily. Its crude is pumped mainly by China National Petroleum Corp., Malaysia’s Petroliam Nasional Bhd., known also as Petronas, and India’s Oil & Natural Gas Corp.

To contact the reporter on this story: Mading Ngor in Juba at mngor@bloomberg.net

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

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