How the violence in South Sudan is drying up Africa’s future in oil
Some interesting numbers but Sudan is a more complex problem in which both Egypt and the big guy, Saudi Arabia, figure prominently. North Sea Oil is becoming more attractive as the African violence spreads.
'All told, supply disruptions across the globe - including from Iran and Iraq - averaged about nearly 3 million barrels a day in late 2013, 50 percent more than the level of disruptions over the previous few years.'
How the violence in South Sudan is drying up Africa’s future in oil
December 25, 2013
Keith Johnson
Just a few months ago, South Sudan resumed pumping oil after a lengthy and self-imposed hiatus. But now, after violence that led to the death of 16 oil workers, wells are being shut down. It’s a reminder that for all of Africa’s energy promise, and grandiose dreams of oil-fuelled development, the continent’s ability to tap those sources of wealth remains hostage to bad security and governance.
After a week of sporadic fighting around the South Sudanese capital of Juba, and some isolated, if horrific violence in oil fields close to the border with Sudan, things took a turn for the worse over the weekend with the capture by rebel troops of the capital of Unity province. That’s the epicentre of South Sudan’s oil fields, and the starting point for the export pipeline that snakes north through Sudan to the Red Sea.
The surge in fighting spurred US forces into action, with about 150 US Marines dispatched Monday to South Sudan to help protect remaining US citizens and the embassy. Donald Booth, the US special envoy to Sudan and South Sudan, said Monday that he had spoken with South Sudanese president Salva Kiir and impressed upon him the need to “halt the devastating violence.” Kiir said he was ready to start talks with rebel leader Riek Machar, who also claims to be open to talks.
In the meantime, it’s not entirely clear how much of South Sudan’s oil production has actually been affected by the violence so far. Foreign oil companies, including Chinese and Indians, pulled out their workers and shut down wells in some other oil fields over the weekend. But South Sudanese diplomats said Sunday that oil was still flowing. Machar told Reuters he controls the oil fields, but wants to keep pumping oil.
Either way, the oil markets reacted nervously, with prices for Brent crude trading above $112 a barrel in London on Monday before falling back in the afternoon. South Sudan doesn’t produce much oil - about 250,000 barrels a day - but oil revenues are absolutely essential for both the government in Juba, and for South Sudan’s longtime foes in Khartoum.
What makes the threat to Sudanese oil especially painful is that oil production had just resumed after a 15-month hiatus, caused by a dispute with Sudan over how much South Sudan should pay to export its oil through the pipeline on Sudanese territory.
South Sudan’s unrest, and the new threat to its oil production, comes in the context of a wave of production disruptions across Africa and the Middle East that has essentially erased the production gains made in the United States and elsewhere. All told, supply disruptions across the globe - including from Iran and Iraq - averaged about nearly 3 million barrels a day in late 2013, 50 percent more than the level of disruptions over the previous few years.
Libya, for instance, has rocketed between a near-total shutdown during its civil war, which took about 1.5 million barrels a day off the global market, to an unexpectedly quick recovery in oil production after the war was over. But that was short-lived: regional tensions left over from the Libyan civil war, including the creation of militias that operate beyond government control, have again conspired to kneecap Libya’s oil output.
Nigeria, once the oil powerhouse of southern Africa, has its own set of security challenges. The long-running battle between international oil companies and the Movement for the Emancipation of the Niger Delta (MEND) has left a wake of burning refineries, exploded pipelines, and evacuated offshore oil platforms. After a respite, it seems that MEND is again on the warpath. As if that weren’t enough, Nigeria also struggles with rampant oil theft. Taken together, Nigeria’s security challenges have kept the country’s output about 1 million barrels a day lower than it could be.
Supply outages matter for the United States, not because we are reliant on Libyan or Nigerian oil, but rather because they make oil more expensive than it should be. That, in turn, dampens economic growth in the developed world. And because major producers such as Saudi Arabia have to pump nearly full-out in order to make up that shortfall, there is less spare production capacity in the global oil market. That keeps the oil market tighter and tenser, turning relatively small events that could threaten oil supplies into price spikes.
South Sudan’s latest troubles hearken back to the Sudanese civil war which began in the 1980s and which also chased away international oil companies. But it’s especially important today, simply because the promise of massive oil reserves off the West Coast of Africa, as well as in countries such as Kenya and Uganda, have sparked a wave of enthusiasm for Africa’s energy future that could well collide with a darker reality.
More oil and gas discoveries have been made in East Africa in the last couple of years than anywhere else, Ernst & Young recently noted. Huge oil finds off the coast of West Africa have fueled the hopes of Gulf of Guinea countries of a sudden windfall. Recent oil discoveries in Kenya have that country, and some international firms, dreaming of turning Mombasa into an oil-export hub. Uganda is bullish on its own prospects for oil production after a series of promising wells drilled by British firm Tullow Oil. Africa’s oily enthusiasm extends to such unlikely outposts as Ethiopia and the Democratic Republic of the Congo.
But turning that oil promise into reality faces plenty of daunting challenges, as underscored by the violence in South Sudan over the last week. Security looms largest, because it is a precondition both to develop the oil itself and also to build the pipelines, roads, and rail lines the region needs to make energy development a reality. But cronyism, weak laws, poor governance, corruption, and domestic politics can combine to scuttle hopes of a quick energy-fired economic bonanza.
“There is a myth that many oil companies and policy makers subscribe to, which is that economic interests will trump everything else. What gets discounted, is that in some places in Africa, there is a different calculus. Tribal animosities, personal animosities, political grudges all those weigh a lot heavier, and there are a lot of people willing to cut off their noses to spite their faces,” said the Atlantic Council’s Pham.
Security has always been a challenge for oil operations in Africa, as in plenty of other regions. Nigeria’s battle with MEND dates back almost a decade; the terror attacks one year ago against oil and gas operations in Algeria spooked many foreign firms. Iraqi output has suffered over the last decade from terrorist attacks, and even Saudi Arabia’s oil operations have faced sporadic threats from al Qaeda. But Africa’s ability to tackle its security and governance challenges matters more today, because international oil companies have more options than they used to.
Most notably, the Americas have become an energy powerhouse in the last half-decade. The United States is on the verge of topping Saudi oil production. Canada is tapping massive reserves of oil sands. Mexico is finally opening its energy sector to foreign investment after more than 70 years. Brazil has a bounty of promising offshore oil resources, and Argentina has, on paper, more shale resources than the US.
While South Sudan is particularly problematic, other potential energy players have their own issues. The Democratic Republic of Congo doesn’t offer legal security for investors. Kenya is digesting a new constitution. And Uganda faces its own set of challenges, including an aging leadership.
“I think there is a lot of nuance that could be added to the ‘Africa rising’ story. Overall, I’m an optimist, but it’s not going to be an even ride,” said Pham. “Some countries will get their acts together and speed ahead, but others who may have the exact same endowments geologically may lag considerably behind because of the political risk involved.” –Foreign Policy
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