Now the hard work begins for South Sudan

Published July 10th, 2011 - 02:25 GMT

The world's newest country celebrated yesterday as heads of state flew in to offer congratulations and southern Sudanese rode through the capital Juba's streets in triumph.

But South Sudan, born yesterday after half a century of civil war, has a long way to go in developing the industry that accounts for 98 per cent of its revenues and will be its economic lifeline: oil.

It pumps just under 500,000 barrels of crude a day, setting it among the ranks of the world's top oil producers, and Garang Diing Akuong, the energy minister, has set a target of doubling production within the next three years.

To reach that goal - or even maintain today's production levels - South Sudan must overcome a host of challenges, from a lack of infrastructure to this year's failure to reach a revenue-sharing agreement with its northern neighbour. Here are the first steps to growing the industry that has fuelled the rise of nations from Norway to the UAE:

Find new partners

China National Petroleum and Malaysia's Petronas dominated the Sudanese oil industry while it was walled off from Western investment by sanctions.

An experienced oil negotiator would give Juba better footing to secure new foreign partners to bring the advanced technology needed to draw oil from fields.

Analysts say some fields have been damaged from aggressive pumping as the north prepared for a break-up.

Chevron of the US helped to lead the development of Sudanese oil infrastructure for two decades, starting in the 1970s, after George Bush opened up Sudan in his role as the US ambassador to the UN. Now the industry is watching to see if Chevron or other Western companies that have been prevented from investing because of US sanctions will come in.

"This is the billion-dollar question," said Dan Large, a Sudan oil specialist at the University of London's School of Oriental and African Studies.

"There's been lots of speculation that the south will tear up existing contracts and invite the Americans back in.

"They were pretty dominant before they left, and people still remember them."

Build human capacity

South Sudan will have to educate a generation of citizens to take the reins of the industry if it is to pursue long-term job creation.

Norway and foreign oil companies, including CNPC and Petronas, have made some steps in transferring knowledge. But the work needs to move faster.

"It has to very quickly develop a pool of capable people so that they can service the contracts and know what's going on," said Egbert Wesselink, who works with the government in Juba as the coordinator of the European Coalition on Oil in Sudan. "They will be dependent on consultants for the first few years."

Bolster security

France's Total has sat on a substantial southern concession for years, but has been wary of drilling there amid concerns over security for foreign workers. The spectre of renewed fighting between Khartoum and Juba is not the only problem.

Independent militias in Sudan's fractured political scene have threatened to attack industry infrastructure, and last month the Darfur-linked rebel group Justice and Equality Movement attacked an airport used by oil firms in the town of Heglig.

Analysts say Sudan's border region, dubbed "the new south", could be the next flashpoint.

Go local

South Sudan leaders place their hopes in a proposed second pipeline running 1,400km from Juba to the Kenyan coast. But a project over such challenging terrain and such a long distance would require an optimistic investor.

"Any talk about a southern oil pipeline is a pipe dream," said Mr Large. "It's simply not economically viable or technically feasible. It'd be a political decision to bankroll."

A cheaper plan would be to transport crude to a proposed refinery on Uganda's Lake Albert. Trucks would then transport oil products to the coast.

Be realistic

Mr Akuong has also said the new country could pump 1 million barrels per day in the next three years.

But since Sudanese oil production hit a peak in 2006, it has plateaued, and South Sudan will need to direct investment not only towards the oil industry but also basic infrastructure, from roads to telephone lines.

"Sudan has a very long history of oil exploration and a very short history of production … and unfortunately an all too long history of very entrenched conflict," Mr Large said.

"There are many examples of a flourishing oil industry with conflict. It goes to show that even if you have full-blown civil war you can still continue to pump oil."

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