Sudan's economic hope lies with the oil industry

With the civil war peace deal holding, oil companies could be on the verge of a boom in Sudan.

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By  Nicholas Wilson Published  April 4, 2006

1|~||~||~|After decades of strife, Sudan, the wild card in the global scramble and gamble for oil, has moved closer to implementing a permanent peace deal, according to the United Nations and the International Monetary Fund.
This is good news for those oil firms that are not already there.

Although the Darfour conflict is still not resolved and makes headlines, the peace deal on the civil war that preceded it appears to be holding firm. A recent report by the Sudan consortium, composed of international development ministers, Sudanese national and regional governments, the UN and IMF, said, “Important gains were made in building confidence and trust among partners. The broad conclusion was that progress is being made in implementation of the Comprehensive Peace Agreement.”

An end to Sudan’s conflicts would open the door to more foreign investment in its energy and infrastructure sectors.
Across the oil-rich Red Sea from Saudi Arabia, Sudan is largely unexplored territory that is thought to have a huge hydrocarbon potential.

One might argue that with its petrol potential and its geographical location Sudan stands on the brink of becoming a major oil producer in the Middle East matrix. Unfortunately, for decades it has also stood on several other brinks that have made many firms nervous about doing business there: drought, famine, civil wars, and allegations of genocide.
But some players are ahead of the game, including China, the biggest investor in Sudan’s oil fields.

And Chinese companies are not alone: Kuwait’s PWC Logistics vaulted into Sudan as soon as the peace deal was signed. “We go to countries that most companies shy away from,” said Charbel Abou-Jaoude, PWC’s managing director of global operations.

“Sudan has turned the corner since signing the peace treaty between the south and the north, and clearly it is a country that is rich. It has a large population and a great deal of natural resources that need to be developed. Sudan needs to develop every aspect of its economy: infrastructure, services, the oil sector,” Abou-Jaoude said.

“It’s a country that is coming out of a period of neglect and is ready for investment in its roads, airports, ports, refineries, exploration, and drilling,” he added.
PWC is helping build the devastated country’s logistics capabilities — such as having a modern fleet of trucks that can drive on dirt roads. It builds facilities that are capable of receiving and moving goods as efficiently as possible. “In one case we built barges on the Nile when the roads weren’t developed.” he said.

And Sudan needs help and oil money. One of the world’s poorest countries, Sudan has sought outside help both technically and financially to get its oil out of the ground. Chevron Corporation worked with the Sudanese in the 1960s and 1970s but gave up its concessions in the early 1980s when civil war broke out.

In 1996, China added Sudan to its list of diversified sources of oil. The China National Petroleum Corporation, owned by the Communist Party government, joined the Sudan consortium in 1996. It helped Sudan’s Energy Ministry build the country’s largest refinery and last year invested US $300 million in an expansion project nearly doubling production, according to a report in the Shenzhen Business Post.
China controls 40% of the oil development activity in Sudan; Malaysia, 30%; and India, 25%. Malaysia’s Petronas is exploring and developing potential oil fields.

“China has a tradition of friendly relations with Sudan,” said Wang Guangya, China’s UN ambassador..
“Sudanese oil makes up one-tenth of all of China’s imported oil,” noted Zhu Weilie, director of Middle East and North African Studies at Shanghai International Studies University. “If we lose this source, how can we find another? China has to balance its global interests.”

In an interview, Awad Ahmed Jaz, Sudan’s energy and mining minister, had only praise for the Chinese: “Chinese are very nice. They avoid politics. Things move smoothly, successfully. They are very hard workers looking for business, not politics.”
China’s largest energy company continues pumping crude oil upcountry 1,000 miles through a Chinese-made pipeline to the Red Sea, where tankers ferry it to China’s industrial centres.

Thousands of Chinese labourers in Sudan, housed in prefab sheds, work the oil fields and build roads that support the movement of heavy equipment. Ten thousand Chinese labourers are assigned to a single project: construction of a 900-mile pipeline connecting Heglig oil field in Kordofan province with Port Sudan on the Red Sea.

The Heglig and Unity oil fields are currently producing 350,000 barrels per day, according to the US Energy Department. Separately, CNPC also owns the lion’s share of a field in southern Darfur, which entered trial production this year, and 41% percent of a field in the Melut Basin, which is slated to produce 300,000 barrels per day by the end of 2006.
Beijing has invested $13.93 billion in Sudanese oil through the China National Petroleum Company (CNPC).

The cost of Khartoum’s new refinery alone was about $609.49 million. India, which expects to surpass South Korea by 2010 as the world’s fourth largest consumer of energy, is not to be left behind in this scramble for petroleum Indian Prime Minister Manmohan Singh said, “Economic diplomacy is at the heart of our ‘Look East’ foreign policy. India has confirmed investment in the oil sector to the tune of $2.2 billion.”
When told China was investing $8 billion mainly in oil exploration, he told journalists at a press conference, “India can do more.”

India’s Oil and Natural Gas Company (ONGC) Videsh, has a 25% investment in a producing oil field in Sudan called the Greater Nile oil project, plus interests in two exploration blocks, 5A and 5B. Recently, ONGC was contracted to build a facility for refining Nile Blend crude oil produced in the south of Sudan.

Ten years ago, China was importing 6% of the oil it used. Now one-third of its oil is imported, and by 2020 it will almost double to 60%. It will be an intensely competitive world across the Middle East.

As the scramble for oil heats up, many players are playing the Sudanese wild card.

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