Interview: South Sudan turns to China to develop key blocks after Total walks

South Sudan is hoping China’s state-owned energy major CNPC will develop two large oil blocks after long-running talks with French oil major Total collapsed earlier this year, Oil Minister Ezekiel Lol Gatkuoth has said.

South Sudan’s oil ministry signed a Memorandum of Understand with CNPC at the end of August which should lead to the Chinese oil giant expanding its current upstream footprint in the country, Gatkuoth told S&P Global Platts in an interview.

Under the MoU, signed ahead of the Forum on China Africa Cooperation (FOCAC) in Beijing last week, CNPC has agreed to consider new exploration acreage, increase existing production and train local engineers, he said.

“So they will be acquiring new blocks, possibly B1/B2…There is a commitment to get new blocks…By the end of the year I will announce the operators of B1 and B2,” Gatkuoth said Friday on the sidelines of an oil and power event in Cape Town.

A consortium of Total, Tullow Oil and Kuwait’s state-run Kuwait Foreign Petroleum Exploration Company (KUFPEC) were in on-and-off talks with Juba for years to explore and develop blocks B1/B2, which cover 118,000 sq km (45,560 square miles) in central South Sudan. The talks were finally dropped in late July after failing to agree on terms.

Drilling in the blocks has been limited so far but Gatkuoth has said he believes the areas hold a potential 1.5 billion barrels of recoverable oil. Total, which halted work in the blocks in 1985 after the resumption of Sudan’s decades-long civil war, estimates the reserves potential at 800 million barrels, he said.

China already dominates South Sudan’s oil industry with CNPC operating the country’s Dar Petroleum Operating Company (DPOC) and Greater Petroleum Operating Company (GPOC) consortia which are producing all the country’s oil.

PRODUCTION LIFT
South Sudan, which gained independence from Sudan in 2011 after a bloody civil war, is looking for investors in 11 exploration blocks to kick-start new drilling to replace its declining reserves. The country has faced headwinds due to investor concern over security in the conflict-prone nation. Militancy and tribal strife in South Sudan have largely thwarted hopes of restarting its main fields, which previously produced over 350,000 b/d.

But a peace deal with rebels earlier this year and the creation of a joint petroleum security force with Khartoum to protect oil infrastructure has lifted prospects on the ground. “Security is not an issue now. We have agreed with Sudan to have a joint security force to protect the oil installations…so that no activities can be carried out by anybody rebels, or anyone else,” he said.

Production of Nile blend crude has recently restarted from six wells in Toma South oil field following rehabilitation work, Gatkuoth confirmed.

The field, which straddles blocks 1/2/4 operated by DPOC, come on stream in recent weeks and is producing 20,000 b/d, he said.

Together with some 130,000 b/d of Dar blend crude from Blocks 3/7 in the northeastern Upper Nile state and 4,000 b/d from Block 5A operated by Malaysia’s Petronas, the country is now pumping about 165,000 b/d.

Further short-term increases are dependent on rehabilitating other fields at the Tharjath Oil block 5 located south of Unity State.

South Sudan is one of 10 non-OPEC countries which agreed to support OPEC’s late 2016 deal to curb production. But the accord does not affect its output as volumes are recovering, he said. Gatkuoth also reiterated his interest in joining OPEC as a new African member by conceded that any decision needs to be made at the cabinet level.

“For me the desire is to join OPEC, so we [will] be a member of the OPEC family and learn from the experience…definitely we are interested,” he said.

EXPORT OPTIONS
Land-locked South Sudan is seeking new export options for its crude which is currently transported via Khartoum to the Red Sea. A long-running dispute over transit fees with its northern neighbor has sparked plans for local refining projects which are in various stages of planning and construction.

The current export route north via Sudan has sufficient capacity to transport up to 350,000 b/d of oil from South Sudan, roughly equivalent to its pre-2011 levels, he said. But if new oil finds are developed, and output exceeds 350,000 b/d, a new export route will be needed.

Gatkuoth said the preferred export option currently being explored is a 600 km pipeline south to connect with Uganda’s planned crude export line via Tanzania scheduled for 2022 “We are weighing our options, but linking with Uganda is actually the possible option now,” he said. “We can just link with Uganda and transport our crude particularly from the south.” He said previous plans to build a pipeline east via Ethiopia to handle additional production volumes had not been taken any further. “We have not yet done serious studies, it was just an idea.” Downstream, Gatkuoth said he still expected South Sudan ‘s first oil refinery will be operational by January next year.

Russia’s Safinat Caspian Oil Refining Company is currently building the refinery near the oil fields in Unity State which will have a 7,000 b/d capacity.

Bentiu is located in the Unity oilfields in Block 1, which is operated by the Greater Nile Petroleum Operating Company, or GNPOC.

The plant was due to come on stream in mid-2014 but South Sudan ‘s internal conflict has prevented the refinery from starting up.

The refinery will begin processing the domestic Nile Blend crude grade from Blocks 1/2/4 supplying mostly local industrial demand for diesel and gasoline, he said. Currently, all the country’s imports of refined products are supplied via Kenya.

source: hellenicshippingnews