South Sudan ponders new pipeline

When the Republic of South Sudan becomes the world’s newest state on Saturday, the new government in Juba will begin to assess how it can establish an independent export route for its vast oil reserves.

Before Sudan’s partition, three-quarters of total crude exports, measured at around 350,000 barrels per day, came from fields in the south. However, the oil is exported via two pipelines leading through northern Sudan to an export facility on the Red Sea. Approximately 98 per cent of the newly independent nation’s revenues come from crude exports, but a workable agreement on how to share its oil with the north has not yet been reached.

The 2005 peace agreement stipulated that revenue from the south’s production should be divided 50 per cent with the Khartoum regime. This will expire upon secession, but no new arrangement on the revenue split or the fee to be charged by the north for the use of its pipelines, has been agreed.

The south has little choice but to continue its ties with north Sudan. But, in the long term, establishing new pipelines that would provide independent export routes, circumventing the north, will be crucial if the fledgling nation is to survive.

In general, the south has the following options:

  1. Building a pipeline to Ethiopia. On Tuesday, Dr Luol Deng, south Sudan’s oil minister, announced the republic is in talks with Addis Ababa about plans for a pipeline. Sudan as a whole currently supplies 80 per cent of Ethiopia’s oil demand, but the land-locked and mountainous neighbour cannot provide a route for sales to the rest of the world. However, exports to the most populous country in the Horn of Africa would be potentially lucrative for Juba.
  2. An export route via Kenya to the Indian Ocean. In what seems a more viable option, Anthony Makana, the south’s minister for roads and transport, announced designs for a 200 km pipeline from Juba to Kisumu in Kenya. South Sudanese officials are also in negotiations with Toyota in Kenya. Last year, Toyota Tsusho, the trading arm of the Japanese carmaker, said it was developing plans to build a $1.5 billion pipeline to run from Juba to the Kenyan island of Lamu. “We have been in contact from time to time with Toyota Kenya” confirmed Arkangelo Okwang, the south’s director of energy to Reuters. At present, China, Malaysia and India, are the biggest investors in south Sudan’s oil fields but all international contracts are to be reviewed upon independence. This could make way for Japanese investment.
  3. A pipeline to the south connecting Uganda. Newly oil-producing Uganda intends to establish its first pipeline and an oil refinery with the capacity to process up to 200,000 barrels per day. However, no international oil companies have yet stated their interest.

As it stands, a Kenyan export route seems the most viable option. Although the north opposes all attempts by the new state to build an independent export pipeline, south Sudan’s possible success could revolutionise crude exports in the Horn of Africa.