Oil industry and its impact in Sudan

A blazing sun, flat seas, very little wind. Without a sound, the tanker veers slightly off course and leaves the line of ships heading up the Suez Canal. The road ends here, on the African coast. Already, the profiles of cranes can be seen on the horizon, interrupting the desert monotony of this inhospitable coastline. In just a few hours, the hull will be weighed down by a million barrels of oil, which will return to supply Asian ports.

Port Sudan. The journey along the GNOPC pipeline to the rich fields of Kordofan will enable us to discover the importance of oil in this paradoxical region.

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It's impossible to understand Sudan's energy stakes without studying the borders that prevailed before 2011. The largest country in Africa, almost five times the size of France, Sudan is home to almost 60 million people. However, in such a vast territory, with its pronounced geographical and ethnic divides, the discovery of resources will exacerbate existing tensions.

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The integrity of Sudanese territory comes from the British Empire. During the Second World War, what was then known as Anglo-Egyptian Sudan was patrolled by the men of the Sudan Political Service. Among them was the illustrious Thesiger, who served his apprenticeship in the Darfur desert before moving on to verdant Nouer. Two climates, two cultures. While the north is populated by Muslim Arab tribes, the jungle in the south is populated by Christians.

The aerial photograph speaks for itself. We can see two Sudanese, proof that geopolitics is first and foremost shaped by geography and climate.

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A climate that has not benefited all regions of the world in the same way. For while oil has a very mineral appearance, it comes directly from luxuriant vegetation.

The plants, deposited on the soil, decompose. This material, buried little by little, matures under the effect of pressure and temperature. A few thousand years later, the oil contained in the rock may rise to the surface, whetting the appetite of the powers that be.

The majority of Sudan's known reserves are located in the fertile zone to the south. The new 2011 border divides this oil zone, ensuring production for both sides. Political agreement at the expense of a more sensible division? Let's take a look at the impact that the discovery of oil has had on Sudan's history.

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Exploration in the midst of armed conflicts

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Oil exploration began in 1959 in the Red Sea, with unsuccessful projects lasting until the 1970s. It wasn't until '74 that exploration began in southern Sudan. These were onshore projects, requiring fewer logistics but more difficult to access.? Roads had to be created for oversized machinery and equipment.

The first drillings took place in 1977 and the first drop of oil was extracted two years later. Concessions were granted to American, Canadian and French companies. By 1982, almost 1/3 of the country was under exploration license, but it would be almost twenty years before the first substantial commercial exports were made.

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At the same time, the 2nd Sudanese civil war broke out. While it is clear that internal tensions did not arise at the same time as oil, it seems that this unexpected windfall exacerbated them.

The anatomy of the North-South conflict is interesting to grasp before going any further. Known as Nubia in Roman times, its modern etymology comes from the Arabic bilad as-sudan, "the land of the blacks", as the indigenous population was darker-skinned than the nomadic tribes of neighboring Arabia. The Arab invasion shaped the country, as 70% of the population is ethnically Arab, Muslim and Arabic-speaking. The south of the country, comprising present-day South Sudan and Darfur, is populated by Christians and animists.

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When Egypt gained independence, it allowed Sudan to benefit too, as Egyptian officers (notably Naguib) had strong ties with this country, which some still consider to be their little brother. The Khartoum government reneged on its promise of autonomy within a federal state, provoking the first civil war. It ended 17 years later, in 1972, following the Addis Ababa agreements.

Civil war resumed in 1983 when President Gaafar Nimeiry decided to extend Muslim law to criminal law. After 22 years of bloody conflict, an agreement was signed in Naivasha in 2005, promising a referendum on self-determination in 2011.

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Oil soon became a political issue and Chevron withdrew in 1984 when a group of rebels attacked a platform and killed 4 employees. The Khartoum government, close to Al Quaida, came under US sanctions when Hasan al-Turabi welcomed Bin Laden. The man considered to be the architect of Omar el Bachir's seizure of power offered the "Afghans" the chance to settle in the country from 1991 onwards, when they distanced themselves from their American and Saudi sponsors. In 1997, Arakis, who had taken over from Chevron, founded GNOPC, the Greater Nile Operating Petroleum Company, with CNPC, Petronas and Sudapet, Sudan's national oil company. The switch to Asia was a foregone conclusion.

In 1998, following the attacks on the American embassies in Nairobi and Dar es Salaam, Western pressure intensified. Talisman Energy (formerly Arakis) sold its shares to the Indian group ONGC Videsh.

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Things then accelerated with the commissioning of Africa's longest pipeline, linking the Heglig and Unity fields to refineries in Khartoum and Port Sudan. Operated by the Chinese company CNPC, this gigantic 1,600-kilometer pipeline opened up the area, enabling crude oil to be exported rapidly to the processing plants.

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Production soared, reaching 500,000 barrels per day in 2006. Port Sudan, a strategic center south of the Suez Canal, is becoming a nerve center for the Chinese and Malaysian economies.

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From 2005 to 2011, production remained constant, but geopolitics soon took over. After more than 50 years of civil war, the Khartoum government allowed a referendum to be held in the south of the country. With an overwhelming score of 97%, South Sudan proclaimed its independence on July 9.

Good news for populations decimated by war and famine. The problem is that South Sudan is a landlocked country and therefore unable to export its production. To benefit from the oil windfall, it is necessary to negotiate with the neighboring power, which is hostile and in a position of strength.

Two factors had to be taken into account: the lack of oil infrastructure in neighboring countries meant that the new government in Juba had its back up against the wall. Following the war, South Sudan's economy is 98% dependent on the exploitation of oil resources, which means that a rapid, albeit imperfect, agreement is needed to avoid social unrest.

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Sudan is therefore imposing a toll for the use of the pipeline. This represents $25 per barrel, which is considerable.

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Production therefore resumed in 2013, via Nilapet, the national South Sudanese company. 80,000 barrels a day for Sudan and almost 150,000 for South Sudan.

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A well-established export infrastructure

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While understanding the challenges of exploration and production is central, it is also vital to look at the downstream, the processes involved in transforming and transporting crude oil downstream. The presence and location of refineries in a country is an essential element of energy sovereignty.

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In this respect, Sudan was ahead of the game when it built its first refinery in Port Sudan in 1969, even before oil was discovered. However, its position on the Red Sea was strategic, making it easy to refine oil from the Gulf. The primary aim is to import crude oil and refine it for local needs. It's worth noting that Sudan discovered its oil late in the game, and that production only became significant from 1999 onwards. Before that date, the country was still dependent on external imports. As refining capacity exceeded the country's needs, the excess was then exported.

Another refinery came on stream in 2000, north of Khartoum. This enables Sudan to refine all its crude oil and sell a finished product with a high value, which is not the case for all exporting countries.

Refining produces a finished, standard product, ready to be marketed. But while in Europe we are familiar with Brent and WTI, there are dozens of different references, used according to geographical zone. These references define the nature of the oil, i.e. its density, chemical composition and, ultimately, its quality. Oil can be loaded with sulfur and can contain sand or dangerous compounds, all of which reduce its market value.

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Two types of oil are produced in Sudan: Sudanese Nile Blend Oil is the classic reference, with a low sulfur and metal content. It can be sold on international markets at a slight discount to Indonesian Blend, Minas, the benchmark in Southeast Asia.

Dar blend, on the other hand, is a much heavier, more acidic oil. It trades at much lower prices and its relative production is increasing.

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Looking to the future

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A very poor country despite its resources, Sudan changed dimension with the discovery of black gold. Very quickly, oil accounted for 73% of its export revenues, marginalizing cotton and gum arabic production. Although the country has considerable hydroelectric potential thanks to the Nile, only half of the country is electrified, which is the main obstacle to the deployment of new, electricity-based energies.

The separation of the country has resulted in a huge loss of income for Sudan: 75% of the reserves are under Juba's control. The recent events of 2017, while they may have led to the lifting of sanctions, are indeed the consequence of an unbalanced economic system. This poverty leads to political instability, leaving the country at the mercy of foreign powers. Exploration projects are being studied in North Darfur, on geological patterns similar to those in South Libya.

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In the south, the country is trying to follow its own path. With an economy based exclusively on oil, the government is working on cooperation projects with Kenya in particular. There's no doubt that the recent project in Uganda can generate positive externalities in terms of infrastructure. It is worth noting, however, that the EACOP pipeline carefully avoids Ethiopia and Kenya to cross Tanzania. Technical ease or political reluctance? That's for us to judge.

The future may therefore depend on these contracts, the evolution of crude prices and new production techniques to maximize the quantity of oil extracted.

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For Sudan, the main factor will above all be political stability, as the country is at the heart of a power struggle between local militaries, backed by foreign powers with divergent interests. The Chinese government is trying to calm the situation to secure its supplies, while Egypt needs a stable neighbor to control the Nile. The Ukrainian conflict is also being exported here. The planned Russian concession in Port Sudan and the exploitation of mines by paramilitary groups defending the current president are not viewed favorably by Washington.

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In classic fashion, the discovery of oil in Sudan exacerbated ethnic tensions and shaped domestic geopolitics. If the North-South split was inevitable in view of the heterogeneity of the population, it's not certain that Juba could have achieved it on its own, without the external support provided by interest in its wild riches. Similarly, the border line and the areas that are still disputed depend on the position of the production blocks and platforms.

Today, South Sudan can use its oil revenues - if it manages to export them - to rebuild the country, diversify its economy and revive a potentially flourishing agricultural sector. For its part, Sudan has an imperative need to develop new areas of its economy. There is plenty of potential here. Care must be taken, however, not to fall back into a system of rent-seeking by exploiting the minerals in its subsoil.

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