South Sudan Concerned Sudan Turmoil Could Hurt Oil Exports

(Bloomberg) -- South Sudan, recovering from a civil war in which 400,000 people died and and a quarter of the population was displaced, is concerned that an uprising in neighboring Sudan could threaten its oil exports, choking off its economic lifeline.

Two pipelines deliver about 175,000 barrels of oil a day to a port in Sudan, the country from which South Sudan seceded in 2011 after a lengthy conflict, according to the nation’s Oil Minister Ezekiel Gatkuoth. While Sudan’s President Omar al-Bashir was ousted after popular protests, the military, which is running the country, is at loggerheads with the opposition over who should rule.

“What is happening in Sudan now is concerning me,’’ Gatkuoth said in an interview in Bloomberg’s office in Johannesburg. South Sudan’s president has sent him to meet with officials “to make sure that the port where we are having our oil transported to the international market is secured,” he said. Transport of drilling chemicals used for production could also potentially be interrupted.

The smooth flow of oil to Port Sudan, on the Red Sea, is key for the economies of both countries. South Sudan depends on oil for most of its foreign exchange while Sudan benefits from transport fees, which compensate it for losing 75% of its oil production when South Sudan seceded.

South Sudan pays its neighbor a commercial fee of $9 a barrel along with a so-called transitional financial arrangement of $15 per barrel, Gatkuoth said. The need to pay the latter fee will end in December, he said.

South Sudan has a production goal of 200,000 barrels a day by the end of this year, a 14% increase on its current output, according to Gatkuoth. The nation could potentially produce 350,000 barrels-a-day next year, returning to levels it hasn’t seen since its own civil war started.

South Sudan has agreed to participate in the OPEC+ cuts deal, but Gatkuoth said it hasn’t yet curbed production since its pumping below its full potential. The minister plans to attend a meeting of the group’s joint technical committee in Jeddah, Saudi Arabia, this weekend.

“We have to be sure we’re meeting the demand of the market instead of over flowing the market,” he said. “So we want to make sure we maintain the cut.”

The nation will consider applying as a full-fledged member of the Organization of Petroleum Exporting Countries once it reaches its output potential, the minister said.

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