South Sudan banks on unexploited oil reserves to uplift economy

South Sudan banks on unexploited oil reserves to uplift economy
FILE PHOTO: A worker walks by an oil well at the Toma South oil field to Heglig, in Ruweng State, South Sudan August 25, 2018 | REUTERS

South Sudan has the potential of joining the three club of oil producing nations from the Sub-Saharan Africa if just half of the oil reserve is utilised.

Petroleum ministry estimates that 90 per cent of the country’s oil and gas reserves are undiscovered, estimated to be 3.5 billion barrels, making it the third largest oil producer in Sub-Saharan Africa.

More recently, lower sulphur cap regulations for global maritime shipping fuels pushed South Sudan’s oil, which has low sulphur content and high fuel-oil yield into premium category.

‘‘Consequently, price differentials for South Sudan’s Dar blend crude grade flipped into premiums starting in the first half of 2020. South Sudan’s oil production has fluctuated since independence reflecting the impact of conflict and policy decisions overtime. Oil production capacity is low compared to the sizable unexploited reserves already discovered in the country,” reads the report.

Political and security problems, as well as low oil prices on international markets, have hampered oil’s performance since 2012, a report released by the World Bank on Wednesday stated. However, a dispute with Sudan in 2012 and the onset of civil war in 2013 brought oil production in the Upper Nile and Unity states closer together.

These issues prompted a steep decrease in oil production from 350,000 barrels per day in 2011 to around 110,000 barrels per day in 2017.

While the operating companies’ stakeholders have rehabilitated and reopened some of the fields that were damaged during the conflict, the report claims that current oil production, estimated at around 170,000 barrels per day in fiscal year 2020/2021, is still less than half of what it was pre-conflict.

According to the paper, increasing oil production to pre-war levels will necessitate new investments and, possibly, the employment of enhanced oil recovery techniques in existing oil wells as well as new oil finds.

Oil production has peaked in some areas, necessitating fresh investments to increase output. As a result, total oil production is expected to fall to around 156,000 barrels per day in fiscal year 2021/2022, with output from blocks 3 and 7 dropping from 120,000 to 103,000 barrels per day. Blocks 1, 2, and 4 have reduced production from 53,000 to 43,000 barrels per day, while Block 5A has increased production by 5,000 barrels per day.

According to the World Bank, oil companies must invest in new producing and injection wells to maintain reservoir pressure, and they will eventually have to consider costly and difficult enhanced oil recovery EOR techniques to maintain high levels of production and extend the life of mature oil wells.

As a result of unfavourable production and pricing trends after independence, oil revenue plummeted. According to the research, South Sudan’s oil income benefited from high prices in the early aftermath of independence, averaging $97.3 per barrel from FY2012 to FY2014. The government’s share in oil exports was USD 3.4 billion in FY2011, but due to a near-complete halt in production, it fell to $0.2 billion in FY2013.

‘‘Oil revenue did not recover in subsequent years. Prices crashed in 2014 and did not regain their previous highs.’’

The deepening of the war had a detrimental influence on both output and new investments, and the aging of producing oil wells could not be restored promptly. In following years, these circumstances, together with evolving global dynamics, had an impact on oil output and new investment.

The government’s share of oil exports has averaged only USD 1.3 million in the three years following the signing of the 2018 peace agreement deal FY2019-FY2021, barely two-fifths of its value at independence in 2011.