Friday, August 17, 2012

The South Sudan question & other crude matters

Where South Sudan fits in the oil world has troubled ‘crudely’ inclined geopolitical analysts for some time now. The country celebrated the first anniversary of its creation on July 9th. But there is little to cheer about yet for South Sudan which inherited over 75% of parent Sudan’s proven oil reserves but is overtly reliant on the latter’s infrastructure to bring it to market. Sources with expertise as well as anyone with a modicum of interest in current events would agree that South Sudan’s outlook is bleak at best and abysmal at worst following decades of conflict. That’s notwithstanding a prolonged border dispute with the North, 170,000-plus refugees and tension over oil revenues which have only just shown signs of easing.

While it is early days, on August 4th a Reuters’ flash stating that the North and South sides had pulled back from the brink of war and finally agreed on oil transit payments was widely welcomed from trading floors to the Office of US Secretary of State Hillary Clinton. And what has emerged so far is a relief for everyone from Elf to Total, from OMV to CNPC; the Chinese being the biggest players in Sudan. Of the seven exploration blocks, CNPC is majorly involved with four in case you didn’t know.

Yet deep down everyone, not least the Oilholic, is pragmatic enough to acknowledge that the time to uncork the champagne is not here yet. This humble blogger was not in the Ethiopian capital of Addis Ababa where the agreement was reached, but courtesy dispatches from kindred souls in diplomatic circles it is known that South Sudan agreed to pay North Sudan just over US$9.05 per barrel for usage of its transport, supply and logistics infrastructure to move the crude stuff to Port Sudan.

However, nearly a fortnight on from the announcement, we still await an announcement about when the South will resume oil exports which were stopped in January. That said North Sudan will receive US$3 billion as compensation for revenue lost in that period.

The agreement is not the end of South Sudan’s problems. Without even having meaningfully exploited its precious resources, the world's newest nation is already a case study for the resource curse hypothesis. With oil production having only begun in 2005 and anti-graft measures either side of the border being ‘less than worse’, it can be safely concluded that South Sudan is more likely to resemble a 1970s Nigeria than a 2012 Botswana.

If the Americans press South Sudan to act on graft they are labelled as arrogant, the South Africans as patronising, the Brits as colonials and so on in populist circles even if the government is partially listening. The Chinese way to calm the situation either side of the disputed border and improving things is by offering to buy the crude stuff at above existing market rates (as they did in February).

Clue – nothing is going to change meaningfully anytime soon. Alas, with a production peak for existing facilities forecast for 2020, a turnaround is needed and fast! At least a plan to move away from overreliance on the North by building a pipeline to Kenya is a positive if it materialises. Happy Belated Birthday South Sudan!

Away from Sudanese problems, but sticking with the African continent – Nigeria has signed an ‘initial’ agreement with USA’s Vulcan Petroleum Resources Ltd.; a Vulcan Capital Management SPV, to build six new oil refineries worth US$4.5 billion. If ‘initial’ becomes ‘final’ and the deal materialises, it would add to the four refineries Nigeria already has increasing refining capacity by 180,000 barrels per day.

For a country which is Africa’s largest oil exporter but a net importer of refined distillates, the Oilholic has always opined that seeing is believing. So we’ll believe when we see and greet the announcement with cautious optimism.

Moving to some corporate news which also has an African flavour, its emerged that Edinburgh-based independent upstart Melrose Resources has announced a merger with Ireland’s Petroceltic. Both companies will now merge operations in North Africa along with Black Sea and the Mediterranean.

The new company will have Petroceltic’s branding and will be headquartered in Ireland. The merger values Melrose at £165 million with Petroceltic shareholders having a 54% stake in the merged company and Melrose shareholders having the rest. Sounds like a sound move!

Finally, a new computer virus is doing the rounds targeting energy infrastructure being dubbed by the security firms as the “Shamoom” attack. A notice from Symantec (available here) describes the virus as “a destructive malware that corrupts files on a compromised computer and overwrites the MBR (Master Boot Record) in an effort to render a computer unusable.”

On Wednesday, Saudi Aramco said it was subject to a virus attack but did not acknowledge whether it was a Shamoom attack. A spokesperson said Aramco had now isolated its computer networks as a precautionary measure while stressing that the attack had no impact on its production. Virulent times in the crude world. That’s all for the moment folks! Keep reading, keep it 'crude'!

© Gaurav Sharma 2012. Photo: Oil worker © Shell

No comments:

Contact:

For comments or for professional queries, please email: gaurav.sharma@oilholicssynonymous.com

To follow The Oilholic on Twitter click here
To follow The Oilholic on Google+ click here
To follow The Oilholic on Forbes click here