Country Analysis: Sudan

Jan 22, 2003 01:00 AM

With the completion of a major oil export pipeline in July 1999, Sudanese crude oil production and exports have risen rapidly over the past three years. Sudan's estimated reserves of crude oil have doubled over the past year, and production is expected to reach 300,000 bpd by 2004.
Information contained in this report is the best available as of January 2003 and can change.

Sudan gained its independence from Egypt and the United Kingdom in 1956. The current government, led by General Omar Hassan Ahmad al-Bashir, came to power in 1989 after overthrowing a transitional coalition government. A new constitution was adopted on January 1, 1999. Multi-party presidential and parliamentary elections were held in December 2000, and President Bashir and his party won an overwhelming victory, tainted by a boycott by all main opposition parties.
Despite considerable natural resources, Sudan is among the world's (and region's) poorest countries. Traditionally, its economy has been mainly agricultural -- a mix of subsistence farming and production of cash crops such as cotton and gum Arabic. With the start of significant oil production (and exports) beginning in late 1999, however, Sudan's economy is changing dramatically, with oil export revenues now accounting for around 70 % of Sudan's total export earnings.

Sudan no longer relies on expensive imported oil products, which has helped the country's trade balance, while foreign investment has started to flow into the country. Sudan's currency, the dinar, has remained relatively stable since 1999, at around 259 dinars per dollar.
Sudan's economic performance has been strong over the past few years. In 2001, the country's real GDP grew by 5.4 %, though growth is estimated to have slowed to 3.6 % in 2002. Meanwhile, inflation has slowed dramatically over the past few years, from an average 110 % between 1991 and 1996 to 4.9 % in 2001 and 6.7 % in 2002. Exports have grown sharply since 1999, when the oil export pipeline was completed, turning the country's trade balance from negative to positive.

Sudan's government has been negotiating the payment of its substantial debts to the International Monetary Fund so that the nation can improve its relations with the institution. Sudan's debt to the IMF was rescheduled in 2002, and the IMF deferred Sudan's arrears payments so that the nation can give priority to repaying loans from the Arab Fund for Socio-economic Development.
Some of those funds will be used to finance a new hydroelectric dam in Merowe. As part of the rescheduling agreement, Sudan agreed to reduce its military spending as well as make the management of its oil revenues more transparent Despite its economic progress, Sudan still faces developmental obstacles, including a limited infrastructure and an external debt estimated to be around $ 15 bn in 2001, representing a debt-to-GDP ratio of just over 122 %.

Furthermore, the government remains embroiled in the long-running conflict with rebel movements in the primarily non-Muslim southof the country. This costly and bloody conflict has, over the past two decades, claimed (directly or indirectly through famine) as many as 2 mm Sudanese lives. Sudan's new reliance on oil export revenues makes the country vulnerable to world oil price fluctuations, thereby making it necessary for the government to spend its revenues wisely.
The United States has been imposing economic sanctions against Sudan since November 1997, prohibiting trade between the two countries, as well as investment by US businesses in Sudan. In February 2000, the sanctions were broadened to include a prohibition against US citizens and companies conducting business with the Greater Nile Petroleum Operating Company (GNPOC), an international consortium of petroleum companies currently extracting oil from Sudan.

The sanctions, however, do not apply to the foreign individual parent companies of GNPOC, which include Calgary-based Talisman Energy, Malaysia's Petronas, and the Chinese National Petroleum Corporation (CNPC). Since the September 11, 2001 terrorist attacks on New York and Washington, however, US-Sudanese relations appear to have improved somewhat, as the United States is attempting to encourage Sudanese cooperation in the war against terrorism.
However, Sudan reacted unfavourably to the passage of the Sudan Peace Act in October 2002, which outlines stiff sanctions, ranging from a downgrading of diplomatic relations to a UN arms embargo, that could be imposed on the Sudanese government if it negotiates in bad faith with the main southern rebel force, Sudan People's Liberation Army (SPLA).

As of January 2003, Sudan's estimated proven reserves of crude oil stood at 563 mm barrels, more than twice the 262.1 mm barrels estimated in 2001. Crude oil production averaged 227,500 bpd during 2002, a figure that has been rising steadily since the completion of the export pipeline in July 1999. By 2003, oil output could surpass 300,000 bpd, with plans to reach 450,000 bpd by 2005. In August 2001, in recognitionof Sudan's growing significance as an oil exporter, OPEC granted the country observer status at OPEC meetings.
Petroleum exploration in Sudan began in the early 1960s. The activity was originally concentrated offshore in the Red Sea. The only significant offshore discovery was Chevron's Suakin gas discovery in 1976. Chevron's exploration in the 1960s and 1970s led to several oil finds in southern Sudan near the towns of Bentiu, Malakal and Muglad. Chevron abandoned its concessions in Sudan in 1985, due to their location in an area where fighting was taking place between government and rebel forces.
The French firm, Total (now TotalFinaElf), also suspended its onshore exploration activities, but retained the rights to its concessions. The Sudanese government sub-divided Chevron's concessions into smaller exploration blocks, and Canadian independent Arakis Energy (Arakis) acquired the portion of Chevron's concession north of the town of Bentiu in 1993.

Greater Nile oil project
Arakis began development of the Heglig and Unity fields within its concessions, and started production on a small scale (around 2,000 bpd) in 1996; this oil was processed and consumed within Sudan. The remote location of the field, approximately 930 miles from the Red Sea coast, meant that it would require a very substantial capital investment to transport the oil to a seaport.
To attract the necessary capital and spread the risks, Arakis entered into a consortium in December 1996 with the Greater Nile Petroleum Operating Company (GNPOC), consisting of the CNPC (40 %), Petronas of Malaysia (30 %), Sudanese national firm Sudapet (5 %), and Arakis (25 %, and the field operator). Construction on the pipeline from the fields to an export terminal near Port Sudan began in May 1998 on an accelerated schedule.

Originally built to move 150,000 bpd, the pipeline has a current capacity of 250,000 bpd and can be expanded to 450,000 bpd. Arakis' involvement in Sudan, even after the formation of the GNPOC consortium raised $ 700 mm, remained hindered by a lack of capital. US sanctions against Sudan prevented investment in the project by US corporations and persons, and the high-risk nature of investment in Sudan also had an effect.
In October 1998, Arakis agreed to be purchased by another Canadian independent, Talisman Energy, for $ 277 mm in Talisman stock. The Talisman acquisition provided an infusion of capital which allowed the project to be completed on schedule in 1999. In July 1999, the pipeline began filling with crude, and the first cargo of "Nile Blend" departed the export terminal in early September 1999.

The fields in the Muglad area produce crude oil with a 33 degrees to 42 degrees API range, with only 0.5 % sulphur content. The crude is highly paraffinic, which requires heating to maintain flow in the pipeline. Recoverable reserves from the Heglig and Unity fields have been estimated at 660 mm to 1.2 bn barrels. The area around these two fields also is suspected to contain oil, but estimates ofreserves vary.
The Swedish firm, Lundin Oil (partly bought out by Talisman in June 2001), reported a discovery at the "Thar Jath 2" exploration well in the adjacent Block 5A in March 2001, with oil flows of 2,000 bpd. Petronas, the Austrian firm OMV, and Sudapet have minority stakes in the block. In July 2000, Petronas was awarded a 40 % share in Block 5 b, and in October 2000, Petronas agreed to raise Sudan's oil output by 50,000 bpd by mid-2002.
The increased production will result from Petronas' development of two untapped oil fields in Monga and Bambo in the Mujlad Basin of western Sudan, plus the construction of three additional oil pumps along the pipeline. In March 2001, OMV announced that it had found oil at its exploratory well, Jath 1.

Since January 2002, production has been hampered somewhat by the decision by Petronas, Lundin Oil, and other members of the Greater Nile Oil Project, to temporarily suspend drilling operations on Block 5A due to safety concerns regarding personnel and drilling sites. The suspensions seem unlikely to be lifted until a cease-fire between the government and the SPLA can be negotiated and maintained. Once an agreement has been reached, restarting production is likely to take three months.
In October 2002, Talisman Energy agreed to sell its oil assets in Sudan to ONGC Videsh, which is a subsidiary of Oil and Natural Gas Corporation, the Indian state oil company. The sale was supposed to have been completed by the end of December 2002, but has been delayed by one month. ONGC Videsh will pay $ 758 mm for Talisman's holdings, including a 25 % interest in the GNPOC.

Broadened US sanctions imposed against GNPOC in February 2002 reportedly had little impact on production or distribution of Sudanese oil. In September 2002, Sudan's Minister of Energy and Mining announced that a number of firms, including the British Vitol Group of Companies, had expressed a desire to invest in oil projects in Sudan.
Petrel Resources (PLC) is also considering some projects inSudan, and reported that it had a joint venture proposal with Sudapet, Sudan's state oil company, to explore a block on the Red Sea. In August 2002, a Memorandum of Understanding (MoU) was signed between Canadian oil firm Roland and Sudapet, to cooperate in the drilling of Sudanese oil. No specific block was mentioned in the agreement.
Petrodar, a consortium that was granted a production agreement by the Sudanese government in the Melut Basin in November 2000, is said to be ready to begin development work on blocks 3 and 7 in 2003. The consortium is currently carrying out exploration and drilling work on those blocks, which are a total of 44,700 square miles in size, and contain the Adar Yeil field, which produces 5,000 bpd. The consortium is comprised of Qatar's Gulf Petroleum Company (46 %), China National Petroleum Company International (41 %), the Sudanese company Al Thani (5 %), and Sudapet (8 %).

In June 2000, Sudanese officials announced plans to begin oil exploration in northwest Sudan, the Blue Nile Basin in south-eastern Sudan, and the Red Sea area in eastern Sudan. Oil exploration in Sudan previously was limited largely to the central and south-central regions, which, according to Khartoum officials, represent only 15 % of the national oil reserves.
Sudanese Energy Ministry representatives place estimated total reserves in the country at 3 bn barrels and estimated proven reserves at 700 mm barrels. Government spokesmen said that unnamed Japanese, European and Middle East companies had expressed interest in the new oil concessions.
Development of Sudan's oil resources has been highly controversial. Numerous international human rights organizations have accused the Sudanese government of financing wide-scale human rights abuses with oil revenues, including the mass displacement of civilians living near the oil fields.

The SPLA has declared that it considers oil installations a "legitimate military target," as oil development has provided the Sudanese government the financial resources to expand its war effort. The SPLA says it destroyed the main oil well on the Heglig oil field in September 2002.
In November 2001, southern rebels claimed to have ambushed an army convoy travelling near GNPOC facilities, and stated that such attacks would continue until "oil exploration, exploitation and development come to a halt." In August 2001, an attempt by rebels to blow up Sudan's oil export pipeline was thwarted, but rebels claimed to have killed 42 government soldiers in an attack earlier in the month, and also to have inflicted "extensive damage" to oil facilities at Heglig. The government and a representative of Talisman Energy both denied the latter claim.

Rebels also claimed to have launched a successful attack on oil facilities in Bentiu in mid-October 2001, but this claim also was refuted by the government. Refining and Downstream Sudan has been self-sufficient in producing petroleum products (except jet fuel) since the June 2000 opening of the 50,000-bpd Khartoum Oil Refineryin the Jayli area, 30 miles north of Khartoum.
The Khartoum refinery, built and jointly operated by CNPC, produces benzene and butane gas for domestic consumption and export, as well as gasoline for local consumption. A portion of the surplus gas eventually will be used in the production of electricity, according to government officials. The Khartoum refinery is expected to save the Sudanese government over $ 100 mm per year in refined petroleum product imports.
Following the opening of the Khartoum refinery, the price of gasoline was reduced considerably throughout the country and the price of gas cylinders, which Sudanese use for cooking, dropped from $ 5.30 to $ 2.60. In January 2003, the Sudanese government announced plans to expand the capacity of its oil refineries, at Khartoum and El Obeid. Output at the Khartoum refinery will be increased by 80 %, to 90,000 bpd, while output at the El Obeid refinery will increase by 50 %, to 15,000 bpd.

According to Sudan's Energy Minister, the country is currently conducting a study on the feasibility of expanding its third refinery at Port Sudan, which is located near the Red Sea. The Port Sudan facility is Sudan's second largest refinery and has a current capacity of 21,700 bpd. A petroleum products pipeline runs from the Port Sudan refinery to Khartoum. A fourth facility located in central Sudan near El Obeid has a capacity of 10,000 bpd.
Also in January 2003, Sudan agreed to begin providing Ethiopia with approximately 3,100 bpd of oil, with exports expected to begin before February 2003. Plans call for Ethiopia to eventually import as much as 60 % of its oil needs from Sudan, which will save Ethiopia an estimated $ 7 mm per year.
Sudan has also agreed to provide Ethiopia with approximately 15.5 square miles of land on which to build a storage depot for its fuel imports. In August, 2000, the Sudan's National Petroleum Company (NPC) announced plans to lay pipelines to supply Eritrea and Ethiopia with petroleum derivatives from the Khartoum refinery.If approved, the pipelines would pass through Sudan's Gezira, Sennar and Gedaref states. NPC is also studying the feasibility of running another pipeline to export crude oil from the Adar Yeil oil fields in southern Sudan to Ethiopia.

It was reported in March 2002 that Malaysian state company Petronas and its affiliate Engen have plans to buy Mobil Oil Sudan's oil distribution network in Sudan. Mobil Oil Sudan currently has a 20 % share in the country's oil product market. Petronas is already involved in Sudan's oil market through its 30 % share in the GNPOC consortium. Although the deal has yet to be finalized, Africa Intelligence reported that the sides were close to a successful conclusion in September 2002.
Sudan also has plans to export oil to fellow members of COMESA (the Common Market for Eastern and Southern Africa), including neighbouring Kenya. Exports may be delayed, however, by concerns over human rights issues in Sudan, and some Kenyan officials have called for a boycott of Sudanese oil. In April 2002, Sudanese and Kenyan government officials announced that they are working on logistics for the construction of a new pipeline that would link oil fields in Sudan to the Kenyan port in Mombasa. Under COMESA, trade within the zone is not subject to tariffs, which means that Sudanese oil likely will be cheaper for COMESA members than other alternatives.

Sudan currently has installed electric generation capacity of 580 MW, managed by the state owned National Electricity Corporation (NEC).It is composed almost equally of thermal (mainly oil) and hydropower. Hydroelectric power generation varies greatly over time, due to rainfall patterns. The main generating facility is the Roseires dam located on the Blue Nile river basin approximately 500 km (315 miles) southeast of Khartoum. Roseires has an installed capacity of 280 MW, but output varies greatly as water levels on the river rise and fall throughout the year.
Sudan's total electricity generation was 1.97 bn kWh in 2000. Two interconnected electric grids exist -- the Blue Nile grid and the Western grid. Much of Sudan, however, is not served by the grids, and blackouts and brownouts are common. Some towns outside the grids are served by their own small-scale diesel-fired plants.

Faced with a power shortage, Sudan has plans to add additional generating capacity. The largest projects are the proposed Merowe and Kajbar hydroelectric facilities in northern Sudan. The Merowe facility will have a capacity of 1,000 MW, and will be built at the Nile's fourth cataract. Egypt has not voiced major objections about the issue of Nile water diversion, which Sudan's hydroelectric projects would entail. Construction is scheduled to begin in 2003, and to be completed in 2008 or 2009.
In August 2001, the Merowe project received a boost when several Arab development funds when the Arab Fund for Economic and Social Development pledged a total of $ 780 mm to the project. In 2002, the dam project received major funding commitments fromSaudi Arabia, Qatar, and other Arab investors, each of whom pledged loans of $ 15 mm or more. Two consortia met the October 2002 deadline to bid for the contract to build three packages of the civil works portion of the dam, which is estimated to cost $ 550 mm.

The consortia are a joint venture of China International Water & Electric and China National Water Resources & Hydropower Engineering Corporation, and a joint venture of Consolidated Contractors International Company (CCC) of Greece and Salini Costruttori of Italy. The Kajbar Dam, located at the Nile's second cataract, is currently under construction, and will have a 300-MW capacity.
An agreement to finance the Kajbar project was signed between Sudan and China in September 1997. Under terms of the agreement, China is financing 75 % of the project (approximately $ 200 mm) and Sudan is to provide the remaining 25 %. Environmental groups have expressed concern about Kajbar Dam, citing potential damage both to the Nile ecosystem and to the culture of the displaced Nubian residents of the area.
The director of the NEC said in April 2001 that Sudan and Ethiopia had agreed to link their power grids. A related report in April 2001 indicated that Ethiopia had agreed to export power to Sudan (and Djibouti). In September 2002, Ethiopian television reported that the two nations had agreed to do what was necessary to implement previously proposed development projects through joint use of Nile waters, though the report did not give details about what was expected from each nation.

Country overview
President: Omar Hassan Ahmad al-Bashir (since 1989)
Independence: January 1, 1956 (from Egypt and the United Kingdom)
Population (2002E): 32.5 mm
Location/size: Northern Africa, bordering the Red Sea between Egypt (on the north); Eritrea and Ethiopia (on the east); Kenya, Uganda and the Democratic Republic of Congo (on the south); and Libya, Chad and the Central African Republic (on the west) / 2,505,810 sq km (967,000 square miles), slightly larger than the combined size of Texas, New Mexico, Arizona, Nevada, California, Oregon, and Washington
Major cities: Khartoum (capital), Juba, Kassala, Medani, Nyala, El-Obeid, Omdurman, Port Sudan
Languages: Arabic (official), Dinka, Bedawi, Nuer, Fur, Hausa, Zande, English, and various other Nilo-Saharan, and Afro-Asiatic languages
Major ethnic groups: Arab, Beja, Kinka, Fur, Nuba, Nubian, Nuer, Zande (Azande)
Religion: Muslim (Sunni, in north) 70 %, traditional beliefs 25 %, Christian 5 % (mostly in south)

Economic overview
Finance Minister: Ahmed Hassan al-Zubeir
Currency: Sudanese dinar (SD)
Market exchange rate (01/10/03): $ 1 = 260 SD
Gross Domestic Product (GDP) (2001E): $ 12.5 bn
Real GDP growth rate (2001E): 5.4 % (2002E): 3.6 %
Inflation rate (2001E): 4.9 % (2002E): 6.7 %
Current account balance (2001E): -$ 10.2 bn
Major trading partners: Saudi Arabia, China, France, Italy, Germany, Egypt, Japan
Merchandise exports (2002E): $ 1.8 bn
Merchandise imports (2002E): $ 1.6 bn
Merchandise trade balance (2002E): $ 0.2 bn
Major export products (2002): Crude oil, sesame, livestock, cotton, gum Arabic
Major import products (2002): Machinery and equipment, manufactured goods, oil products, transport equipment, chemicals, wheat
Total external debt (2001E): $ 15.3 bn

Energy overview
Minister of Mines and Energy: Awad Ahmad al-Jaz
Proven oil reserves (1/1/03E): 563 mm barrels
Oil production (2001E): 209,000 bpd (2002E): 227,500 bpd
Oil consumption (2002E): 33,000 bpd
Net oil exports (2002E): 194,500 bpd
Natural gas reserves (1/1/02E): 3 tcf
Natural gas production (2000E): None
Natural gas consumption (2000E): None
Electric generation capacity (2000E): 580 MW (49.2 % thermal, 50.8 % hydroelectric)
Electricity generation (2000E): 1.97 bn kWh
Electricity consumption (2000E): 1.83 bn kWh

Environmental overview
Minister of Tourism & National Heritage: Abdel Galil al-Basha
Total energy consumption (2000E): 0.07 quadrillion Btu* (<0.1 % of world total energy consumption)
Energy-related carbon emissions (2000E): 1.25 mm tons of carbon (<0.1 % of world total carbon emissions)
Per capita energy consumption (2000E): 2.3 mm Btu (vs. US value of 351.0 mm Btu)
Per capita carbon emissions (2000E): 0.0 tons of carbon (vs. US value of 5.6 tons of carbon)
Energy intensity (2000E): N/A
Carbon intensity (2000E): N/A
Fuel share of energy consumption (2000E): Oil (86.22 %), natural gas (0.0 %), coal (0.0 %), hydroelectricity (13.78 %)
Fuel share of carbon emissions (2000E): Oil (100.0 %), natural gas (0.0 %), coal (0.0 %)
Renewable energy consumption (1998E): 278 tn Btu* (67 % increase from 1997)

Status in climate change negotiations: Non-Annex I country under the United Nations Framework Convention on Climate Change (ratified November 19th, 1993). Not a signatory to the Kyoto Protocol.
Major environmental issues: Inadequate supplies of potable water; wildlife populations threatened by excessive hunting; soil erosion; desertification.
Major international environmental agreements: A party to Conventions on Biodiversity, Climate Change, Desertification, Endangered Species, Law of the Sea, Nuclear Test Ban, Ozone Layer Protection and Whaling.

* The total energy consumption statistic includes petroleum, dry natural gas, coal, net hydro, nuclear, geothermal, solar and wind electric power. The renewable energy consumption statistic is based on International Energy Agency (IEA) data and includes hydropower, solar, wind, tide, geothermal, solid biomass and animal products, biomass gas and liquids, industrial and municipal wastes. Sectoral shares of energy consumption and carbon emissions are also based on IEA data.

Source: EIA
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