The Sundering of Sudan - it may increase oil production

The disruption that began in Tunisia is continuing in Egypt, with changes also starting in countries such as Jordan and Yemen. And in the midst of this turmoil, the (finally) democratically dictated separation of Sudan into two separate countries is moving towards the July 9th separation date. At that time Southern Sudan will divide from the North. Sudan has only been selling its oil on the world market since 1999 and the transition will impact those exports.

With the hopeful end to the conflicts in the country, there is also now an increasing possibility that the oil and natural gas resources of the two new nations will be developed. Until recently China has been the most active player in the region, but as the results of the vote have become apparent, Russia too is indicating an interest.

Like other players in the world oil market, Russia would like to promote its energy interests in that region. Moreover, it is capable of becoming a serious competitor for both Western and Chinese companies in oil production and power supply. Russia’s clear competitive advantages are its technological experience in developing oil fields in many regions of the world, its investment potential and the absence of any political conditions for energy cooperation. The latter is important both for Khartoum and Juba, the current administrative centre of South Sudan, because after the referendum both sides will have to reconsider the criteria of their independence.

Map of Sudan (United Nations ) The blue tone marks the bounds of the South Sudan States.

The EIA notes that in 2009 oil was the major revenue generator for the country, bringing in more than 90% of foreign earnings. Within the country the primary energy source is that of combustible renewables and waste, reflecting the rural, non-electrified population of much of the country. And although BP (as reported by Energy Export Databrowser) suggests that virtually all the oil it produces is exported:

Oil statistics from Export Data Browser, based on the BP review.

The EIA find that there is a significant, and growing, domestic market, that uses a significant percentage of production. Various estimates of the size of the export market (for reasons given below) hover around the FT estimate of around 500,000 bd.

EIA statistics on Sudanese oil production.

The EIA note, as is shown on the graph above, that production and exports developed after a pipeline was run 1,000 miles from the oil fields up to Port Sudan. And it should be noted that while about 75% of the oil reserve (perhaps 6.5 billion barrels) is mainly in the South, that port (map above) is in the North. And as European nations in particular, but also those of the FSU, know from the past, those who control the pipeline can often remain in a position of power. The previous arrangements and actual distribution of funds have been viewed with some suspicion.

Much of this is due to the opacity with which Khartoum's captured state machinery operates, siphoning as much as 40% of total oil revenue through various forms of mispricing. Meanwhile, though the Comprehensive Peace Agreement (CPA) of 2005 established that 50% of revenues must be remitted to the Government of South Sudan (GOSS), this share is determined not by volume but sales. Khartoum markets the oil nearly exclusively and determines price as well as volumes exported, with little or no independent monitoring. According to U.K. watchdog Global Witness, major discrepancies of between 9% and 26% have been documented, underpaying the GOSS by as much as $700 million. Little is known of the $7 billion in oil revenues remitted to the South as accountability mechanisms were never factored into the CPA.

That initial agreement is set to expire this July. The pipeline supplies oil to two refineries (at El Obied and Khartoum) that supply the domestic market.

Current pipeline and bid blocks in Sudan (USAID )

One thing that may change this is the construction of s second pipeline, running from the South to Mombasa in Kenya. This would also feed a new refinery proposed for Lamu, which is near Mombasa. However the pipeline would be 870 miles long and have to go uphill to get into the Kenyan highlands, making it quite expensive. An extension of a railway line has been suggested as an alternative. But it now appears that the rail link will go through Uganda, rather than directly to Lamu.

Possible oil routes South from the new capital at Juba.

North Sudan is currently producing about 100 – 110,000 bd of Sudanese total production, but it hopes, by increasing production from the Balila oilfield in South Kordofan from 60 kbd to over 100 kbd, among other gains, to raise this level to 195 kbd by 2012. It has also been exploring for oil offshore in the Red Sea.

Meanwhile exploration in the South is expected to increase, and there are hopes that production might increase to 2 mbd by 2015, from their current estimated production of 450 kbd.

Conditions in the South however are not currently ideal for oil production, even for the Chinese

He said trucks bringing in fuel vital to operations were stopped at 12 illegal checkpoints on one 200km stretch of road alone, each time being charged $300. Waste oil has been set ablaze and workers kidnapped, he added.

These conditions may make China less likely to invest at the scale required for the new transport network. On the other hand China is but one of several partners in production.

For while China has a 40% interest, Malaysia has a 30% interest, and India in 3rd place with 25% in the current production company. And with the Russians expressing interest, who knows what may transpire.

The gift of coal

I was given a bar of ChoCOALate in my stocking this Christmas. Much amusement was had by all. But the growing dependence of the world on coal, is beginning to get a recognition that has been more evident in the denial of it’s long-term role as a base fuel for the last couple of years. And so, in leading up to a pleasant meaning which exists for a gift of coal let me chat a bit more about coal’s future.

Just this past week George Will noted that Cowlitz County in Washington had approved a coal terminal that would allow the shipping of coal from the United States to China. About 5 million tons a year of coal would be moved by train to Longview from either Montana or Wyoming, and then be exported.

So it's a major new development for the region to begin with. And they are talking about a significant amount of coal – more than 5 million tons a year to start with, which is about twice what the Boardman coal-fired power plant burns in a year. And opponents suspect that number could grow.

But I think the biggest attention-getter is what's driving this proposal, which is growing demand for energy in China and other growing Asian countries.

It is anticipated that coal will start to move through the terminal by the end of 2011. However the environmental concerns have already led the State Department of Ecology to become involved, noting:

In October 2010, Ecology suggested Cowlitz County officials expand their greenhouse gas emissions analysis more broadly in their environmental review. The final review did provide additional evaluation, but Ecology believes it did not go far enough in considering greenhouse gas emissions outside the immediate boundaries of the project.

Yet disallowing the terminal will have little if any impact on the Chinese use of coal. Coal is already being exported through Vancouver in Canada, to the tune of some 26 million tons a year. China is increasing the amount that it imports. By selling into that Asian market Australia was able to avoid the recent recession that hit most of the rest of the world, and while it exports coal to China, Japan and India, it is the growth in Chinese orders that have caught attention recently.

And that demand will not diminish in the reasonable future, despite those who cite the Patzek paper on coal’s imminent decline. For, as even “The Atlantic” magazine noted this past month, in talking about clean coal:

But two ideas that underlie the term are taken with complete seriousness by businesses, scientists, and government officials in China and America, and are the basis of the most extensive cooperation now under way between the countries on climate issues. One is that coal can be used in less damaging, more sustainable ways than it is now. The other is that it must be used in those ways, because there is no plausible other way to meet what will be, absent an economic or social cataclysm, the world’s unavoidable energy demands.

For as the article points out

The journalist Robert Bryce (ed - in the book Power Hungry) has drawn on U.S. government figures to show that between 1995 and 2008, “the absolute increase in total electricity produced by coal was about 5.8 times as great as the increase from wind and 823 times as great as the increase from solar”—and this during the dawn of the green-energy era in America. Power generated by the wind and sun increased significantly in America last year; but power generated by coal increased more than seven times as much. . . . . .(he) describes a visit to a single coal mine, the Cardinal Mine in western Kentucky, whose daily output supports three-quarters as much electricity generation as all the solar and wind facilities in the United States combined.

And in China it takes about 21 months to install a new coal-fired power plant. To supply those power stations they are seeking additional suppliers of coal from around the world.

Arch Coal has just bought the lease to 587 million tons of coal in the Otter Creek reserve in Montana. The company already owned rights to 731 million tons , and it is suggested that the deposits will be mined at the rate of around 22 million tons a year, although mining may not begin for five years.

In the meanwhile, even if the folks in Washington don’t want the terminal, CN would be happy to ship it through terminals at Vancouver and Prince Rupert. Trains take 45 hours from the mines in BC to Ridley at Prince Rupert, and 70 hours to Vancouver, while they take 55 hours from Alberta. It then takes 2 weeks for the ships to get to Tianjin, Shanghai, Quingdao, Guangzhou or Hong Kong. (Give or take a day, and assuming an average speed of 13.5 knots).


Getting coal out of Montana would require improved rail linkages, but one 35-mile link has already been installed to allow the Signal Peak Mine to be developed in the short term, raising Montana production from the 45 million tons produced in 2008. Plans to increase Montana production include a new line known as the Tongue River Railroad which would connect into the Miles City BNSF line that goes up to Glendive, whence it could easily move on into Canada, if it could not move west to Washington.

Planned Railroad relative to mine development

It has taken since 1983 to get planning for the railroad extension this far. And it is still being protested.

Even without the Montana production and even if the Australian mine production is constrained by transient floods, there are lots of other sources that the Chinese could use. These include Mozambique, where plans are moving ahead to increase local mine production up to 20 million tons a year from an estimated 9 billion ton deposit. There are both Chinese and Indian investors in this project, which will occur as the Minas Moatize mine also expands production up to 11 mt/year. Mine development will require improved railroad and port facilities, but it is likely that these can be implemented more rapidly in Africa than they can, presently, in the United States.

The point of which is that there are many places that China and Asia can purchase coal from. There are several places along the Western seaboard from which American coal can be shipped, and large deposits that can be mined to supply that coal. It may even come from those resources that are, in “peer reviewed” papers, considered to be insignificant. But it will get to China, and it will be used to sustain and grow that economy.

With which thought I wish you all a Happy New Year. In my youth the first to come through the door after midnight was to bring in some shortbread or black bun, a couple of pennies, and a piece of coal – and the “first foot” was then rewarded with a tot of, what we called “tea without milk or sugar.” (Good Scottish whisky). The coal was for a wish of enough fuel to keep you warm and fed through the year, the shortbread/black bun represented that food, and the money was for prosperity. Virtually therefore, let me offer you those gifts for this year, and for the years to come.