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Sudan - Oil

According to the International Monetary Fund (IMF), oil represented around 57 percent of Sudan's total government revenue and around 78 percent of export earnings in 2011. The IMF projected that Sudan's oil earnings substantially declined following the South's secession. According to IMF estimates, oil accounted for 32 percent of total export earnings and 30 percent of Sudan's total government revenue in 2012.

Small-scale oil production in the unified Sudan began in 1992 and grew rapidly in 1999 with the completion of the GNPOC export pipeline that runs from the Heglig processing facility to Port Sudan. Total oil production reached its peak of 486,000 bb/d in 2010, but declined to around 453,000 bbl/d in 2011. The fall in output was driven by production declines due to maturing oil fields and lack of investment in Sudan, as well as a shortage of skilled workers in South Sudan in 2011. In April 2011, production was briefly disrupted in South Sudan when a number of North Sudanese workers in Southern fields were temporally expelled. For the remainder of 2011, some oil facilities experienced labor shortages that adversely affected production, as some skilled workers migrated back to the north after the secession.

South Sudan gained independence from Sudan in July 2011. Most of the oil is now produced in South Sudan, but the country is landlocked and remains dependent on Sudan because it must use Sudan's export pipelines and processing facilities. In January 2012, South Sudan voluntarily shut in all of its oil production because of a dispute with Sudan over oil transit fees. Following South Sudan's secession, Sudan requested transit fees of $32-36/barrel (bbl) in an attempt to make up for the oil revenue loss, while South Sudan offered a transit fee of less than $1/bbl. Tensions escalated at the end of 2011 when Sudan began to confiscate a portion of South Sudan's oil as a payment for unpaid transit fees, and shortly after, South Sudan shut down production. After nearly 15 months of intermittent negotiations, South Sudan restarted oil production in April 2013. Despite the progress that has been made to reconcile differences, several unresolved issues remain and production may be curtailed again in the future.

Oil production in Sudan and South Sudan is declining because of natural declines at maturing fields. Sudan has set ambitious goals to increase production from new fields and to increase recovery rates at existing fields, but production continues to fall short of Sudan's goals.

According to BP's 2013 Statistical Review, approximately 3.5 billion barrels are in South Sudan and 1.5 billion barrels are in Sudan. The majority of reserves are located in the oil-rich Muglad and Melut basins, which extend into both countries. Oil is transported through two main pipelines that stretch from the landlocked South to Port Sudan.

Natural gas associated with oil fields is mostly flared or re-injected. Despite proven reserves of 3 trillion cubic feet, gas development has been limited. In 2010, the unified Sudan flared approximately 11.8 billion cubic feet of natural gas, according to the latest data from the National Oceanic and Atmospheric Administration (NOAA), which represents about 0.2 percent of the total gas flared globally.

International oil companies from Asia dominate the oil sectors of Sudan and South Sudan. The China National Petroleum Corporation, India's Oil and Natural Gas Corporation, and Malaysia's Petronas hold large stakes in the leading consortia operating oil fields and pipelines. National oil companies Sudapet (Sudan) and Nilepet (South Sudan) also hold small stakes in operations.

n Sudan, the Ministry of Finance and National Economy (MOFNE) regulates domestic refining and oil imports. The Sudanese Petroleum Corporation (SPC), an arm of the Ministry of Petroleum, is responsible for exploration, production, and distribution of crude oil and petroleum fuels in accordance with regulations set by the MOFNE. The SPC purchases crude oil at a subsidized cost from MOFNE and the China National Petroleum Corporation (CNPC). According to the IMF, SPC purchased light crude (Nile Blend) at a fixed price of $49/bbl, instead of the international price of $110/bbl for light crude, and $82/bbl for heavy crude (Fula Blend) in 2011.

After purchasing the crude, SPC then contracts with local refineries to process it. It sells the domestically refined and imported fuels to distribution and marketing companies at subsidized prices set by the MOFNE, according to the IMF. Locally refined products are sold at a price lower than production costs, and imported fuels are sold below the cost of importation. The IMF estimated that fuel subsidies accounted for 14 percent of total government expenditures in 2011 and 15 percent in 2012. Fuel prices in Sudan are lower compared to nearby countries. According to the IMF, the subsidy is exported to neighboring countries as Sudan's subsidized fuel is often smuggled across its borders.





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