Sudan: The oil factor

Few countries owe so much, over so little time, to the magic of black gold as does Sudan. From near-bankruptcy in the early 1990s, Sudan has trebled its GDP in the past seven years thanks to the discovery and exploitation of oil; it is now one of Africa’s fastest-growing economies. Sparkling office blocks are beginning to crowd the skyline of Khartoum, the capital. Oil has also brought vital political dividends. China, which buys about 80% of Sudan’s oil exports, has proved a loyal friend at the UN when Sudan has been criticised for murder and mayhem in its Darfur region.
With so much resting on oil, the government of President Omar al-Bashir likes to talk up the industry’s prospects. Production now stands at 480,000 barrels a day, with proven reserves estimated at 1.6 billion barrels. The bullish oil minister, Awad Ahmed al-Jaz, often says he expects output to rise to about 1m b/d next year.

But this scenario may be too rosy. The country’s original and most reliable oilfields, which produce valuable low-sulphur crude marketed as Nile Blend, are maturing. Their output dropped from a peak of 300,000-odd b/d in early 2005 to 254,000 b/d in the first quarter of this year. Prospects for pushing production back up using better oil-recovery techniques are poor, and this dip will be only partly offset by output from new fields that have begun to be exploited in Sudan’s south (see map).

For though oil from a number of new fields began to flow last year, there have been setbacks. Much of the new oil is of inferior quality, selling for less than a third of average international prices. Sudan has some scope to raise production from these fields, but it has less incentive to do so. So exploration for further reserves (and even for offshore gas) is being conducted across the country. In recent months, a flurry of new oil concessions have been awarded.

But many of them have been granted to small and inexperienced operators, often partners of local companies tied to the government. A consortium exploring one southern block is made up wholly of Sudanese firms.

Economist