Tuesday, February 15, 2011

Independence of Southern Sudan and East Africa Oil Boom

The emergence of the independent southern Sudan ends the civil war that has gone on forever between the northern Arabs and the African south.  Plenty of peoples will over time migrate to their respective polities and the ethnic war will finally peter out.

The investment newsletter Energy and Capital paints a very promising picture of the emerging south.  Oil assures it of been well underwritten provided the money is simply not stolen.

More critically we have an East African arc that is going to capture massive investment money for the next decade that can jump start these economies once and for all.  Thus it is pretty obvious that a southern pipeline will be build pretty quickly.

All this will also create investor optimism in the whole of East Africa which is slowly sorting out their hangovers from the colonial past and perhaps finally getting on with running a good economy. 

It is easy to see Chinese enthusiasm for Africa.

The U.S. Does the Work, China Profits

By Christian A. DeHaemer | Thursday, February 10th, 2011

President Salva Kiir of Southern Sudan always wears the Stetson given to
him by George W. Bush.

A few days ago, 98 percent of Southern Sudan voted for independence from the North. This is an offshoot of the 2005 Bush sponsored peace treaty, which will be effective on July 9, 2011.

Sudan is the largest country in Africa and has suffered through almost fifty years of bloody civil war since its independence from Britain in 1956.

The war pitted the North — populated by Muslim Arabs — against the Christian, Animist, and African South.

Nearly two million people have died in the conflict and four million have been displaced.
Sudan holds an estimated 6.7 billion barrels of oil, mostly in the South.

Southern Sudan produces 85 percent of Sudanese oil output, which represents 90% of export earnings.

Southern Sudan independence and tentative political stability will lead to the next big oil boom. Many of my contacts in the oil world are telling me that East Africa in general — and Sudan in particular — will be a major focus.

U.S. companies excluded

Due to the war crimes committed in Darfur, the United States prohibits U.S. nationals from engaging in any transactions or activities related to the petroleum or petrochemical industries in the entire territory of Sudan, both north and south.

Sudan also faces sanctions from the United Nations and the European Unionwhich include arms embargoes, travel bans, and restrictions on financial activities that may impede the peace process without specifically addressing the petroleum sector.

The new independence vote in the South should change these sanctions... but international government bodies work at a glacial pace.

Last week, U.S. Deputy Secretary of State James Steinberg met with Sudan's Foreign Minister Ali Karti. The parties were working toward removing Sudan from the list of terrorism-sponsoring countries.

Steinberg said he would work toward that end, but that it would take six months.

The usual suspects

With Western democracies holding the high moral ground, the usual rouges have used the opportunity to get to Sudan first.

Already, Chinese oil companies CNPC and Sinopec are active in the region, joined by Malaysia's Petronas, namesake of the famous towers.

The new political agreement states that all prior oil agreements would stand.

Sudan now produces 500,000 million barrels a day, but that should become much larger...

According to The Sudan Tribune:

The French oil company Total SA (TOT) and Spanish Star Petroleum will start oil exploration next March in two blocks located in Jonglei state, the southern Sudan oil minister said.

"One is Bloc B, the biggest in southern Sudan, to Total. They will start exploration in March. And another bloc is Bloc E with Star Petroleum, a Spanish company," said minister Garang Diing to the Agence France Presse.

"We estimate that these two blocs have huge reserves which could allow us to add three times the current production to reach maybe two million bpd around 2014 to 2015."

Furthermore, PetroVietnam and Sudan's Sudapet signed an oil cooperation framework agreement in December. The pact will enable the two companies to jointly invest in oil and gas projects in Sudan and Vietnam.

The big problem

The biggest problem facing Sudan is that while most of the oil is produced in the South, it flows north through a pipeline that disgorges on the Red Sea. This has lead to acquisitions that the North is stealing oil from the South.

Furthermore, Abeyi is an oil-rich region that is located on the border.

The fate of this region will be decided by a separate referendum.

A big find by Total could result in a new pipeline through Kenya or Uganda in the south. Uganda recently found a world-class oil strike, and there are several fat opportunities in Kenya.

East Africa has a geological formation called the East African Rift, which runs from Saudi Arabia to Mozambique. With the possible exception of Central Asia, this is the last large, land-based oil yet to be put in production.

Two years from now, the place will be swarming with petroleum engineers and global oil men.

I've already recommended one East African oil company to my Crisis and Opportunity readers... and I have 12 on my watch list.

This is a big opportunity for those who get in early.

Christian DeHaemer

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