Independence of Southern Sudan and East Africa Oil Boom

The emergence of the independentsouthern Sudanends the civil war that has gone on forever between the northern Arabs and theAfrican south.  Plenty of peoples willover time migrate to their respective polities and the ethnic war will finally peterout.

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

More critically we have an EastAfrican arc that is going to capture massive investment money for the nextdecade that can jump start these economies once and for all.  Thus it is pretty obvious that a southernpipeline will be build pretty quickly.

All this will also createinvestor optimism in the whole of East Africa whichis slowly sorting out their hangovers from the colonial past and perhapsfinally getting on with running a good economy. 

It is easy to see Chinese enthusiasmfor Africa.

The U.S.Does the Work, China Profits

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

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

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

Sudan is the largest country in Africa and hassuffered through almost fifty years of bloody civil war since its independencefrom Britain in1956.

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

Nearly two million people have died in the conflict and four millionhave 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 politicalstability will lead to the next big oil boom. Many of my contacts in the oilworld are telling me that East Africa in general — and Sudan inparticular — 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 transactionsor activities related to the petroleum or petrochemical industries inthe entire territory of Sudan, both north andsouth.

Sudan also faces sanctions from the United Nations and the EuropeanUnionwhich include arms embargoes, travel bans, and restrictions on financialactivities that may impede the peace process without specifically addressingthe 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 metwith Sudan'sForeign Minister Ali Karti. The parties were working toward removing Sudanfrom the list of terrorism-sponsoring countries.

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

The usual suspects

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

Already, Chinese oil companies CNPC and Sinopec areactive in the region, joined by Malaysia'sPetronas, namesake of the famous towers.

The new political agreement states that all prior oil agreements wouldstand.

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

According to The SudanTribune:

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

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

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

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

The big problem

The biggest problem facing Sudanis that while most of the oil is produced in the South, it flows north througha pipeline that disgorges on the Red Sea. Thishas 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 petroleumengineers and global oil men.

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

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

Sincerely,

Christian DeHaemer

Editor, Energy and Capital