Investments in oil and gas projects have decreased, and the sanctions have dampened interest in the country’s first licensing round
By NJ Ayuk, Executive Chairman, African Energy Chamber.
Four years have passed since the U.S. imposed sanctions on South Sudan’s oil industry.
The goal had been to prevent oil money from funding the civil war that had been raging since 2013. By curtailing the ability of businesses and organizations to provide revenue for the South Sudanese government, U.S. officials reasoned, they could pressure President Salva Kiir to end the conflict plaguing his country.
Whether or not you believe the sanctions contributed to peace, the war has indeed ended. Government leaders signed a peace deal in 2018 and formed a unified government in 2020.
Why, then, do sanctions that were intended to draw the war to a close remain in place?
At this point, what was initially meant for good is now doing harm. The sanctions are hindering foreign investment in South Sudan oil and gas projects and, because of that, preventing the country from harnessing its natural resources (3.5 billion barrels of proven oil reserves) on behalf of its people. The sanctions are making it needlessly difficult for South Sudan to use oil and gas to foster economic growth, create jobs and business opportunities, build capacity, and — particularly important — develop gas-to-power programs capable of minimizing the country’s extensive energy poverty.
I have no doubt that the U.S. imposed sanctions on South Sudan’s energy industry with the people of South Sudan in mind. Their objective was to help free them from violence and protect lives.
Now, the African Energy Chamber is calling upon U.S. officials to make another decision with the South Sudanese in mind: Lift the sanctions.
Time to Release the Chokehold
The U.S. sanction on South Sudanese oil and gas production has focused on 15 businesses and government units, ranging from international and local oil companies operating in South Sudan to the South Sudan Ministry of Petroleum and Nile Petroleum Corporation (Nilepet), South Sudan’s national oil and gas company.
Each was added to the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) “Entity List,” a compilation of foreign businesses, organizations, and individuals “believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States.”
As a result, oil and gas exploration in South Sudan has become considerably more challenging. If a company, government, organization, or individual wants to export or reexport specific items (oil) from an entity on the list, they must first convince the U.S. government to let them proceed by getting a special license. Violating these requirements could result in criminal or civil proceedings, denial of export privileges, and possibly even being added to the Entity List as well.
As you might expect, oil and gas activity in South Sudan has been limited. Investments in oil and gas projects have decreased, and the sanctions have dampened interest in the country’s first licensing round. The 14-block round was announced in 2021 and continues until 2023. While this opportunity is far from over, as of yet, it is not seeing the level of interest the ministry of petroleum is hoping for.
I’m not saying South Sudan’s oil and gas industry has come to a standstill. The country produces approximately 150,000 to 170,000 barrels per day, but that is far from enough to meet the government’s budgetary needs or realize much-needed economic growth. South Sudan needs more investment and activity to truly capitalize on its oil and gas reserves.
Sanctions Are Making Resolving Energy Poverty Harder
The U.S. sanctions also serve as an obstacle to the production of natural gas in South Sudan, which could be used to help alleviate energy poverty. South Sudan has one of the lowest electrification rates in the world: As of 2020, only 1% of the country’s 12.5 million people had access to electricity. Even those connected to the grid must cope with frequent blackouts and load shedding.
Gas-to-power projects could make a tremendous difference in South Sudan. But without oil and gas revenue, building gas-fired power plants is extremely difficult. Currently, the country is not producing natural gas for export or domestic use.
Sanctions Are Slowing the Move to Renewables
Some may argue that South Sudan will be better off without an oil and gas industry, and that the country should simply focus on renewable energy projects like solar, wind, and hydrogen.
Renewables do offer promise for South Sudan, but how in the world will South Sudan pay the billions of dollars necessary to develop the necessary infrastructure without a healthy economy? And without the revenue, jobs, capacity building, and business opportunities that come from a thriving energy industry, how exactly is South Sudan going to rebuild its economy in the short term?
Don’t get me wrong: I’m all for renewable energy. But, as I’ve said repeatedly, oil and gas production will play a vital role in transitioning African countries like South Sudan to renewables. Natural gas in particular can be monetized to generate revenue and can serve as a feedstock for chemical and fertilizer manufacturing, creating even more opportunity and revenue.
South Sudan can develop a healthy energy industry that includes oil, gas, and renewables, but U.S. sanctions will make that task much more time-consuming and difficult.
I also urge the U.S. to consider who will be capitalizing on South Sudan’s petroleum resources if the Department of Commerce continues to discourage investors from exploration and production there. The most likely candidates are governments and companies that aren’t concerned about the United States’ Entity list — or are already on it. China is already a major player in South Sudan, while Russia and the South Sudan Petroleum Ministry have been discussing the possibility of working together.
China’s presence in the region dates back to 1995 — before South Sudan became independent — when the Second Sudanese Civil War was underway. The U.S. had imposed economic sanctions on Sudan in response to accusations of war crimes, but they did little to stop China from capitalizing on Sudan’s oil.
Fast forward to today: China National Petroleum is one of the major stakeholders in Dar Petroleum Operating Company, a consortium of oil companies that continues to produce oil in South Sudan, despite being added to the U.S. Entity List. There is no reason to believe that China will be leaving South Sudan anytime soon.
And then there’s Russia. South Sudan already has made it clear that it’s interested in working with Russia to help develop its oil, natural gas, and refining industries. During a 2020 visit to Russia, Awut Deng Acuil, then South Sudan’s minister of foreign affairs and international cooperation, met with Russian Foreign Minister Sergey Lavrov to discuss areas of potential cooperation. We have not seen Russia assume a larger role in South Sudan yet, but the door remains open.
My question to the U.S. is, do you want to create a future where China and Russia remain the primary foreign investors in South Sudan’s energy industry? Wouldn’t it be better to allow strong, stable western countries into the mix?
So Much to Offer
It is frustrating to see South Sudan’s energy industry struggling to build momentum, especially when you consider its promise. That potential will be showcased during South Sudan Oil & Power (SSOP) 2022, “The Gateway to East African Energy.” The conference, set for Sept. 13-14 in Juba, is being organized by Energy Capital & Power, an Africa-focused investment platform for the energy sector, in partnership with the South Sudan Ministry of Petroleum, Ministry of Energy and Dams, and Ministry of Finance and Economic Planning. The African Energy Chamber is proud to be an event sponsor.
Energy Capital & Power’s Senior Director, James Chester, recently urged governments and countries to consider what South Sudan has to offer.
“South Sudan is not just making the licenses available, it has built its own data facility in Juba and has purchased its own aircraft to undertake aero gravity surveys of the country,” Chester said. “With the majority of South Sudan under explored and producing areas to explore further, the government knows it has high potential assets to market to oil and gas companies—but that data is critical. Until last year, South Sudan did not control its own industry and exploration data. It now has world class facilities.”
Chester added that South Sudan’s location — bridging the Nile Basin and Rift Valley areas makes it a logical hub for exploration in an oil-rich region spanning from Egypt through Sudan to Uganda, Kenya, and beyond.
I only hope that the barriers to investing in South Sudan’s oil and gas industry don’t prevent it from realizing this potential.
To be fair, U.S. sanctions are not the only challenge facing South Sudan. The country’s future will be bleak without long-term stability, good governance, and transparency. But South Sudan must also have a healthy, growing economy and reliable electricity if it is going to offer its people a better future. When approached strategically, oil and gas production can make that happen in South Sudan. It can spur growth, create economic opportunities, and help alleviate energy poverty. But only if the U.S. will step out of the way.