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China, Sudan, Oil and Sustainability

The Daily Star in Lebanon offers a good background piece on China’s oil interests in Sudan.

Few countries can be watching the Darfur crisis in Sudan with more anxiety than China. At issue is its involvement in Sudan’s burgeoning oil sector. China’s investments there have become so important that Beijing might even feel inclined use its veto if the UN Security Council were at some point to recommend imposing sanctions on Khartoum.

Already, China is the largest importer of Sudanese oil and Beijing hopes to keep it this way. At present, imports from Sudan account for some 6 percent of China’s total. It will be surprising if this figure does not rise sharply over the next decade.

China, in general, has a large and growing thirst for oil. Rising Chinese demand is one of the major factors behind the current high price of oil on global markets. Beijing knows that it needs to take action urgently to cope with this new state of affairs.

The broader implications of China’s new energy strategy could be considerable. Huge investments of the kind needed for oil exploration and production involve risk assessment. That, in turn, means closely following political trends and, when necessary, seeking to influence them—a role that Beijing has not traditionally played in the Middle East. It also involves guessing what other major powers might be planning in terms of securing access to new reserves of oil, like those in Sudan, for example.

The Darfur affair is giving China its first close-up experience of a Middle East crisis. How it will react if the crisis deepens remains to be seen. Thus far it has shown its hand only in deciding to abstain when the Security Council voted last month to impose sanctions on Sudan if Khartoum does not take immediate and progressive steps towards ending the Darfur crisis.

India is another major oil player in Sudan, and Malaysia has interests there as well. You can find a good current (July 2004) backgrounder on oil in Sudan here (US DOE Energy Information Administration).

As energy needs rise and we approach peak production, contention for remaining resources will become increasingly intense—economically, if not militarily. For the countries (many underdeveloped) holding the reserves, the potential oil windfall could be a great boon if used properly. Internal allocation of oil revenue is a newer point of contention in the long-running civil strife in Sudan.

As an added factor in Sudan, the more rapidly the rate of production grows, the shorter the windfall will last. Looking at a few charts should make that last point more clear.

At the bottom left is a chart plotting the proven reserves by global region as known at the end of 2003. (Again, reserve estimation is a blend of science, politics and marketing, so “mileage may vary.”) To its right is a more detailed breakout of the reserves of the Middle East (gold bars) and Africa (green bars). (All data from BP Statistical Review of Energy 2004. Click to enlarge.)

regionalreserves reserves-africaandmiddleeast

As you can see in both, the Middle East reserves tower over everything else. In Sudan, even adding in expected additions to reserves, you’re looking at a situation that will tap out well before countries with larger endowments are depleted. Put another way, at the current rate of Sudanese production (approx. 300,000 barrels per day), it would take more than 30 Sudans to match the output of Saudi Arabia. Even doubling the current estimates of Sudanese reserves, it would take more than 250 Sudans to match the reserves of Saudi Arabia.

Here’s another view of the production problem, taken from a detailed analysis done by PFC Energy on Sudan in 2002. The chart below left looks at the average size of oil fields in the Middle East. Sudan’s are among the smallest, meaning that fields will tend to peak sooner, forcing producers to find other fields or go elsewhere. A more detailed breakout of Sudanese fields to the bottom right emphasizes the point.

pfcsudan1 pfscsudan2

Countries seeking to feed their oil needs will be faced with an increasing number of smaller developments. This is not to say that the Sudanese oil is not important to the global economy; it clearly is. But without a plan for sustainable development, the oil boom will be relatively short for Sudan. And then what? From the PFC Energy study:

The oil industry has had high expectations dashed more often than realized. Exploration is a science but of limited precision in rank wildcat areas like Southern Sudan. In planning the future of Southern Sudan huge oil wealth should not be considered as guaranteed.

The oil industry can bring more than just oil wealth. It can bring social develop funds, scholarship funds, infrastructure, employment. [It can also bring] added corruption and an economy that becomes addicted to a resource that depletes very rapidly.

This is another aspect of sustainability—sustainable demand met by sustainable production that provides emerging economies with more time to mature and to diversify. The chances of that happening in the current energy economy with its intensifying demand for oil seem extremely low.


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