Falling world oil prices combined with a fixed fee for the use of export pipelines mean South Sudan is now losing money on every barrel it sells, analysts said on Wednesday.
South Sudan currently earns around $20 a barrel for its low quality oil that sells at a discount to the Brent crude benchmark – on Wednesday trading at $28, said Emma Vickers of Global Witness, a London-based campaign group.
But the landlocked country pays a fixed transit fee of $24 per barrel for the use of Sudan’s northern export pipelines, she said.
As a result, oil production in South Sudan is now believed to be costing the government at least $4 a barrel, further battering the war-damaged economy and raising fears of another oil shut-down.
The foreign ministry has reportedly written to Khartoum seeking to renegotiate the transit fee deal, according to Juba’s Eye Radio.
The Sudan Tribune reported a South Sudan government memo warning that without a renegotiation a shut-down may be inevitable. “We cannot sell the oil at a loss,” the Paris-based non-profit website quoted the oil ministry memo as saying.
Observers said that Juba is already in arrears for transit fee payments due to Khartoum in recent months, while years of financial mismanagement, a previous oil shut-down in 2012 and the civil war since December 2013 have drained the country’s reserves.
The currency is also at risk of collapse, inflation is rocketing and government revenues are virtually non-existent.
South Sudan is estimated to produce around 150 000 barrels a day – down from 350 000 at independence in 2011 – after many oil fields ceased operating during the more than two years of civil war between President Salva Kiir and rebel leader Riek Machar.
“Another unilateral oil shut-down would lead to problems with Khartoum and problems with the remaining oil companies,” said Vickers. “The best solution will be a renegotiation of the deal with Khartoum, but South Sudan really is between a rock and a hard place.”