CNPC signs new agreements with Sudan

China National Petroleum Corp., apparently shrugging off environmentalists’ concerns, has signed three oil and gas cooperation agreements with the government of Sudan.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Nov. 20 -- China National Petroleum Corp., apparently shrugging off environmentalists’ concerns, has signed three oil and gas cooperation agreements with the government of Sudan.

The agreements consist of a memorandum of understanding on the second phase expansion of Khartoum refinery, advance payment for crude trading and an agreement to swap equity between CNPC's Block 6 and Malaysia State Oil's Block 5A.

No details were provided on the advance payment proposal or on expansion of the Khartoum refinery, owned 50-50 by CNPC and Sudan’s state-owned Sudapet.

The Khartoum facility began operating in 2000 with a capacity of 2.5 million tonnes/year, and in 2006 was expanded to process 5 million tpy of oil. It supplies 80% of Sudan’s refined oil.

However, CNPC said it also came to an agreement with Petronas to swap part of its 95% stake in Block 6 for Petronas’ full stake in White Nile Petroleum Operating Co., which produces oil from Block 5A in Unity State.

Block 5A, which contains Thar Jath and Mala oil fields, was awarded in 2005 to WNPOC, a consortium comprised of operator Petronas 68.875%, Oil & Natural Gas Corp. 23.125%, and Sudapet 8%.

To a certain extent, CNPC may have made the swap in an effort to avoid potential political problems brewing in the region around Block 6. But CNPC may instead face criticism from activists concerned about problems of pollution in Block 5A.

In mid-October, CNPC subsidiary China Petroleum Engineering & Construction Co. (CPECC) won a $260 million contract to develop Block 6, which straddles the border between Western Kordofan and South Darfur states.

“At present the only output from Block 6 is some 40,000 b/d from Fula field in West Kordofan, which started production in 2004,” according to a recent report by The Economist Intelligence Unit.

However, EIU noted that in 2007 CNPC found 36 million bbl of recoverable oil in the western part of the block, and that it hopes to increase output to 60,000 b/d within 2 years.

According to EIU, “there is some risk that these developments will antagonize the main Darfur rebel groups or local tribal militias and the oilfields will be targeted for attack.”

EIU noted that in 2007 and 2008, the Darfuri Justice and Equality Movement and a Kordofan militia were responsible for least three instances of kidnappings of oil field workers in South Kordofan and the adjoining areas of South Darfur.

“While most were released, at least four Chinese oil workers were killed,” EIU said.

Meanwhile, according to a recent activist report, oil production in Block 5A—the very site of CNPC’s swap—is contaminating water, spreading disease to humans and cattle, and threatening the world's largest inland wetlands.

"Oil exploration and exploitation in the oil fields of Mala and Thar Jath pose serious threats to human beings, livestock, and the environment," said Klaus Stieglitz, vice-chairman of the German NGO Sign of Hope.

Pointing to the central processing facility at Thar Jath, Stieglitz said that water flowing off the huge installation was a major source of contamination.

"Waters found in drilling pits at oil wells are another major source of contamination. Contaminants of both sources have already reached the drinking-water layers," he said.

Stieglitz cited the case of Rier, a village close to the Thar Jath processing facility, where concentrations of salts and contaminants such as cyanide, lead, nickel, cadmium, and arsenic have reached critical levels.

"The contamination has a serious impact on the daily life of the local population. In the village of Rier, the inhabitants do not use the water coming from their boreholes,” he said.

"Locals who drink this kind of water can get diarrhea and a subsequent dehydration of the body, which might lead to death if untreated," Stieglitz warned.

"The heavy-metal concentrations of these waters will have a negative impact on the health situation of the some 300,000 inhabitants of the affected area, which covers 4,000 sq km," said Steiglitz, who urged WNPOC to treat the plant's water adequately and prevent seepage.

"To secure public health, the government must also improve the quality of drinking water dramatically and at the same time prevent an ecological catastrophe," he said.

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