By Hereward and Holland
JUBA (Reuters) - South Sudan said on Friday it was working out a plan to shut down oil production within two weeks after Sudan said it had started seizing southern oil to compensate for what it said were unpaid transit fees.
South Sudan seceded last July under a 2005 peace deal that ended decades of civil war between north and south, but the two have remained at loggerheads over oil, the disputed Abyei region and even the location of the border.
The two are locked in a row over sharing oil revenues after South Sudan took two-thirds of output when it became independent. Oil is the lifeline of both economies.
The landlocked new African nation needs to use a northern pipeline and the port of Port Sudan to export the crude but has failed to reach an agreement with Khartoum over a transit fee, prompting Sudan to seize part of its oil as compensation.
"The ministry of petroleum and mining will sit down to start a technical process that will lead to a decision that will lead to a complete shutdown. That will be in a week or two weeks," government spokesman Barnaba Marial Benjamin told Reuters.
"We have taken this decision because South Sudan is not benefiting from oil. It is being taken by force by the Republic of Sudan, and the oil that is going through the pipeline is being looted," he said.
He said Sudan had seized oil worth $350 million in Port Sudan and preventing the sale of oil worth more than $400 million by restricting vessels from entering or leaving the port.
South Sudan's oil minister Stephen Dhieu Dau said the government could run without oil, which make up 98 percent of state revenues, for 18 months.
Khartoum has said Sudan is seizing some oil and diverting some of it to its two refineries but has not said whether it would try selling any seized oil.
Sudan is demanding $1 billion for unpaid transit fees since July plus $36 a barrel in the future as a transit fee, roughly a third of the export value of southern oil. Khartoum also wants Juba to share Sudan's external debt of $38 billion.
South Sudan pumps around 350,000 bpd, officials have said. Sudan produces 115,000 bpd in its remaining fields but needs it for domestic consumption.
Dhieu Dau said the government wanted to push ahead with plans to build an alternative pipeline to end dependency on northern export facilities.
"We are planning that building an alternative pipeline will be a national duty for all South Sudanese and the plans which are now being designed by the ministry of petroleum and mining," he told reporters, without elaborating.
South Sudan has held talks with foreign firms to build a pipeline to Kenya but oil industry insiders are skeptical because it would have to cross through rough and violent terrain.
In addition, oil production is going to halve within a decade without significant new finds, according to the International Monetary Funds (IMF).
South Sudan hopes to find oil in Jonglei state where France's Total holds a largely unexplored oil license but tribal has escalated in past weeks.
Sudan's government itself is under pressure to overcome a severe economic crisis after losing the southern oil, which made up 90 percent of the country's exports. It generated $5 billion in oil revenues in 2010.
Juba has offered Sudan the sale of discounted oil and other financial help, but neither side shows sign of shifting their positions.
(Reporting by Hereward Holland; Writing by Ulf Laessing, editing by Jane Baird and Jason Neely)