* South Sudan to complain to UN about pipeline bombing
* Sudan denies responsibility, says not in its interest
* Oil transport row could escalate into bigger conflict
* Both sides in talks to resolve oil dispute
By Hereward Holland
EL NAR OIL FIELD, South Sudan, March 6 At an oil well in South Sudan, Mohamed Lino clambered into a metre-deep (3-ft) crater as crude oozed out of shrapnel-damaged pipes, the wreckage of what the government said was an air attack by its old enemy the north.
"This is where the bomb fell ... If the oil had been flowing there would have been big, big damage," said Lino, director general of South Sudan's oil ministry, examining the churned earth beneath his feet.
Last week's bombing, for which Sudan denies responsibility, raised the stakes in a bitter row over oil transportation fees that analysts say could escalate into full-scale war.
South Sudan declared independence last year after voting overwhelmingly for secession in a referendum, part of a 2005 peace deal to end decades of civil war. But the peace remains uneasy at best, with north and south accusing each other of waging proxy wars in states along their ill-defined frontier.
The northern government, which relies heavily on revenues from southern oil piped through its territory, denied bombing the well that sits just 10 km (6 miles) from the border.
Officials in the south said the air strike on El Nar set a precedent by targeting energy infrastructure and described it as a dangerous escalation.
"They bombed this place because of the oil," said Miakol Lual, the traditional chief of El Nar, who said the planes came from the northeast and flew off in the same direction.
At another bomb site shown to reporters, Lino picked over a pile of grey bomb fragments, looking for markings that might suggest its origin, without success.
"Sudan did not bomb any territory in South Sudan," said Rabie Abdelaty, an information ministry official in Khartoum. "There's no reason for Sudan to attack oil equipment or wells. Sudan has interests in this oil because it normally flows through our pipeline. We didn't do this."
South Sudan's government said it would file a complaint to the United Nations Security Council accusing Sudanese warplanes of dropping at least three bombs on the El Nar field on Feb. 29.
North and south separated without agreeing how much the landlocked South, which inherited most of the pre-split Sudan's known oil reserves, should pay to use oil pipelines, processing facilities and a port in the north.
"It is a very dangerous game because Sudan's (only) oil field is not that far from where they dropped the bomb. If the South decides to retaliate then the two countries will lose," said Chom Juaj, vice president of Greater Nile Petroleum Operating Company, which operates the fields in South Sudan's Unity state.
He said the bombing was designed as a demonstration of the north's power and military reach.
The two armies skirmished on the border at the end of 2011. Analysts say neither side has the appetite or the money to return to full-scale war but, with no oil currently flowing, one disincentive for head-on conflict has gone.
South Sudan's government in Juba shut down its 350,000 barrel-per-day oil production in January after the north seized over $800 million of the south's oil and built a tie-in pipeline to divert it through refineries in Khartoum.
The two governments met in Ethiopia on Tuesday to try to break the deadlock over oil transit fees.
The South is offering less than $1 per barrel while Sudan wants $6 plus a renegotiation of pipeline and processing fees which would push costs to $36 per barrel.
Samson Wassara, a political science professor at Juba University, said all-out war was still unlikely and that the bombing may have been intended as a message just days before the negotiations resumed.
"Khartoum is sending a signal saying 'if you divert the oil and we do not benefit from anything then we can destroy that oil and create instability so that you don't enjoy the benefits of that oil,'" Wassara said.
The bombing also came two days before a groundbreaking ceremony for Lamu port in Kenya, which South Sudan hopes to use to export crude once it has built a new southern pipeline.
The new pipeline, which the south believes it can build in 11 months, would divert oil that previously flowed to the north and leave Sudan with a pipeline that has not yet paid for itself.
"It's most likely that the added mistrust and tension (caused by the bombing) will just strengthen Juba's resolve to build alternative export routes," said Dana Wilkins, researcher at campaign group Global Witness. (Additional reporting by Khaled Abdelaziz; Editing by Andrew Heavens and Robin Pomeroy)
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