South Sudan and Kenya have signed an agreement to build a oil pipeline to a Kenyan port, a move that could end the south's reliance on facilities of northern neighbor Sudan.
A memorandum of understanding was signed in Jube, the southern capital, late Tuesday in the presence of South Sudan President Salva Kiir and Kenyan Prime Minister Raila Odinga.
It calls for a pipeline to stretch from South Sudanese oil fields to the Kenyan port of Lamu. Southern officials say construction will start as soon as possible, although no target date for completion was announced.
South Sudan is locked in a dispute with Sudan over fees to use the north's pipelines. Khartoum is demanding a fee of $32 per barrel and began confiscating large quantities of southern crude last month in lieu of payment.
The south accuses Khartoum of stealing the oil and began shutting down production this week in response.
The U.S. special envoy to Sudan, Princeton Lyman, expressed concern about the standoff Tuesday, saying "This is a very bad situation and both sides could get hurt very, very badly."
Lyman said the U.S. wants negotiations to end the dispute to succeed before too much damage is done to the Sudanese oil sector.
South Sudan gained control of about 75 percent of Sudan's oil production when it split from the north in July. Negotiations to compensate Khartoum for the loss of revenue have so far failed to produce an agreement.
The newly-independent south currently lacks the pipelines or a port of its own to transport its oil to market.
South Sudan President Kiir and Sudanese President Omar al-Bashir are scheduled to discuss the dispute on the sidelines of the African Union summit later this week.