The Scramble for Access to Libya’s Oil Wealth Begins
By CLIFFORD KRAUSS Published: August 22, 2011 (New York Times)
HOUSTON — The fighting is not yet over in Tripoli, but the scramble to secure access to Libya’s oil wealth has already begun.
Western nations — especially the NATO countries that provided crucial air support to the rebels — want to make sure their companies are in prime position to pump the Libyan crude.
Foreign Minister Franco Frattini of Italy said on state television on Monday that the Italian oil company Eni “will have a No. 1 role in the future” in the North African country. Mr. Frattini even reported that Eni technicians were already on their way to eastern Libya to restart production. (Eni quickly denied that it had sent any personnel to the still-unsettled region, which is Italy’s largest source of imported oil.)
Libyan production has been largely shut down during the long conflict between rebel forces and troops loyal to Libya’s leader, Col. Muammar el-Qaddafi.
Eni, with BP of Britain, Total of France, Repsol YPF of Spain and OMV of Austria, were all big producers in Libya before the fighting broke out, and they stand to gain the most once the conflict ends. American companies like Hess, ConocoPhillips and Marathon also made deals with the Qaddafi regime, although the United States relies on Libya for less than 1 percent of its imports.
But it is unclear whether a rebel government would honor the contracts struck by the Qaddafi regime or what approach it would take in negotiating new production-sharing agreements with companies willing to invest in established oil fields and explore for new ones.
Even before taking power, the rebels suggested that they would remember their friends and foes and negotiate deals accordingly.
“We don’t have a problem with Western countries like Italians, French and U.K. companies,” Abdeljalil Mayouf, a spokesman for the Libyan rebel oil company Agoco, was quoted by Reuters as saying. “But we may have some political issues with Russia, China and Brazil.”
Russia, China and Brazil did not back strong sanctions on the Qaddafi regime, and they generally supported a negotiated end to the uprising. All three countries have large oil companies that are seeking deals in Africa.
The European benchmark price for oil fell moderately on Monday on speculation that Libyan oil production would quickly begin rising again. Brent crude oil prices initially dropped more than 3 percent, but ended New York trading basically flat at $108.42. The American benchmark crude, which is less sensitive to events in the Middle East, rose $2.01, to $84.42.
Colonel Qaddafi proved to be a problematic partner for international oil companies, frequently raising fees and taxes and making other demands. A new government with close ties to NATO may be an easier partner for Western nations to deal with. Some experts say that given a free hand, oil companies could find considerably more oil in Libya than they were able to locate under the restrictions placed by the Qaddafi government.
Oil analysts said it was likely that oil companies, particularly Total and Eni, would compete fiercely for contracts on the best oil properties, with their respective governments lobbying on their behalf. But first the rebels will have to consolidate control over the country.
“If you don’t have a stable security environment, who will be able to put their workers back in the country?” said Helima Croft, senior geopolitical strategist at Barclays Capital.
The civil war forced major oil companies to withdraw their personnel, and production plummeted over the last several months to a minuscule 60,000 barrels a day, according to the International Energy Agency. That would account for roughly 20 percent of the country’s normal domestic needs. The rebels were able to export a modest amount of crude that was stored at ports and sell it for cash on the international markets through Qatar.
Oil experts caution that it could take as much as a year for Libya to make repairs and get its oil fields back to full speed, although some exports may resume within a couple of months.
Since oil is far and away Libya’s most important economic resource, any new government would be obliged to make oil production a high priority. That would mean establishing security over major fields, pipelines, refineries and ports. The government would also need to quickly establish relationships with foreign oil companies, some of which consulted with both the rebels and Colonel Qadaffi through the conflict to hedge their bets.
Most oil companies involved in Libya declined to comment on Monday or said they would wait to see how the security situation evolved before sending their personnel into the country.
“Clearly we are monitoring the situation like everyone,” said Jon Pepper, a Hess vice president. “Obviously the situation has to stabilize there before people start thinking about resuming production.”
Italy in recent years has relied on Libya for more than 20 percent of its oil imports. France, Switzerland, Ireland and Austria all depended on Libya for more than 15 percent of their imports before the fighting began.
Libya’s importance to France was underscored on Monday when President Nicolas Sarkozy invited the head of the rebels’ national transitional council, Mustafa Abdel-Jalil, to Paris for consultations.
Even though the United States relies very little on Libya for imports, the reduction of high-quality crude on world markets has pushed up oil and gasoline prices for Americans as well.
Oil analysts say that most reports from the oil service companies, which continued to pay their Libyan crews through the war, indicate that there has been relatively little damage to most oil facilities. That suggests that production could begin to increase in a matter of weeks.
But the resumption of large-scale exports will depend on how quickly repairs can be made on the Ras Lanuf, Melitah and Es Sider oil export terminals, and how well a new government can secure fields and pipelines in areas that traditionally supported the old regime.
Rushed closings of wells when fighting spread in February, along with the lack of maintenance over the last several months, may mean that months of repairs will be needed, particularly in older, more depleted fields.
The experiences of other countries in the region offer reasons for caution. Political turmoil in Iran has reduced production for decades, oil analysts note, and it took eight years for Iraqi oil production to recover after the American-led invasion that toppled Saddam Hussein.
Eni’s chairman, Giuseppe Recchi, recently told analysts that it would probably take a year to return Libya to normal export levels. On Monday, he denied that his company would immediately send back personnel, but he told reporters that he expected the new Libyan government to respect his company’s previous contracts.
Elisabetta Povoledo contributed reporting from Rome. (New York Times)
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