Portfolio: Factors Complicating Libyan Oil Production
Video Transcript:
Director of Analysis Reva Bhalla examines the challenges ahead for the Libyan oil sector.
Editor’s Note: Transcripts are generated using speech-recognition technology. Therefore, STRATFOR cannot guarantee their complete accuracy.
Ever since the Libyan rebels stepped foot into Tripoli, investors and energy traders all over have been trying to come up with estimates on when Libyan energy production can come back online. Those estimates range from a few days to several months up to a year. The eagerness to see Libyan oil come back online is understandable. Before the conflict started, Libya was producing roughly 1.6 million barrels per day of light, sweet crude, which is highly prized in the market. During the conflict, much of Libya's energy production, if not all, has been taken off-line. The problem is that it's nearly impossible to come up with a reliable estimate on when Libya can actually make a return to the energy markets. A number of traders are basing their estimates on technical criteria, when in fact the primary factors determining the future of Libyan oil production are related to the security and political climate of the country primarily.
The biggest criteria anyone will want to look at in the immediate term are the damage assessments on the fields, pipelines and ports. Any quick recovery will require well-managed fields and, before the conflict, it looked like those fields were in pretty good shape as they were handled by Libya's national oil company and their foreign affiliates, but it's not clear how well those shutdowns were handled when the conflict began.
It's also going to be important to assess the internal stability and capacity of Libya's state oil company, as these are the primary workers that are going to be relied on to bring Libyan oil production online first. We've seen that remaining Libyan oil workers have encountered a great deal of difficulty in trying to repair damaged facilities thus far. They are going to require a lot of foreign help, but a large number of foreign workers are not going to be able to come back into the country until the security climate improves and that remains a great uncertainty.
The problem is that no company really has solid information to come up with these damage assessments in the first place. The security situation is extremely dynamic, so a damage assessment one day can change within a matter of hours days or weeks. The good news is that there have not been reports of serious damage inflicted on Libyan energy facilities, although when eastern Libya fell into rebel hands, Gadhafi's forces did mount sabotage operations against fields in the East.
Foreign companies haven't really been able to venture into the East since that conflict began, but it's estimated that production in the Far East and Marsa al Hariga region would be among the first to resume production. Since the oil fields in western Libya never really fell into rebel hands, there wouldn't be much damage the infrastructure there, aside from damage to the pipeline that runs through the Nafusa Mountains and through Zawiya, which was the site of the rebel offensive before the advance into Tripoli.
Given that NATO forces are unwilling to increase their military burden by committing conventional ground forces to this fight, they're having to rely a great deal on intelligence assets on the ground, special operations forces and an elaborate disinformation campaign to try and create the perception that Gadhafi's forces are on the verge of capitulating. The events of the past days have revealed, however, that this war is far from over.
There's a great deal of rivalry within the rebel camp and a lot of people are trying now to stake their claim in this conflict. Particularly, you have rebels in the western region who led the offensive into Tripoli, and therefore feel entitled to the spoils of this war, while you have at political establishment based in the eastern stronghold of Benghazi trying to lay their claim to this conflict and arguing that the offensive would not even have been waged had they not laid the political grounds for this fight. These are the kinds of splits we expect to emerge amongst the different ideologies, factions, tribes and religious groups within this very fractious rebel movement.
The point is that a single faction or coalition does not control the country and, until you have a single coalition or faction that controls the country, you cannot have the government. And until you have a government, you cannot have a foreign policy. Until you have a foreign policy, you cannot have an energy policy. Until you have an energy policy, you cannot have a contractual model for foreign energy firms to work with. I would look at players like Italian energy from ENI, which is the most heavily vested in this country, has been up Libya since '59 and has the most energy investment in the country. They have a lot at stake and are very familiar with the security climate there and are most likely to be the first to put their people on the ground to come up with these assessments.
Likewise, I would also look at Russia, which has intelligence links that go way back with the Gadhafi regime and likely have a better read on the situation than most. It is also important to note that Russia has a very close relationship with Italian energy firm ENI. Most importantly, one needs to bear in mind that a massive disinformation campaign is in play and that rebel claims of success need to be met with a high degree of suspicion. So long as the possibility of protracted conflict in Libya remains high, and we believe this is the case, the resumption of oil production in Libya will remain a significant unknown.
