Libya: Oil production on the up

Austria's OMV has reported a rapid recovery of its Libyan oil production following the end of the revolution. It reached 25,000 b/d in the first quarter of 2012 and the pre-war rate of 34,000 b/d in the second quarter.

National Oil Company (NOC), its Agoco subsidiary and Wintershall are working together on a €31.4 million project to construct a 100,000 b/d capacity 55km crude oil pipeline which will help boost oil exports The installation is scheduled to be completed in August and the project as a whole will be handed over to Agoco in March 2013.

Repairing the Libyan economy is proving more difficult than forecast. Although the damage to the oil infrastructure is not particularly severe, it is geographically widespread and the reconstruction activity has been fragmented. According to industry sources the final return to the 1.6 million b/d pre-war levels of oil output could take until the end of 2012. Meanwhile, the political situation has been subject to slow improvement but security problems still remain. Outside the oil sector there is talk of large scale investments that could be made in the short term which would provide an enormous boost but only if the IOCs are convinced, unlike Shell, of the long-term profitability of their Libyan oil operations.

This week, in an example of the way the weak international market is impacting on the Libyan oil industry, an NOC spokesman announced that the August official selling price of its bench mark Es Sider crude is at the lowest level in almost three years. It was cut by US$1.60 a barrel to a discount of US$1.30 to North Sea Dated Brent.

For more news and expert analysis about Libya, please see Libya Focus and Libya Politics & Security.

© 2012 Menas Associates

Libya: Trade and investment news

Chinese crude imports from Libya fell in 2011 as a result of the virtual civil war but now Sinopec's trading subsidiary, Unipec, has signed deals with National Oil Company (NOC) to import approximately 100,000 b/d of crude oil from Libya. Meanwhile PetroChina's trading department, Chinaoil, will lift a further 40,000 b/d. Taken together China's acquisition of Libyan oil will cover the cuts that are being made to liftings of Iranian crude.

Meanwhile BP has reported that it is continuing to evaluate its position in Libya but has made it clear that the security of all staff would be an essential pre-requisite before a return to Libya could be seriously considered.

There is news that Libya will amend its banking laws to attract and protect foreign investment as well as encourage expansion in the Libyan private sector. Reuters has reported that the Libyan leadership is seeking to create a new legal framework and infrastructure. In essence, the 2005 Banking Law, which opened the country for foreign banks, will be at the centre of changes.

The Maltese government has expressed its willingness to back up the operations of the Bank of Valetta which first opened up a representative office in Libya in 2002.

Egyptian workers are trying to retrieve their special role as a supply of cheap labour for the agriculture and construction industries but the Libyans have been slow to assist. A reported 8,000 Egyptian passports are awaiting entry visas. The situation for migrants from West Africa is very different with little hope of a return to Libya and a deep aversion to taking up the immigrant trail to a country like that has treated them so badly since the war.

The recent visit by French Defence Minister,Gerard Longuet, gave opportunity for discussions at the highest level on improving cooperation in defence between the two countries. France is especially aware that continuing instability in North Africa is providing opportunities for al-Qa'ida and its regional affiliates.

For more news and expert analysis about Libya, please see Libya Focus and Libya Politics & Security.

© 2012 Menas Associates

Libya: NOC after Shukri Ghanem's departure

The apparent defection of the head of the National Oil Company (NOC) chief, Dr Shukri Ghanem, from Colonel Colonel Mu'ammar Qadhafi's camp to the opposition was announced in mid-May. Reuters reported on 16th May that Arab TV stations, including Al-Arabiya, were announcing his departure from Libya.

There was at that time no official confirmation of this other than a news item put out by the Interim Transitional National Council (ITNC) in Benghazi declaring this change of allegiance. He escaped through Tunisia before flying out of Jerba to a European destination.

Ghanem has always acted as his own man, beginning with a post in the Ministry of Economy in the 1960s and culminating with his appointment in 2004 as head of the General Peoples Committee (GPC) or prime minister. He has also always had his own views of the path forward for the Libyan economy to which he adhered.

This was despite their general unpopularity because they included the gradual removal of the expensive consumer subsidies. At one time he had the nickname “Shukri Tomato Paste” because of his plans to remove the subsidy on such an important and basic foodstuff.

He was one of Colonel Qadhafi's few Libyan advisers who was professionally qualified, highly experienced in oil affairs through many years at OPEC headquarters in Austria, and had the intellectual strength to manage an oil-based economy with some élan.

Ghanem's became Colonel Qadhafi's prime source of influence on the awarding of oil exploration and production agreements by installing his own competent and preferred personnel in key posts in the NOC system.

It is believed by oil industry sources that his loss will mean substantial co-option of new cadres and an internal struggle among NOC's ambitious men to try to recapture Ghanem's former role. If the Libyan clients-patron system persists in whatever new government structure is formed after the civil war, an altogether different clutch of individuals will be in power and a scramble for influence will begin.

For more news and expert analysis about Libya, please see Libya Focus and Libya Politics & Security.

© 2011 Menas Associates

The outlook for companies in Libya is bleak

The outlook for companies in Libya is bleak, and the prospect for foreign suppliers remains extremely unsettled. Small companies in particular will require some time to repair their positions in the country unless Libya is willing to undergo a period of financial retrenchment and to concentrate on the key oil industry.

This latter approach would give an advantage to foreign suppliers and contractors because the upstream and downstream oil industries are the most capital intensive and have the heaviest requirement for foreign-sourced factors of production. This would, however, also mean ignoring the case for the expansion of education, social welfare, housing and health, together with cleaning up after the war.

The post-war situation is likely to be bitter, and could be troubled by revenge attacks within civil society. The outcome of the current situation, which is a virtual civil war, remains very difficult to predict but there will inevitably be causes for confrontation remaining between the eventual winners and losers. There could also be transfers of ownership of assets from or, less likely, into, the Qadhafi family and also, given the highly polarised distribution of assets in favour of the few rich families, some readjustments so that some assets of those who have benefited from the Qadhafi era are distributed to the poor.

At the end of the war, rejuvenation will be a grey area in so far as there exists few credible development strategies other than those prepared by planners and intellectuals such as National Oil Company (NOC) head Dr Shukri Ghanem but which, because of the impact of the war, are already out of date.

If Libya does not opt for a concentrated drive to restore the underlying oil economy, a new regime might be persuaded to seek popularity through a programme of essentially social improvements and distribution of some of the oil revenues to the people. Having been through a war, self confidence could run high so that the Libyans themselves, also impelled by a need for economies, will want to participate in the re-development process to the exclusion of foreigners, as Iranians did after the Islamic revolution.

For more news and expert analysis about Libya, please see Libya Focus and Libya Politics & Security.

© 2011 Menas Associates

Libya: Security of foreign personnel and assets

The probability of a deteriorating security situation in Libya, worst of all the continuation of the confusion in government control and the conflict on the streets, could mean a breakdown in law and order at all levels of the economy.

The security of foreign personnel and assets would feature as a low priority for the security services in a situation of anarchy. Most foreign companies would withdraw all their personnel or leave a caretaker group in charge of plant and equipment.

The preservation of physical assets would be difficult under this scenario and it must be expected that serious depredations would occur.

Colonel Mu'ammar Qadhafi survival, in these circumstances, would be at the cost of systematic damage to development projects and materials imported by foreign companies that wish to finish their contracts.

In the slightly more likely event of Colonel Qadhafi or his family eventually losing control, much would depend on the rapidity with which the new authorities could impose law and order. An army coup d'etat would have the advantage of keeping in place senior officers with experience of peace enforcement whereas an inexperienced group of new ministers and security staff would find it difficult to impose peace and quiet after such an explosion of violence.

The oil sector will be particularly at risk of clashes of opinion and policies. It is an area of activity to which foreign investment is critical for growth. Libya has no history of illegal seizure of assets in the oil industry but oil and gas production could possibly be hit, because in most scenarios some degree of radical thinking could affect the new ruling groups.

Nationalisation is not on the agenda of any of the groups bidding for power. The economic development programme could suffer from random withdrawal of funds. The experienced members of National Oil Company (NOC) will be unlikely to survive a change of government – possibly leaving the whole strategy and management of the oil business in disarray.

For more news and expert analysis about Libya, please see Libya Focus and Libya Politics & Security.

© 2011 Menas Associates