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Page added on August 24, 2011

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Don’t count on burning Libyan oil just yet

Don’t count on burning Libyan oil just yet thumbnail

With the sudden collapse of the Gadhafi regime in Tripoli, the oil industry is hoping it can repair enough of Libya’s damaged export terminals, pumping stations and pipelines to get as much as one million barrels a day of oil flowing into the market within the next six to 12 months.

But as I have argued before in this blog, regime change in the Middle East has seldom been bullish for energy exports.

If you want a recent example from the Arab Spring, just ask the Israelis or the Jordanians about their supply of natural gas. Israel and Jordan used to get 40 per cent and 80 per cent, respectively, of their natural gas from Egypt via a pipeline that goes from el-Arish, Egypt, to Ashkelon, Israel, and then eventually to Jordan. That is until Egyptian strongman Hosni Mubarak was overthrown. It didn’t take long before the pipeline and pumping stations were repeatedly blown up, which would have been unthinkable during the Mubarak regime.

Needless to say, the pipeline, which opened in 2008 following a 20-year agreement that Egypt signed in 2005 to supply Israel with natural gas, was not exactly a vote-getter on the Arab streets. Rumours abounded about secret payoffs to the Mubarak family.

In Mubarak’s Egypt, however, it didn’t matter whether the vast majority of Egyptians were opposed to selling natural gas to Israel any more than it would have mattered what the vast majority of Egyptians might have thought about anything else.

But the supply disruption may have some unintended consequences. For one, it is spurring Israel, which has always lacked its own hydrocarbon resources, to develop its giant Leviathan natural gas field, as well as other recently discovered gas fields in the Mediterranean, as quickly as possible. So the bigger winner here is Israel’s energy industry.

The impact on Jordan, an Arab neighbour and historic ally, may be even more problematic for Egypt. The loss of Egyptian natural gas supply may drive Jordan into the arms of a patiently waiting Iran, which has opportunistically offered to replace Egypt as the country’s natural gas supplier. As is the case elsewhere in the world, energy links usually sprout political ones, so the big winner here, both commercially and politically, will be Iran.

Egyptians, of course, have every right to sell their natural gas to whomever they choose. But before counting on burning another million barrels a day or so from Libya, Western oil consumers might want to consider what has happened to the flow of natural gas in post-Mubarak Egypt. Giving the people a say in the management of their country’s hydrocarbons doesn’t mean they will necessarily choose to export more of that fuel to you.

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2 Comments on "Don’t count on burning Libyan oil just yet"

  1. DC on Thu, 25th Aug 2011 1:22 am 

    Considering it was the US and its CIA asset the ‘TNC’ that trashed Libyas infastructure in the first place, normal production is the last thing anyone should expect-duh. Of course all the ‘missing’ production from Iraq and now Libya sure is helping keep world oil prices high, even in the midst of a more or less permanent recession.

  2. Harquebus on Thu, 25th Aug 2011 6:21 am 

    The U.S. will get it later. Stopping the Europeans is the immediate concern.

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