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Page added on October 22, 2011

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Libya’s path to oil riches remains treacherous


Enormous oil wealth lies thousands of feet below Libya, but whether it will be claimed, and by whom, now that Moammar Gadhafi is gone is very much an open question.

Drilling and shipping equipment has been damaged in the Libyan civil war, land mines must be cleared around oil fields, and a legal framework for how oil money is collected and distributed must still be worked out.

Whatever government is formed could open vast regions of Libya for drilling at reasonable terms – or it could demand that foreign oil companies pay exorbitant royalties or require them to build infrastructure in exchange for access to oil.

Libya sits on the biggest reserves of oil in Africa. Those resources could help Libya recover from Gadhafi’s decades-long corruption and the civil war. Or the oil could be kept out of reach by political chaos, crumbling infrastructure or violence.

“It’s extraordinary how the Gadhafi regime squandered so much oil wealth and left it a deprived country in terms of infrastructure,” says Daniel Yergin, chairman of IHS CERA, an energy research firm, and author of a Pulitzer Prize-winning history of the oil industry. “The country will need oil revenues to rebuild and recover.”

The oil industry had already begun to recover in recent months, especially in parts of the country where fighting had long since stopped. Libya is producing about a quarter of the 1.6 million barrels per day of oil it pumped out before the war.

Gadhafi’s death reduces the threat of further fighting in other parts of the country, especially the west and south, where the country’s most important oil fields are. In the best outcome, the national oil company and international companies will soon be able to return to those fields, repair equipment and get oil flowing again.

Analysts say it will take about a year for the country to return to full oil production, but many uncertainties remain.

The country has the potential to someday produce much more oil than it has in recent years, but the oil industry could languish if Libya’s dozens of tribes can’t form a representative government and the country falls into chaos.

The first and most important step is to establish security, experts say. International oil companies with a presence there won’t bring in engineers to assess damage to oil fields and pipelines until they are reasonably sure their workers will be safe.

Gadhafi loyalists are thought to have planted land mines around critical oil infrastructure. Thousands of shoulder-fired missile systems have disappeared from Libyan weapons depots and could be in the hands of Gadhafi loyalists or insurgents.

“If you want to cripple the state, you attack its biggest source of revenue,” says Helima Croft, an analyst for Barclays.

Next, the country must set up a system for oil companies to negotiate contracts for finding, retrieving and selling oil. At least in the interim, it appears that a government oil minister will set policy, such as how much oil companies must pay to extract Libyan oil, and the head of the national oil company will oversee operations.

But the details will probably remain in flux until an interim government can be established. Until then, oil companies can’t be sure that their existing contracts in Libya will remain in effect, although the head of the national oil company has said contracts will be honored at least for a while. It would be up to an elected government to determine whether the contracts would be revised.

What’s most important, analysts say, is that oil companies feel assured that whatever terms are set will not change in the future. Otherwise, they will never agree to spend tens of billions of dollars to repair fields and infrastructure and restore production. Some of the nation’s oil fields, pipelines, refineries and shipping terminals are in relatively good repair, but others are badly damaged.

In general, though, analysts say infrastructure in Libya is in better shape than once feared.

“What we haven’t seen is oil fields blazing,” says Jon Marks, an Africa and Middle East expert with London-based consulting firm Cross-border Information.

Major international oil companies that operated in the country before the civil war, such as Italy’s Eni and Spain’s Repsol, are beginning to assess the situation and restore production in the oil fields offshore and in Libya’s east, long held by anti-Gadhafi forces.

But international oil companies have yet to assess oil fields in the south and west, which produce most of the nation’s oil. U.S. companies that were active in Libya before the war, including Hess Corp. and Marathon Oil Corp. have not returned workers to the country.

Nuri Berruien, the head of the national oil company, told The Associated Press earlier this month that most of the damage appears to be from corrosion. Some older oil fields, such as those of the Sirte basin, require water or natural gas injection to maintain pressure in the reservoir, and that has not been done for more than six months.

Two important oil terminals, which are needed to export oil, are said to be severely damaged, but another is said to have suffered little damage. Also, looters have made off with essential oil field equipment such as power generators, pumps and trucks.

And there are other issues. Many of the country’s most experienced and senior oil engineers are seen by workers as Gadhafi loyalists. At one field, workers are refusing to work until these top engineers are removed.


5 Comments on "Libya’s path to oil riches remains treacherous"

  1. DC on Sat, 22nd Oct 2011 7:56 pm 

    The AP is quoting Yergin, nothing to see here, just more BS, wishful thinking, and self-serving propaganda.

  2. James on Sun, 23rd Oct 2011 12:26 am 

    Or the Al Queda affiliated rebels could refuse to sell their oil to the U.S. and Europe. We helped the enemy in one part of the World while destroying them in another part. Makes sense doesn’t it?

  3. Btritt on Sun, 23rd Oct 2011 1:30 am 

    Enter China. China does not make demands from the governments, they make deals. China builds infrastructure and takes their pay in oil. China will go there without the need to make a profit, just to get the oil. After all, they have to spend those shrinking Walmart dollars some where before they are worthless.

  4. Harquebus on Wed, 26th Oct 2011 12:22 am 

    Pump it out faster. No talk of trying to make it last.

  5. Fatima on Sun, 30th Oct 2011 11:18 pm 

    Remember we have reached peak oil, peak water, peak climate, peak consumerism, peak everything etc. Libya has huge amounts of water beneath the soid to be exploited as well as aquifers in USA become low.

    Peak oil does not mean there is not enough oil but that it is harder to get to the oil and it will be more expensive to deliver as the costs of war and production increases and as the West is totally broke.

    War and stealing resources is of course the greatest misallocation of the remaining resource as humanity must use the remaining resourced localize food production, water resources, create healthy soil, redustribute land for the unemployed to produce their own food (we need a global landreform). Globalism must become localism.

    It is clear that this war is a propaganda war. The humanitarian blabla is misplaced as illigal NATO air-strikes killed the vast majority of the innocent.

    In any case, the West and China is desperate for cheap oil while the climate changes and even rainy season in the Middle East during winter is dried up. Not to long and climate change will bite all of us in the ass, plus oil shortages. The corrupt stock market speculation which has no back up in real life commodities can’t be taken serious as you can’t eat the stock market bubbles. they are a gruesome way to steal the populus of the world of their little accomplishments (home).

    We are heading towards the collaps of human industrial civilization and it is best to barter, make friends, help each other out and don’t support wars, and the establishment.

    Please read the books by Derrick Jenson called “Endgame,” by James Howard Kunster, “The Long Emergency,” Richard Heinberg, “The End of Growth: Adapting to our New Economic Reality (June 2011),” Michael Ruppert, “Confronting Collapse: The Crisis of Energy and Money in a Post Peak Oil World,” and
    “Reinventing Collapse: The Soviet Experience and American Prospects” by Dmitry Orlov, “Sacred Economics: Money, Gift, and Society in the Age of Transition by Charles Eisenstein (Jul 12, 2011).

    From now – everything which governments will do will be geared towards the fight for resources.
    Humanitarian questions are not part of this equation.

    Please remember that “unlimited economic growth is not possible on a finite planet.” With this in mind we need to build socio-economic independent
    places to support humans, species, and the environment while we can. This is an emergency call. Prepare prepare prepare for the collapse by networking bartering and creating alternative currencies.

    We have reached the endtime of economic growth. Only the speculators bubble will grow from speculating about the downfall of human civilization.

    What happened in Libya had nothing to do with any wrong doing of Gaddafi but everything with the securing of resources.

    Don’t forget: there will be water wars coming:

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