libyan oil - before and after moammar gaddafi

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  • 8/3/2019 Libyan Oil - Before and After Moammar Gaddafi

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    M e d i t e r r a n e a n B a s i n R e p o r t

    C I V I L - M I L I T A R Y F U S I O N C E N T R E

    Elena StankovskaAssistant Knowledge [email protected]

    Linda LavenderTeam Leader, Mediterranean [email protected]

    hile National Transitional Council (NTC) forces, with the help of NATO, were successful intoppling

    the regime of Moammar Gaddafi, future Libyan oilproduction remains uncertain. Current production is

    at very low levels as a result of the tenuous security conditions created by the eight month conflict,

    which began in February 2011. Uncertainty surrounds theNTCs ability to create asecure environment,

    in which foreign oil companies are willing to return to the oil fields of Libya. This report provides a chronological

    overview with a discussion of the role and significance of Libyan oil both domestically and internationally. Thedocument then explores the economic implications of the Libyan conflict on oil markets. It examines the

    challenges to be met in resuming oil production in post-conflict Libya and the rising concerns over oil prices and

    future oil production.

    Pre-conflict Libya: The International andDomestic Importance of OilAccording to the United States Institute of

    Peace (USIP), although Libya ranks 17th as aworld oil supplier, it is Africas largest oil

    reserve, producing 1.8 million barrels per day

    (bbl/d). Libya contains nearly 46.4 billion

    barrels of oil, as of January 2011, and data

    from the Central Intelligence Agency (CIA)and United Nations (UN) states it also ranks

    fourth among African countries with largenatural gas reserves estimated at approximately

    55 trillion cubic feet (tcf). The majority of

    existing oil fields are located in three majorbasins; Sirte, Murzuk and Pelagian. Foreign

    Affairs explains that the Sirte basin is known to

    be the oldest and largest, producing

    approximately two-thirds of the countrys oil.

    W

    This document examines the effects of the recent conflict in Libyaon oil production. Related information is available atwww.cimicweb.org.Hyperlinks to source material are highlightedin blue and underlined in the text. A list of references for thisreport is available at theCimicWeb.

    Libyan OilBefore and After Moammar Gadda

    November 2011 Comprehensive Information on Complex Crises

    Figure 1: Major Oil Refineries in LibyaSource:DrillingInfo International, EIA, Royal Holloway, PFC Energy

    mailto:[email protected]:[email protected]:[email protected]:[email protected]://in.mobile.reuters.com/article/worldNews/idINIndia-59526920110925?irpc=984http://in.mobile.reuters.com/article/worldNews/idINIndia-59526920110925?irpc=984http://in.mobile.reuters.com/article/worldNews/idINIndia-59526920110925?irpc=984http://gulfnews.com/news/region/libya/oil-prices-fall-as-gaddafi-regime-nears-end-1.854735http://gulfnews.com/news/region/libya/oil-prices-fall-as-gaddafi-regime-nears-end-1.854735http://gulfnews.com/news/region/libya/oil-prices-fall-as-gaddafi-regime-nears-end-1.854735http://www.businesslive.co.za/africa/2011/10/27/libyan-oil-flows-may-stall-on-fear-and-wranglinghttp://www.businesslive.co.za/africa/2011/10/27/libyan-oil-flows-may-stall-on-fear-and-wranglinghttp://www.businesslive.co.za/africa/2011/10/27/libyan-oil-flows-may-stall-on-fear-and-wranglinghttp://www.usip.org/publications/oil-and-turmoil-in-libyahttp://www.usip.org/publications/oil-and-turmoil-in-libyahttp://www.usip.org/publications/oil-and-turmoil-in-libyahttp://money.cnn.com/2011/08/22/markets/libya-oil-production/http://money.cnn.com/2011/08/22/markets/libya-oil-production/http://money.cnn.com/2011/08/22/markets/libya-oil-production/http://www.eia.gov/cabs/libya/Full.htmlhttp://www.eia.gov/cabs/libya/Full.htmlhttps://www.cia.gov/library/publications/the-world-factbook/rankorder/2179rank.htmlhttps://www.cia.gov/library/publications/the-world-factbook/rankorder/2179rank.htmlhttps://www.cia.gov/library/publications/the-world-factbook/rankorder/2179rank.htmlhttp://www.un.org/ecosocdev/geninfo/afrec/newrels/203-oil.htmlhttp://www.un.org/ecosocdev/geninfo/afrec/newrels/203-oil.htmlhttp://www.un.org/ecosocdev/geninfo/afrec/newrels/203-oil.htmlhttp://www.foreignaffairs.com/articles/68245/edward-l-morse-and-eric-g-lee/the-libyan-oil-taphttp://www.foreignaffairs.com/articles/68245/edward-l-morse-and-eric-g-lee/the-libyan-oil-taphttp://www.cimicweb.org/https://www.cimicweb.org/cmo/medbasin/Holder/Pages/Reviewarchives.aspxhttps://www.cimicweb.org/cmo/medbasin/Holder/Pages/Reviewarchives.aspxhttps://www.cimicweb.org/cmo/medbasin/Holder/Pages/Reviewarchives.aspxhttp://www.bbc.co.uk/news/world-africa-12572593http://www.bbc.co.uk/news/world-africa-12572593http://www.bbc.co.uk/news/world-africa-12572593http://www.bbc.co.uk/news/world-africa-12572593https://www.cimicweb.org/cmo/medbasin/Holder/Pages/Reviewarchives.aspxhttp://www.cimicweb.org/http://www.foreignaffairs.com/articles/68245/edward-l-morse-and-eric-g-lee/the-libyan-oil-taphttp://www.un.org/ecosocdev/geninfo/afrec/newrels/203-oil.htmlhttps://www.cia.gov/library/publications/the-world-factbook/rankorder/2179rank.htmlhttp://www.eia.gov/cabs/libya/Full.htmlhttp://www.eia.gov/cabs/libya/Full.htmlhttp://money.cnn.com/2011/08/22/markets/libya-oil-production/http://money.cnn.com/2011/08/22/markets/libya-oil-production/http://www.usip.org/publications/oil-and-turmoil-in-libyahttp://www.businesslive.co.za/africa/2011/10/27/libyan-oil-flows-may-stall-on-fear-and-wranglinghttp://gulfnews.com/news/region/libya/oil-prices-fall-as-gaddafi-regime-nears-end-1.854735http://in.mobile.reuters.com/article/worldNews/idINIndia-59526920110925?irpc=984mailto:[email protected]:[email protected]
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    November 2011 Page 2

    T h e m a t i c R e p o r t : L i b y a n O i lB e f o r e a n d A f t e r G a d d a f i

    The United States Energy Information Administration (EIA), reports that prior to February 2011, there were five

    refineries in Libya with a total capacity of 378,000 bbl/d.

    Libyan Oil ProductionDomestic Refineries Refining Capacity (barrels/day)Ras Lanuf 220,000 bbl/d

    Az Zawiyah 120,000 bbl/d

    Tobruk 20,000 bbl/d

    Sarir 10,000 bbl/d

    Brega 8,000 bbl/d

    According to the EIA, Libyas energy consumption needs are met primarily through its oil sector. Approximately

    72% of the countrys energy demand is met with oil, and the remaining 28% is provided by natural gas. The EIA

    indicates that in 2009 electricity demand was on the rise, which required the pre-conflict Gaddafi regime to investmore into expanding the natural gas sector, which as of 2010 supported 40% of generated electricity. In 2010 oil

    consumption was estimated to be 270,000 bbl/d and natural gas for 2009 was 212 billion cubic feet (bcf).

    Although Libya supplies less than 2% of the worlds oil, according to the Petroleum Economist, its high quality

    makes itvaluableon the global market. The majority of Libyan oil fieldssupply sweet, light oilthat is waxy and

    thick.1Sweet crude has very low sulphur contentunder 0.6% as opposed to sour crude, which is above 0.6%

    and is rich in sulphur. The smaller the amount of sulphur, the easier and cheaper it is to refine the oil.

    Additionally, when petroleum crude oil with low-sulphur content is refined, the resulting primary-end products2

    such as gasoline and diesel arecleaner-burning fuels. CNBC notes that cleaner-burning fuels are inhigh demand

    in Europeanmarkets because ofEuropean Unions (EU) strict environmental policies, which aim to curtail the

    level of sulphur in the environment when fuels are burned.

    Libyas oil is also light. TheCentre for Energy3

    explains that the light/heavy classification is determined by theAmerican Petroleum Institute (API) scale for gravity. Additionally, the Centre for Energy describes the different

    gravity categories for crude oil: light, medium or heavy. Heavy crude oil is difficult to move through pipelines and

    therefore requires preheating or diluting, both of which raise the cost of refinement. The API is measured indegrees, with light crude being anything higher than 31.1 gravity. A Financial Times article explains that it is

    more profitable to handle lighter crudes because they yield more diesel per barrel than heavier oil and thatEuropean and Asian refineries in particular are designed for processing lighter and sweeter oil.

    As a result of the high quality of Libyan oil, demand, particularly in some European states, was high prior to

    February 2011. According to theEconomist, Italy was the most dependent onLibyan importswith 376,000 barrels

    a day (b/d), followed by France with 205,000 b/d and Spain with 136,000 b/d. The EIA notes that the United

    States is not heavily dependent on Libyan oil, with imports for January 2011 at only 29, 000 b/d, which equates to

    less than1% of United States consumption4. TheNew York Times states that in comparison to Europe, the United

    States is less dependent on Libya because itsrefineries are more versatileand are capable of processing both sourand sweet crude oil. Additionally, the New York Times reports that the United States is capable of refining sour

    crudes because a large amount of its oil imports are from Latin America; where the crudes are high in sulphur.Prior to the Libyan conflict, continuesNew York Times, European nations were among Libyas primary customers.

    1 An exception is the Pelagian Shelf basin, locatedoff the coast of Tripoli, which has two oil fields producing sour crude2 More on the Petroleumrefining processand products3Canadian not-for-profit organization which provides energy information

    4 For further information visit: United StatesEnergy Information Administration

    Source: United States Energy Information Administration (EIA)

    http://www.eia.gov/cabs/libya/Full.htmlhttp://www.eia.gov/cabs/libya/Full.htmlhttp://www.eia.gov/cabs/libya/Full.htmlhttp://www.petroleum-economist.com/Article/2889282/EXCLUSIVE-Full-Libyan-oil-output-in-four-to-six-months.htmlhttp://www.petroleum-economist.com/Article/2889282/EXCLUSIVE-Full-Libyan-oil-output-in-four-to-six-months.htmlhttp://www.petroleum-economist.com/Article/2889282/EXCLUSIVE-Full-Libyan-oil-output-in-four-to-six-months.htmlhttp://www.eoearth.org/article/Energy_profile_of_Libyahttp://www.eoearth.org/article/Energy_profile_of_Libyahttp://www.eoearth.org/article/Energy_profile_of_Libyahttp://www.eoearth.org/article/Energy_profile_of_Libyahttp://ec.europa.eu/clima/policies/transport/fuel/index_en.htmhttp://ec.europa.eu/clima/policies/transport/fuel/index_en.htmhttp://ec.europa.eu/clima/policies/transport/fuel/index_en.htmhttp://www.cnbc.com/id/44288999http://www.cnbc.com/id/44288999http://www.cnbc.com/id/44288999http://www.centreforenergy.com/AboutEnergy/ONG/OilsandsHeavyOil/Overview.asphttp://www.centreforenergy.com/AboutEnergy/ONG/OilsandsHeavyOil/Overview.asphttp://www.centreforenergy.com/AboutEnergy/ONG/OilsandsHeavyOil/Overview.asphttp://www.centreforenergy.com/AboutEnergy/ONG/Oil/Overview.asp?page=1http://www.centreforenergy.com/AboutEnergy/ONG/Oil/Overview.asp?page=1http://www.centreforenergy.com/AboutEnergy/ONG/Oil/Overview.asp?page=1http://www.ft.com/cms/s/0/82a2af8e-3f76-11e0-a1ba-00144feabdc0.htmlhttp://www.ft.com/cms/s/0/82a2af8e-3f76-11e0-a1ba-00144feabdc0.htmlhttp://www.ft.com/cms/s/0/82a2af8e-3f76-11e0-a1ba-00144feabdc0.htmlhttp://www.economist.com/blogs/dailychart/2011/02/libyan_oilhttp://www.economist.com/blogs/dailychart/2011/02/libyan_oilhttp://www.economist.com/blogs/dailychart/2011/02/libyan_oilhttp://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mttimly1&f=ahttp://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mttimly1&f=ahttp://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mttimly1&f=ahttp://www.nytimes.com/2011/02/24/business/energy-environment/24oil.html?_r=1&pagewanted=allhttp://www.nytimes.com/2011/02/24/business/energy-environment/24oil.html?_r=1&pagewanted=allhttp://www.nytimes.com/2011/02/24/business/energy-environment/24oil.html?_r=1&pagewanted=allhttp://www.foreignaffairs.com/articles/68245/edward-l-morse-and-eric-g-lee/the-libyan-oil-taphttp://www.foreignaffairs.com/articles/68245/edward-l-morse-and-eric-g-lee/the-libyan-oil-taphttp://www.foreignaffairs.com/articles/68245/edward-l-morse-and-eric-g-lee/the-libyan-oil-taphttp://www.eoearth.org/article/Petroleum_refininghttp://www.eoearth.org/article/Petroleum_refininghttp://www.eoearth.org/article/Petroleum_refininghttp://205.254.135.24/http://205.254.135.24/http://205.254.135.24/http://www.eia.gov/cabs/libya/Full.htmlhttp://www.eia.gov/cabs/libya/Full.htmlhttp://www.eia.gov/cabs/libya/Full.htmlhttp://www.eia.gov/cabs/libya/Full.htmlhttp://205.254.135.24/http://www.eoearth.org/article/Petroleum_refininghttp://www.foreignaffairs.com/articles/68245/edward-l-morse-and-eric-g-lee/the-libyan-oil-taphttp://www.nytimes.com/2011/02/24/business/energy-environment/24oil.html?_r=1&pagewanted=allhttp://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mttimly1&f=ahttp://www.economist.com/blogs/dailychart/2011/02/libyan_oilhttp://www.ft.com/cms/s/0/82a2af8e-3f76-11e0-a1ba-00144feabdc0.htmlhttp://www.centreforenergy.com/AboutEnergy/ONG/Oil/Overview.asp?page=1http://www.centreforenergy.com/AboutEnergy/ONG/OilsandsHeavyOil/Overview.asphttp://www.cnbc.com/id/44288999http://ec.europa.eu/clima/policies/transport/fuel/index_en.htmhttp://www.eoearth.org/article/Energy_profile_of_Libyahttp://www.eoearth.org/article/Energy_profile_of_Libyahttp://www.petroleum-economist.com/Article/2889282/EXCLUSIVE-Full-Libyan-oil-output-in-four-to-six-months.htmlhttp://www.eia.gov/cabs/libya/Full.html
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    November 2011 Page 3

    T h e m a t i c R e p o r t : L i b y a n O i lB e f o r e a n d A f t e r G a d d a f i

    Effects from the ConflictDomesticOn 26 February, 2011 the United Nations Security Council adopted resolution 1970, that imposed an arms

    embargo and sanctions on key regime figures; freezing Libyan assets owned by Gaddafi, his relatives and

    associates. TheNew York Times reported that the EU and United States also responded to the conflict byimposing

    sanctions on the Libyan government as well as on companies and individuals that assisted the Gaddafi regime.

    Reuters noted that the retreat of international oil companies from the country, as a result of security concerns and

    sanctions, significantly curtailed the production of oil, impacting operations for both theGaddafi and opposition

    militaries.Similarly, the Guardian reports, oil became so scarce that its price in Libya increased approximately 50

    times from0.15 Libyan dinars per litre (0.04 gallons) to 7.5 (1.98 gallons) or more per litre.

    According to Reuters and CNN, the conflict affected trade and domestic services such as electricity and

    transportation in Libya. Libyan assets in variousEU member stateswere frozen and travel bans were imposed.

    Reuters reported thatas of 14 July 2011 there was no official oil embargo but theEU and UNs sanctions list of

    Libyan oil companies continued to expand. NATO successfully intercepted oil shipments thatwere intended to

    finance Gaddafis military operations. The ratification of United Nations Security Council Resolution 1973, inMarch 2011, authorized all necessary measures to further protect civilians and approved a no-fly zone in

    Libyan airspace. With the country essentially cut off from outside commerce, inflated oil prices and limited

    domestic services, criminal activity such as smuggling increased. France 24 reports that petrol availability in

    Algeria and Tunisiawas significantly affected from the increase in petrol smuggling that occurred at the border

    with Libya. Despite efforts by the Tunisian government to increase the number of its armed forces along borderssuch as Tataouine, Ben Gardane and Remada,Reuters reports that this did not stop smuggling activities. Both

    anti-Gaddafi forces and loyalists relied heavily on these same smuggling activities to continue hostilities against

    each other.

    International sanctions caused prices of black-market gasoline to spike and shortages of domestic services tooccur, especially in the transportation sector.Reuters remarked that during Ramadan in August 2011, gas stations

    had kilometers-long queues for petrol. CNN explained how the international blockade on Libyan seaports

    significantly impacted Tripoli particularly when theCartagena fuel tanker,which was intended to dock in Tripoliloaded with gasoline, was seized by opposition forces, and the loyalist-held city remained without gasoline. The

    situation worsened, as described by the Associated Press, when the anti-Gaddafi forces advanced in late August2011 to the Libyan capital and cut off pro-Gaddafi forces from the only functioning oil refinery in Zawiya.Al

    Jazeera reports that in August 2011, opposition forces entered Tripoli and established control over the Libyancapital forcing Gaddafis regime to fall and his family

    members to flee to neighbouringAfrican countries.

    International Effects:As Libyan oil became scarce on global oil markets,

    other oil suppliers stepped in to fill demand. A

    Financial Times article identifies oil alternatives

    available on the market from certain Organization ofPetroleum Exporting Countries (OPEC) member states.Alternatives came from Algerias Saharan Blend,

    Nigerias Qua Iboe and Saudi Arabias Arab Light

    (Figure 2.). However, these blends are of a lesser

    quality, as the Financial Times article further explains.

    OPEC member states such as Saudi Arabia increased

    production from 9.1 million b/d in February 2011 to 9.8

    million b/d in June 2011 in an attempt to regulate the

    international oil market price.

    Additionally, the majority of oil produced by OPEC

    Figure 2: (clockwise) Oil characteristics of alternatives; Libyan

    Oil Production; Brent Oil Prices;Source:Bloomberg, BP, IEA, Energy Intelligence Group

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  • 8/3/2019 Libyan Oil - Before and After Moammar Gaddafi

    4/7

    November 2011 Page 4

    T h e m a t i c R e p o r t : L i b y a n O i lB e f o r e a n d A f t e r G a d d a f i

    members is light sour oil as opposed to the Libyan sweet crude. Two of Libyas most exemplary crudes are Es

    Sider and El Sharara both of which are light and sweet. Economist Carl Weinber, explains that Arab Light andLibyan crudes arenot interchangeable. Additionally, each refining facility is specifically designed to process only

    oils with certain qualities. As a result, ashort-term adjustmentis impossible, says Weinber, who asserts long term

    adjustments could be achieved, though they would involve expensive retooling, which would take considerable

    time. CNN Money reports that the unanticipated cut in Libyan oil exports caused a number ofdeveloped nationsto rely on their strategic stockpiles as oil prices spiked during the peak of the Libyan conflict. According to the

    New York Times, even though the United States has limited reliance on Libyan oil in terms of meeting domestic

    supply and demand, thereductionof high-quality crude on global markets increased oil and gasoline prices for

    Americans as well.

    A simple way to measure price impacts before and after the Libyan conflict would be to compare two of the most

    renowned oil benchmarks. Canadian newspaper Globe and Mail discusses howcrude oil benchmarkswere firstintroduced in the 1980s to establish standard yardsticks for the worlds most actively traded product. The Brent

    Blend benchmark is used to price approximately two-thirds of internationally traded crude. The article explains

    Brent crude is light and sweet. Brent crude oil prices are the European benchmark prices, and Libyan oil is

    typically priced against this benchmark. The United States, on the other hand, uses the West Texas Intermediate

    (WTI) benchmark which is also light, sweet crude. According to Globe and Mail, the WTI is the underlyingcommodity of the New York Mercantile Exchange oil futures contracts.

    The differences and fluctuations of these two benchmarks are

    reflected by European and United States oil price market behaviour

    during the winter of 2010. Foreign Affairs reports thatin the winter

    of 2010, the Brent (European measurement) average surged from

    nearly USD 95 per barrel to USD 114.48,Bloomberg reports, inthe beginning of the Libyan conflict in February 2011 (Figure 3).

    Prices topped USD 120 per barrel in April 2011.

    According to the United States EIA and GA Search Energy

    Intelligence5, the WTI price in December 2010 was USD 86,

    followed by a slight increase to USD 89 in January 2011 andfinally a surge up toUSD 106 in April2011. Shortly after, prices

    returned to pre-February 2011 rates. The Wall Street Journal(WSJ)attributed the price surge for both Europe and the United States in

    April 2011, to the uncertainty and violence in Libya. The WSJ

    states, there were concerns that the unrest could spread to the

    Middle East and affect global oil production. Additionally, the WSJ

    partially attributed the erratic behaviour of the oil markets to the global economic crisis.

    The Post-Gaddafi LibyaWhile in cities, such as Sirte, there was some resistance to the opposition, Reuters reports that the National

    Transitional Council (NTC) has been recognized bymore than 60 countries, making it the official government,

    with the responsibility of restructuring and repairing the Libyan oil industry and production. The NTC will need to

    increase production from virtually nothing to nearly1.8 million barrels(the maximum production rate before the

    conflict began in February 2011) according to CNN Money. Eurasia Press reports that Libyan National OilCorporation (NOC) director, Nuri Beruin, states Libyas main obstacle is not production but rather equipment.

    CNN Money shares that some of thevehicles and machineryused at the refineries were looted during the conflict

    and new equipment must be imported. Foreign Affairs indicates that the lack of timely and adequate facility

    maintenance has negatively impacted the ability of facilities to function. Vital parts, such as the electrical

    submersible pump,could be damaged if not cleaned periodically as it is located at the bottom of a well where it is

    exposed to the waxy and thick Libyan crude. Foreign Affairs explains that the lack of upkeep could severely

    5GASearch Energy Intelligence is a for-profit oil consulting organization. Cloud GASearch provides oil and natural gas price data.

    Figure 3: Brent Oil Prices; Libyan Oil Production;Source:Bloomberg, BP, IEA, Energy Intelligence Group

    http://m.theglobeandmail.com/globe-investor/investment-ideas/oil-price-swings-the-new-normal-things-will-never-be-as-good-again/article1924200/?service=mobilehttp://m.theglobeandmail.com/globe-investor/investment-ideas/oil-price-swings-the-new-normal-things-will-never-be-as-good-again/article1924200/?service=mobilehttp://m.theglobeandmail.com/globe-investor/investment-ideas/oil-price-swings-the-new-normal-things-will-never-be-as-good-again/article1924200/?service=mobilehttp://blogs.wsj.com/marketbeat/2011/02/25/libyan-oil-how-sweet-it-is/http://blogs.wsj.com/marketbeat/2011/02/25/libyan-oil-how-sweet-it-is/http://blogs.wsj.com/marketbeat/2011/02/25/libyan-oil-how-sweet-it-is/http://money.cnn.com/2011/08/22/markets/libya-oil-production/index.htmhttp://money.cnn.com/2011/08/22/markets/libya-oil-production/index.htmhttp://money.cnn.com/2011/08/22/markets/libya-oil-production/index.htmhttp://www.nytimes.com/2011/08/23/business/global/the-scramble-for-access-to-libyas-oil-wealth-begins.html?_r=2&pagewanted=allhttp://www.nytimes.com/2011/08/23/business/global/the-scramble-for-access-to-libyas-oil-wealth-begins.html?_r=2&pagewanted=allhttp://www.nytimes.com/2011/08/23/business/global/the-scramble-for-access-to-libyas-oil-wealth-begins.html?_r=2&pagewanted=allhttp://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/what-the-turmoil-in-libya-means-for-oil-prices/article1925856/http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/what-the-turmoil-in-libya-means-for-oil-prices/article1925856/http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/what-the-turmoil-in-libya-means-for-oil-prices/article1925856/http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/what-the-turmoil-in-libya-means-for-oil-prices/article1925856/http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/what-the-turmoil-in-libya-means-for-oil-prices/article1925856/http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/what-the-turmoil-in-libya-means-for-oil-prices/article1925856/http://www.foreignaffairs.com/articles/68245/edward-l-morse-and-eric-g-lee/the-libyan-oil-taphttp://www.foreignaffairs.com/articles/68245/edward-l-morse-and-eric-g-lee/the-libyan-oil-taphttp://www.foreignaffairs.com/articles/68245/edward-l-morse-and-eric-g-lee/the-libyan-oil-taphttp://www.bloomberg.com/news/2011-03-09/brent-crude-oil-for-april-rises-0-3-to-113-42-a-barrel-reversing-loss.htmlhttp://www.bloomberg.com/news/2011-03-09/brent-crude-oil-for-april-rises-0-3-to-113-42-a-barrel-reversing-loss.htmlhttp://www.eia.gov/cabs/libya/Full.htmlhttp://www.gasearch.com/onp.php?year=2011http://www.gasearch.com/onp.php?year=2011http://www.gasearch.com/onp.php?year=2011http://online.wsj.com/article/SB10001424052748703775704576162002479520710.htmlhttp://online.wsj.com/article/SB10001424052748703775704576162002479520710.htmlhttp://online.wsj.com/article/SB10001424052748703775704576162002479520710.htmlhttp://online.wsj.com/article/SB10001424052748703775704576162002479520710.htmlhttp://online.wsj.com/article/SB10001424052748703775704576162002479520710.htmlhttp://www.ntclibya.org/english/council-members/http://www.ntclibya.org/english/council-members/http://www.ntclibya.org/english/council-members/http://www.reuters.com/article/2011/09/23/us-libya-rebels-recognition-idUSTRE78M4D020110923http://www.reuters.com/article/2011/09/23/us-libya-rebels-recognition-idUSTRE78M4D020110923http://www.reuters.com/article/2011/09/23/us-libya-rebels-recognition-idUSTRE78M4D020110923http://money.cnn.com/2011/08/22/markets/libya-oil-production/index.htmhttp://money.cnn.com/2011/08/22/markets/libya-oil-production/index.htmhttp://money.cnn.com/2011/08/22/markets/libya-oil-production/index.htmhttp://en.noclibya.com.ly/http://en.noclibya.com.ly/http://en.noclibya.com.ly/http://www.oilandgaseurasia.com/news/p/0/news/12943http://www.oilandgaseurasia.com/news/p/0/news/12943http://www.oilandgaseurasia.com/news/p/0/news/12943http://money.cnn.com/2011/08/22/markets/libya-oil-production/index.htmhttp://money.cnn.com/2011/08/22/markets/libya-oil-production/index.htmhttp://money.cnn.com/2011/08/22/markets/libya-oil-production/index.htmhttp://www.foreignaffairs.com/articles/68245/edward-l-morse-and-eric-g-lee/the-libyan-oil-taphttp://www.foreignaffairs.com/articles/68245/edward-l-morse-and-eric-g-lee/the-libyan-oil-taphttp://www.ft.com/intl/cms/s/82a2af8e-3f76-11e0-a1ba-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F82a2af8e-3f76-11e0-a1ba-00144feabdc0.html&_i_referer=#axzz1WcJP0FfKhttp://www.ft.com/intl/cms/s/82a2af8e-3f76-11e0-a1ba-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F82a2af8e-3f76-11e0-a1ba-00144feabdc0.html&_i_referer=#axzz1WcJP0FfKhttp://www.ft.com/intl/cms/s/82a2af8e-3f76-11e0-a1ba-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.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  • 8/3/2019 Libyan Oil - Before and After Moammar Gaddafi

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    impact production. At this time, it is unknown whether there is significant damage to the pipelines or to the

    refineries, notes Foreign Affairs, but other difficulties that could slow the return of the pre-February 2011production rates include lack of guarantees over the security of employees and the ability of the eastern oil wells

    to be pressurised so oil will begin flowing again.

    According to theReuters, the biggest challenge for the Libyan oil industry is not the resumption of production, butensuring securityfor employees. Throughout the conflict, Gaddafi forces threatened the security of oil refineries

    and employees by planting mines around refineries. The Seattle Times states that nearly40,000 anti-personneland

    anti-tank mines were placed in Brega alone. Fortunately, in Brega less than 10% of oil facilities were damaged

    largely as a result of efforts by local engineers and staff to protect and maintain facilities. Although the location of

    planted mines is now known, explains Seattle Times, removing the mines will take considerable time as there are

    no foreign mine-clearing organisations to assist in their removal or to train more Libyans. Currently, trained

    Libyan forces could secure approximately 700 mines per day. Petroleum Economistexplains that deminingSirte

    and Ras Lanuf, where sporadic loyalist attacks occur, is critical for exporting products coming from oil fields in

    the Waha area. Reuters states that the eastern terminal ofRas Lanufexperienced no damage and is operational.

    Security in major ports has been increased to ensure the safe arrival and departure of shipments.

    Resuming Production: Shipments and Economic ConsequencesAccording to CNN Money, returning to old production rates could take up to 36 months as much neededmaintenance of oil facilities was, at times, impossible to perform during the conflict. TheAssociated Press

    reported on 26 September, 2011 that Libyan oil field Abu-Attifel, south of Benghazi, had resumed productionwith 31,900 barrels a day and 15 working wells. Bouri offshore oil field, which, pre-conflict, produced 40,000

    barrels per day, is to return tonormal rates in November remarks the WSJ. The facilities are being operated by

    Mellitah Oil & Gas, a partnership between Italian oil companyEniand the NOC, reportsAP. Eni also announcedthat more oil fields would be placed back in service in order to reach the operating capacity of the Abu-Attifeland

    Zuetina port pipeline.Reutersreports that as of 25 October Libyas totaldaily outputhas risen to 500,000 bbl/d.

    Additionally, Reuters reported that the first Libyan crude oil shipment departed from Mellitah aboard the TridentHope Tankeron 27 September, 2011. Oil is also being produced from the Sarir and Misla oil fields via a pipeline

    to theMarsa el Hariga port, situated in eastern Libya, next to Tobruk. According to Reuters, shipments from that

    port were already en route to Italy on theHellas Warrior tanker.

    Anticipated Changes and ChallengesThe New York Times reports that the NTC is nowresponsible forreviewing contracts with oil companies

    and determining which to honour. Many oilcompanies

    are interestedin renewing or signing contracts with thenew government.

    Reuters reports that Eni, is the biggest foreign oil

    producer in Libya. An article in the Guardian states

    that as early as the beginning of September 2011, theItalian oil company had sent representatives to Libya

    in order to evaluate and prepare for resuscitating

    production.

    Russian news source RIA Novosti reports on a swapdealbetween Eni and Russian Gazpromnegotiated in

    February 2011, before the Libyan conflict worsened.

    The deal focuses on the Elephant oil field situated inthe Murzuq Basin, nearly 800 km south of the Libyan

    capital. The Guardian states that the oil field is arecent discovery (1997) and has recoverable reserves

    Figure 4: Oil companies licensed areas and energy sourcesSource:Financial Times

    http://www.businesslive.co.za/africa/2011/10/27/libyan-oil-flows-may-stall-on-fear-and-wranglinghttp://www.businesslive.co.za/africa/2011/10/27/libyan-oil-flows-may-stall-on-fear-and-wranglinghttp://seattletimes.nwsource.com/html/nationworld/2016291461_libyarefiner25.htmlhttp://seattletimes.nwsource.com/html/nationworld/2016291461_libyarefiner25.htmlhttp://seattletimes.nwsource.com/html/nationworld/2016291461_libyarefiner25.htmlhttp://www.petroleum-economist.com/Article/2889282/EXCLUSIVE-Full-Libyan-oil-output-in-four-to-six-months.htmlhttp://www.petroleum-economist.com/Article/2889282/EXCLUSIVE-Full-Libyan-oil-output-in-four-to-six-months.htmlhttp://www.petroleum-economist.com/Article/2889282/EXCLUSIVE-Full-Libyan-oil-output-in-four-to-six-months.htmlhttp://www.petroleum-economist.com/Article/2889282/EXCLUSIVE-Full-Libyan-oil-output-in-four-to-six-months.htmlhttp://www.reuters.com/article/2011/09/27/us-libya-shipping-ports-idUSTRE78Q33M20110927http://www.reuters.com/article/2011/09/27/us-libya-shipping-ports-idUSTRE78Q33M20110927http://money.cnn.com/2011/08/22/markets/libya-oil-production/index.htmhttp://money.cnn.com/2011/08/22/markets/libya-oil-production/index.htmhttp://www.forbes.com/feeds/ap/2011/09/26/general-energy-eu-italy-libya-oil_8700591.htmlhttp://www.forbes.com/feeds/ap/2011/09/26/general-energy-eu-italy-libya-oil_8700591.htmlhttp://www.forbes.com/feeds/ap/2011/09/26/general-energy-eu-italy-libya-oil_8700591.htmlhttp://online.wsj.com/article/BT-CO-20111024-711133.htmlhttp://online.wsj.com/article/BT-CO-20111024-711133.htmlhttp://online.wsj.com/article/BT-CO-20111024-711133.htmlhttp://www.eni.com/en_IT/home.htmlhttp://www.eni.com/en_IT/home.htmlhttp://www.eni.com/en_IT/home.htmlhttps://webmail.cimicweb.org/owa/?ae=Item&a=New&t=IPM.Notehttps://webmail.cimicweb.org/owa/?ae=Item&a=New&t=IPM.Notehttps://webmail.cimicweb.org/owa/?ae=Item&a=New&t=IPM.Notehttp://www.reuters.com/article/2011/09/27/us-libya-shipping-ports-idUSTRE78Q33M20110927http://www.reuters.com/article/2011/09/27/us-libya-shipping-ports-idUSTRE78Q33M20110927http://www.reuters.com/article/2011/09/27/us-libya-shipping-ports-idUSTRE78Q33M20110927http://www.reuters.com/article/2011/09/27/us-libya-shipping-ports-idUSTRE78Q33M20110927http://www.petroleum-economist.com/Article/2895165/News-and-Analysis-Archive/EXCLUSIVE-Libya-flows-at-1m-bd-within-five-months.htmlhttp://www.petroleum-economist.com/Article/2895165/News-and-Analysis-Archive/EXCLUSIVE-Libya-flows-at-1m-bd-within-five-months.htmlhttp://www.petroleum-economist.com/Article/2895165/News-and-Analysis-Archive/EXCLUSIVE-Libya-flows-at-1m-bd-within-five-months.htmlhttp://www.reuters.com/article/2011/09/27/us-libya-shipping-ports-idUSTRE78Q33M20110927http://www.reuters.com/article/2011/09/27/us-libya-shipping-ports-idUSTRE78Q33M20110927http://www.reuters.com/article/2011/09/27/us-libya-shipping-ports-idUSTRE78Q33M20110927http://www.nytimes.com/2011/08/23/business/global/the-scramble-for-access-to-libyas-oil-wealth-begins.html?pagewanted=allhttp://www.nytimes.com/2011/08/23/business/global/the-scramble-for-access-to-libyas-oil-wealth-begins.html?pagewanted=allhttp://www.nytimes.com/2011/08/23/business/global/the-scramble-for-access-to-libyas-oil-wealth-begins.html?pagewanted=allhttp://arabnews.com/economy/article498695.ece?service=printhttp://arabnews.com/economy/article498695.ece?service=printhttp://arabnews.com/economy/article498695.ece?service=printhttp://arabnews.com/economy/article498695.ece?service=printhttp://www.reuters.com/article/2011/09/16/gazprom-eni-libya-idUSL5E7KG1K920110916http://www.reuters.com/article/2011/09/16/gazprom-eni-libya-idUSL5E7KG1K920110916http://www.reuters.com/article/2011/09/16/gazprom-eni-libya-idUSL5E7KG1K920110916http://www.guardian.co.uk/business/feedarticle/9882917http://www.guardian.co.uk/business/feedarticle/9882917http://www.guardian.co.uk/business/feedarticle/9882917http://en.rian.ru/business/20110215/162621369.htmlhttp://en.rian.ru/business/20110215/162621369.htmlhttp://en.rian.ru/business/20110215/162621369.htmlhttp://www.gazprom.com/http://www.gazprom.com/http://www.ft.com/cms/s/2f2d0908-dc6f-11e0-8654-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F2f2d0908-dc6f-11e0-8654-00144feabdc0.html&_i_referer=#ixzz1XlTB1PBChttp://www.ft.com/cms/s/2f2d0908-dc6f-11e0-8654-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F2f2d0908-dc6f-11e0-8654-00144feabdc0.html&_i_referer=#ixzz1XlTB1PBChttp://www.ft.com/cms/s/2f2d0908-dc6f-11e0-8654-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F2f2d0908-dc6f-11e0-8654-00144feabdc0.html&_i_referer=#ixzz1XlTB1PBChttp://www.ft.com/cms/s/2f2d0908-dc6f-11e0-8654-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F2f2d0908-dc6f-11e0-8654-00144feabdc0.html&_i_referer=#ixzz1XlTB1PBChttp://www.gazprom.com/http://en.rian.ru/business/20110215/162621369.htmlhttp://en.rian.ru/business/20110215/162621369.htmlhttp://www.guardian.co.uk/business/feedarticle/9882917http://www.guardian.co.uk/business/feedarticle/9882917http://www.reuters.com/article/2011/09/16/gazprom-eni-libya-idUSL5E7KG1K920110916http://www.reuters.com/article/2011/09/16/gazprom-eni-libya-idUSL5E7KG1K920110916http://arabnews.com/economy/article498695.ece?service=printhttp://arabnews.com/economy/article498695.ece?service=printhttp://www.nytimes.com/2011/08/23/business/global/the-scramble-for-access-to-libyas-oil-wealth-begins.html?pagewanted=allhttp://www.reuters.com/article/2011/09/27/us-libya-shipping-ports-idUSTRE78Q33M20110927http://www.petroleum-economist.com/Article/2895165/News-and-Analysis-Archive/EXCLUSIVE-Libya-flows-at-1m-bd-within-five-months.htmlhttp://www.reuters.com/article/2011/09/27/us-libya-shipping-ports-idUSTRE78Q33M20110927http://www.reuters.com/article/2011/09/27/us-libya-shipping-ports-idUSTRE78Q33M20110927https://webmail.cimicweb.org/owa/?ae=Item&a=New&t=IPM.Notehttp://www.eni.com/en_IT/home.htmlhttp://online.wsj.com/article/BT-CO-20111024-711133.htmlhttp://www.forbes.com/feeds/ap/2011/09/26/general-energy-eu-italy-libya-oil_8700591.htmlhttp://money.cnn.com/2011/08/22/markets/libya-oil-production/index.htmhttp://www.reuters.com/article/2011/09/27/us-libya-shipping-ports-idUSTRE78Q33M20110927http://www.petroleum-economist.com/Article/2889282/EXCLUSIVE-Full-Libyan-oil-output-in-four-to-six-months.htmlhttp://www.petroleum-economist.com/Article/2889282/EXCLUSIVE-Full-Libyan-oil-output-in-four-to-six-months.htmlhttp://seattletimes.nwsource.com/html/nationworld/2016291461_libyarefiner25.htmlhttp://www.businesslive.co.za/africa/2011/10/27/libyan-oil-flows-may-stall-on-fear-and-wrangling
  • 8/3/2019 Libyan Oil - Before and After Moammar Gaddafi

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    of nearly 700 million barrels. Gazprom has acquired half of Enis stake in this oil field, which is equal to 33% but

    according toReuters, the Eni field wasseverely damagedby the war and unlikely to be brought back online before2012. Apart from the Elephant oil field, the Guardian indicates that Eni also operates a 310 km pipeline, which

    carries natural gas from theLibyan coast to Sicily. Fox News indicates that thepipeline reopenedon 13 October

    2011 after an eight month break.

    United Press International reports that British Petroleum (BP) is likely to push the launching of a USD 1 billion

    deep-water exploration program in the Gulf of Sidra after the suspension of oil exploration in Libya back in

    February 2011. The program, initially signed with Moammar Gaddafi in 2007, was delayed first by the Deep

    Water accident in the Gulf of Mexico and the subsequent Libyan conflict has stalled development of the deal.

    According toBloomberg Business Week, Spanish oil and gas companyRepsol YPFis assessing its Libyan assets

    in order to determine when it will resume past production rates. French energy company Total is discussing

    contract proposals and will be delivering a list with multiple offers to the NTC by the end of 2011. Prior to

    February 2011, Total produced close to 55, 000 b/d. Now, Total is considering expanding its role and helpingdevelop business with liquid natural gas in Libya or helping the NOC with untapped oil fields.

    The NTC confirmed, reports the Christian Science Monitor, that it will favour states that demonstratedsupportfortheir fight against the Gaddafi regime. This could mean Chinese and Russian companies will face difficulties in

    Libya, despite their presence in the region prior to the uprising in February 2011, as they took a wait-and-see

    approach on the conflict. According to Fox News, Mustafa El-Huni, the NTC oil official has stated that contracts

    will be reviewed bythe Libyan courts.

    Bloomberg announced on 13 September 2011 that theUnited Nations Security Councilhad removed the sanctions

    it imposed on the national oil industry, and disputes over who is to assume presidency of the NOC began almostimmediately. The NOC is deemed by the Financial Times as the mostimportant Libyan companyand its influence

    is considerable in the national oil industry. Tripoli has been headquarters for the NOCsince 1970, but Benghazi is

    where the largest number of known oil fields are located. The dispute surrounding the relocation of NOC is driven

    more by job creation than access to oil revenue further reports Financial Times. Additionally, the NOC controls

    all the oil levers and is also the largest partner to all the major foreign oil companies. The NTC envisions

    structural changes that will balance this concentration of power over Libyan oil in a more proportionate manner.According to the Financial Times, some suggestions have included a split of the NOC into different cities, but no

    decisions have been confirmed by authorities at this time.Global Witness, an international NGO, explains that theNTC must provide public disclosure of how Libya manages its oil sector, and disclosure of all revenues from it.

    Absolute transparency of contracts and their terms should be readily available to the public in order to prevent

    mismanagement and corruption; a change from Gaddafis regime.

    ConclusionAccording toAgence France Presse(AFP), OPEC sees fellow member Libya restoring its pre-February rates by

    the end of 2012. While this may be seen as a long delay, there are many challenges to be addressed in post-

    Gaddafi Libya. Recent strikes by workers in theWaha oil company, reported byAl Arabiya, show that people areno longer content with any residual management from Gaddafis era and seek a fresh start. A protester, quoted by

    Al Arabiya, concludes:

    We are very cautious to rebuild our country in a new way and we don't want to see the same names and

    figures that used to exist in the reign of Muammar Qaddafi, even for an interim period. Because it is

    disrespectful to the blood of the martyrs who have sacrificed their lives.

    In a historic visit to Libya that marked the end of NATOs mission, Operation Unified Protector, Secretary

    General Anders Fogh Rasmussen met with Mustafa Abdul Jalil the Chairman of the NTC on 31 October.Addressing the Libyan leader and representatives of Libyas civil society, the NATO Secretary General said, At

    midnight tonight, a successful chapter in NATO's history is coming to an end. But you have already started

    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al.com/en/home-page-940596.htmlhttp://www.repsol.com/es_en/corporacion/prensa/notas-de-prensa/ultimas-notas/18062011-repsol-alliance-oil-federacion-rusa.aspxhttp://www.businessweek.com/ap/financialnews/D9PJIJ880.htmhttp://www.upi.com/Business_News/Energy-Resources/2011/08/25/Oil-companies-scramble-for-Libyas-riches/UPI-92831314299072/http://www.bp.com/bodycopyarticle.do?categoryId=1&contentId=7052055http://www.foxnews.com/world/2011/10/13/eni-reopens-gas-pipeline-from-libya-to-italy/http://www.guardian.co.uk/world/2011/sep/01/libya-oilhttp://af.reuters.com/article/energyOilNews/idAFL5E7LI2N720111018
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    November 2011 Page 7

    T h e m a t i c R e p o r t : L i b y a n O i lB e f o r e a n d A f t e r G a d d a f i

    writing a new chapter in the history of Libya. A new Libya, based on freedom, democracy, human rights, the rule

    of law and reconciliation." Rasmussen went on to say, hard-won freedom brings high hopes and greatexpectations, and the hard work to make them real has begun.

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