assessments

Libya's Oil Production Future

5 MINS READAug 23, 2011 | 08:53 GMT
FILIPPO MONTEFORTE/AFP/Getty Images
Summary
Libya's National Transitional Council is eager to restart oil production after addressing security and political issues. When it does, Italy's ENI will benefit because of its experience in Libya and its existing network of contacts. However, France, the United Kingdom and Qatar also stand to gain from their support of Libya's rebels during the war.
Italian state-owned energy firm ENI immediately sent a technical team to Libya to assist the country in restarting oil production after the rebel advance on Tripoli. Italian Foreign Minister Franco Frattini said in an Aug. 22 television interview that "the facilities had been made by Italians, by [Italian oil and gas contractor] Saipem, and therefore it is clear that ENI will play the No. 1 role in the future." Italy pioneered Libya's oil industry, and it was ENI's role in Libya — and Rome's heavy reliance on Libya for its oil and natural gas supplies — that motivated Rome to abandon its hedging strategy in April. Though Italy had scaled back its funding for military operations in the NATO bombing campaign, it never fully abandoned it. Rome was careful to separate any appearance of concern for the plight of Libyan civilians from any support for Libyan leader Moammar Gadhafi once the NATO campaign began. Politically, Italy will not command nearly as much gratitude from Libya's National Transitional Council (NTC) as France, the United Kingdom, Qatar, the United States and others. However, its prior relationship with Libyan oil industry officials — as well as other members of the Gadhafi regime who will be playing large roles in Libya's future — will give Rome an advantage in re-establishing a foothold in Libya. This means ENI likely will be able to resume oil production faster than any other foreign actor. France was the first country to recognize the NTC and has been viewed as the rebels' primary political protector since before the bombing campaign even began. It also participated in a weapons air drop program for Nafusa Mountain guerrillas that showed its support was not relegated to politics. The first foreign leader reported to have spoken with NTC foreign affairs chief Mahmoud Jibril following the rebel entry into Tripoli was French President Nicolas Sarkozy. French Foreign Minister Alain Juppe announced that Sarkozy had spoken with Jibril and said that Jibril, who has already made multiple visits to Paris, is expected to return to the French capital in the coming days. Juppe also said that Paris would host a meeting of the contact group on Libya as soon as next week to discuss the next steps. France has consistently sought to organize the international effort in Libya and is not changing its behavior now. Though its state owned oil company Total did not have the same sort of presence in Libya as ENI, Total stands to emerge as a winner in the Libyan war as well. The United Kingdom also stands to gain, as it was one of the NTC's most ardent defenders from the beginning. When the United States scaled back its participation in the bombing campaign, France and the United Kingdom took the lead. Though London did not officially recognize the NTC as the sole legitimate representative of the Libyan people until July 27, it did not waver as much as Italy did as the NATO campaign began to appear as if it was not making much headway in June and July. London was also one of the driving forces that led to the passage of the U.N. resolution that allowed the bombing campaign to begin. There will also be rewards for Qatar, the Muslim country that provided more support for the rebels than any other. Doha's support included gasoline shipments to eastern Libya, weapons shipments to all regions for the Libyan opposition, financial support and help with propaganda through the broadcasts of the Qatari-based Al Jazeera network and the hosting of a Libyan opposition satellite television station. Qatar is a major natural gas producer but does not have much crude oil and could see an opportunity now in Libya. The NTC wants to restart production as soon as possible, but there is no way to reliably estimate a time frame. First, the war in Libya is not over; Gadhafi's forces are still fighting and could hold out longer than most anticipate. Second, there is no clear picture of how much damage has been done to the oil facilities (this is what the ENI team is in the country investigating). Whenever oil production resumes, it will be easiest to do in the eastern oil fields, where most production occurred before the war, though these fields were taken offline by attacks carried out by pro-Gadhafi forces. Officials with the Libyan oil firm Arabian Gulf Oil Company said Aug. 22 that the firm is "technically ready" to restart oil output immediately, but this is unlikely. Security is the main issue regarding the resumption of oil production. Abdeljalil Mayouf, Arabian Gulf Oil Company's information manager, said Aug. 22 that security forces hired from the former Libyan army were already at the fields and that the company was awaiting clearance to restart production. The looming political problems the NTC will face in trying to take over governance in Tripoli will delay this process.

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