Libya's new rulers struggle to rebuild an oil industry battered by the civil war that ended Muammar Gaddafi's 32-year rule, but the threat of further violence could sabotage these efforts and with them any prospect of an early national recovery.
Libya, finally unshackled from Colonel Muammar Gaddafi's brutal regime, is struggling to restore its battered oil industry after more than 40 years of decline and an eight- month civil war. Some fields, refineries and terminals were extensively damaged in the conflict that seesawed across the battle-scarred deserts of Tripolitania and Cyrenaica.
Getting production back, even to the pre-war level of 1.6 million barrels per day, is essential if stability is to be restored. Libya relies on oil revenue for about 80% of its gross domestic product.
But the tangled tribal politics at play and the fragmentation of the rebel groups that make up the victorious National Transitional Council (NTC), a fractious alliance of militias with widely differing, and often opposing, agendas, is causing fears that the shooting is not yet over.
As the NTC forces splinter into squabbling ideological, ethnic and tribal factions, the prospect of a new wave of violence, or even another civil war between the rival militia victors, looms ominously.
There are disturbing signs of deep divisions within the NTC, even between factions that came together to get rid of Gaddafi. Tribal rivalries remain deep rooted and have been exacerbated by the recent bloodshed.
There is a deep divide between Tripoli in the west, where Gaddafi ruled with an iron hand, and Benghazi in the east, long an Islamist stronghold that seethed with anti-Gaddafi militancy throughout his rule.
A growing bitterness is apparent in the western and central sectors of the country against the NTC, where rebel militias have wreaked bloody retribution in areas that supported Gaddafi.
The biggest hurdle is one of unity now that the common goal of overthrowing Gaddafi has been achieved and the fighting has stopped, analysts agree.
Many armed groups feel they deserve a reward for their sacrifices during the war, and the NTC is not a strong enough single authority to bring them all to bear. It must now struggle to satisfy everyone. At stake is not just political power but also the anticipated oil revenues that will come to those able to establish a presence in the centralised power structure.
Eastern Bounty
On top of that, the country remains awash with weapons, many plundered by various groups from Gaddafi's richly stocked arsenals around the country.
There is also a significant risk that remnants of Gaddafi's forces could wage a guerrilla campaign of sabotage against the oil industry and other vital economic sectors and even limited violence could impede the recovery of the oil industry, including scaring off foreign companies vital to the industry in terms of expertise and future investment because of security concerns.
Assessments on how soon the Libyans can get the oil industry up and running again vary wildly. Ross Cassidy, North Africa specialist with the Edinburgh-based Wood Mackenzie consultancy, reckons it will take three years to get back to 1.6 million b/d because of the technical and security challenges.
"They're not going to just turn production back on," he said. "Thirty-six months is an optimistic scenario."
Industry sources say that since August, when NTC forces captured the capital Tripoli in August and drove Gaddafi into the desert, the new government has pushed oil production up to 300,000-400,000 barrels a day (b/d).
Nuri Berruien, NOCs new chairman, boasted that flows could reach the pre-war level "in 15 months." But that now seems to be highly optimistic.
Berruien says production is currently around 390,000 b/d, about one quarter of the pre-war level.
The Paris-based International Energy Agency reckons Libya could be producing 1.1 million b/d by the end of 2012, underlining the prospect of a long haul.
"From now on, every extra 100,000 barrels will be more difficult, costly and time-consuming to bring back," observed John Hamilton, lead author of African Energy's annual Libya's Energy Future report.
Hamilton stressed that a "huge amount of investment" - the French estimate at least $30 billion - "is required to recapitalise the oil fields, many of which have been looted over the past six months."
Libya has Africa's largest proven oil reserves, totalling some 46.4 billion barrels, the eighth largest in the world, concentrated mostly in the east.
Legal Obstacles
But much of the country remains unexplored because of international sanctions imposed on Gaddafi's regime over the years for his support for international terrorism, or because of constant disagreements with major oil companies.
There has also been no significant deep-water drilling in the Gulf of Sirte, where there are supposedly rich pickings that could hugely boost Libyan reserves and ensure revenue into the next century.
BP suspended plans for a $1 billion exploration programme in December 2010, hut said it would start "sometime in 2011". Then came the civil war.
At pre-war production levels, Libya's current reserves were expected to last for 77-80 years. With Gaddafi and his corrupt regime gone, there are expectations that the new administration, whatever that might eventually be, would be more transparent and prepared to open up the industry.
International oil companies are falling over themselves to make deals with the new Libyan administration, but legal issues over old contracts and terms for new contracts have delayed things.
Britain and France, along with Italy and Russia, are hoping to get special treatment for mobilising NATO to back the Libyan rebels against Gaddafi, a key factor in their victory.
The NOCs urgent need for investment to rehabilitate and expand the oil industry will likely weigh heavily in their favour as Big Oil scrambles, and intrigues, for stakes in Libya's oil wealth.
Tripoli has denied the existence of a secret deal the French media reported had been struck in April, agreeing that French companies would control "35% of total crude oil in exchange for total and permanent support for our council".
Meanwhile, Italy's Eni is emerging as the pace setter. It has been in Libya since 1959, a decade before Gaddafi seized power, and remains the country's largest foreign investor.
Before the war, it had committed to invest $25 billion over the next decade. It was also the first to resume production after Gaddafi fell, so would appear to be the company to watch. Russia enjoys a close relationship with Eni, so its companies, including the giant Gazprom, also stand to benefit.
Rome- based Eni confirmed it had resumed production on 26 September, the first foreign company to do so. It said it was pumping 31,900 b/d from 15 wells in the large Abu Attifel field, discovered in the 1960s.
The maximum pre-war production capacity in the region, which lies 200 miles south of Benghazi, was 70,000 b/d. Eni chief executive Paolo Scaroni has said the company expects to have most of its production going again by the end of the year.
Total of France has also reported restoring production at its Al Jurf offshore well and is expected to slowly reach 40,000 b/d, the pre-war level.
Much will depend on the condition of the large Sharara and Elephant oil fields deep in the Sahara Desert 600 miles south of Tripoli, the capital on the Mediterranean coast.
These fields, operated by Repsol of Spain and Italy's Eni, could add another 400,000 b/d to national production, if they can be put on stream without too much trouble.
But their condition after months of fighting remains unclear. The Murzug region where they are located saw heavy fighting between Gaddafi's forces and rebel troops of the NTC, so damage could be extensive. The central area and the Murzuq region will truly test the recovery of Libya's oil industry.
Regaining Ground
The Libyans are pumping oil from a few eastern fields operated by the state-owned Arabian GuIfOU Company, although the production level isn't clear.
These fields include Sarir, Libya's largest, and Mesla. Together, they produced 250,000 b/d before the war. The rebels held the region during the war and damage was therefore minimal.
The Sirte Basin, a key oil zone containing some of the most mature fields that currently produce around 60% of Libya's oil, appears to be relatively stable for now. Even so, these fields are more complex than those in the western zone and could require gas or water injection to create the pressure levels needed for full production.
Henry Smith of London-based security consultancy Control Risks observes that one of the main hot-spot zones in terms of security is the Fezzan region in the southwestern Sahara.
It contains Eni's Elephant field and Repsol's Sharara with a combined capacity of 330,000 b/d, about one fifth of Libya's pre-conflict output.
The region was held by Gaddafi's loyalists until September and Smith assessed the fields were soft targets, difficult to protect against marauding Gaddafi loyalists striking from the desert wastes.
"The most significant security threats to oil assets are in the Ubari sand sea, broadly between Ghadames, Sabha and Ghat," he noted. "It's not secure and anyone who's been there will tell you it will remain difficult to police, particularly given the lack of a central security force."
Copyright 2011 ProQuest Information and Learning. All Rights Reserved. Copyright 2011 IC Publications, Inc.
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Public release date: 28-Dec-2011
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