Before the civil war, Libya was an important oil producer, exporting 1,3 million barrels of sweet crude oil a day. But the fighting has disrupted the chain of production and forced foreign companies to leave the country. As a result, the production level dropped to barely 60,000 barrels a day. As the rebels are gaining power, foreign companies are preparing for a future without Colonel Qaddafi as head of State. Firms are now trying to secure the most beneficial contracts for themselves and are already scrambling for Libya’s riches.
By Clifford Krauss and Elisabetta Povoledo
Even before Libyan rebels could take full control of Tripoli, Foreign Minister Franco Frattini of Italy said on state television Monday that the Italian oil company Eni “will have a No. 1 role in the future” in the North African country.
Mr. Frattini even reported that Eni technicians were already on their way to eastern Libya to restart production. But Eni quickly denied that it had sent any personnel to the still-unsettled region, which is Italy’s largest source of imported oil.
The awkward exchange suggested that the scramble to secure access to Libya’s oil wealth is already on. Libyan production has been largely shut down during the long conflict between rebel forces and troops loyal to Libya’s leader, Col. Muammar el-Qaddafi.
Eni, as well as BP of Britain, Total of France and OMV of Austria, were all big producers before the fighting and stand to gain the most once the conflict ends. American companies like Hess, ConocoPhillips and Marathon also made deals with the Qaddafi regime, although the United States relies on Libya for less than 1 percent of its imports.
But it’s unclear whether a rebel government would honor the contracts struck by the Qaddafi regime.
Even before taking power, the rebels were suggesting that they would remember their friends and foes, and negotiate deals accordingly.
“We don’t have a problem with Western countries like Italians, French and U.K. companies,” Abdeljalil Mayouf, a spokesman for the Libyan rebel oil company Agoco, was quoted as saying by Reuters. “But we may have some political issues with Russia, China and Brazil.”
Russia, China and Brazil did not back strong sanctions on the Qaddafi regime, and they generally supported a negotiated settlement to the fighting. All three countries have large oil companies that are seeking deals in Africa for oil reserves.
Before fighting broke out in February, Libya exported 1.3 million barrels of oil a day. While that is less than 2 percent of world supplies, only Nigeria, Algeria and a few other countries can supply equivalent grades of sweet crude that many refineries around the world depend on.
The European benchmark price for oil fell moderately on Monday morning on speculation that Libyan oil production would quickly begin ramping up again. Brent crude oil prices initially dropped more than 3 percent, but in midafternoon trading in New York, Brent was at $107.60 a barrel, down $1.02. The American benchmark crude, which is less sensitive to events in the Middle East, was up slightly to $83.36.
Colonel Qaddafi proved to be a problematic partner for the international oil companies, frequently raising fees and taxes and making other demands. A new government with close ties to NATO may be an easier partner for Western nations to deal with. Some experts say that given a free hand, oil companies could find considerably more oil in Libya than they were able to locate under the restrictions placed by the Qaddafi government.
The civil war forced major oil companies to withdraw their personnel, and production plummeted over the last several months to a minuscule 60,000 barrels a day, according to the International Energy Agency. That would account for roughly 20 percent of the country’s normal domestic needs. The rebels were able to export a modest amount of crude that was stored at ports, and sold it for cash on the international market through Qatar.
Oil experts caution that it could take as much as a year for Libya to make repairs and get its oil fields back to full speed, although exports may resume within a couple of months.
Since oil is far and away Libya’s most important economic resource, any new government would be obliged to make oil production a high priority. That means establishing security over major fields, pipelines, refineries and ports, and quickly establishing relationships with foreign oil companies.
Most oil companies involved in Libya denied to comment Monday or said they would wait to see how the security situation evolved before sending their personnel into the country.
“Clearly we are monitoring the situation like everyone,” said Jon Pepper, a Hess vice president. “Obviously the situation has to stabilize there before people start thinking about resuming production.”
Italy in recent years has relied on Libya for more than 20 percent of its oil imports, and France, Switzerland, Ireland and Austria all depended on Libya for more than 15 percent of their imports before the fighting began. Libya’s importance to France was underscored on Monday when President Nicolas Sarkozy invited the head of the rebels’ national transitional council, Mustafa Abdel Jalil, to Paris for consultations.
The United States does not rely on Libya for imports, but the reduction of high-quality crude on world markets has pushed up oil and gasoline prices for Americans as well.
Oil analysts say that most reports from oil service companies, which continued to pay their Libyan crews through the war, indicate that there has been relatively little damage to oil facilities. That suggests that production could begin to ramp up in a matter of weeks. But it will probably take months for the country to resume significant exports.
Eni’s chairman, Giuseppe Recchi, recently told analysts that it would probably take a year to return Libya to normal export levels. On Monday, he denied that his company would immediately send back personnel, but he told reporters that he expected the new Libyan government to respect his company’s previous contracts.
