Tuesday, October 25, 2011

Libyan Oil Survives Revolution

Rebel Fighter Guard Oil Refinery in Libya.

Unlike the situation in Kuait and Iriq, where Saddam Hussain ordered the oil refineries destroyed in his retreat and fall from power, both Gadhafi and the revolutionary fighters avoided damaging the oil resources of Libya.

By Jessica Donati
AMAL, Libya | Wed Oct 26, 2011 11:30am EDT

(Reuters) - Abdula Altako was killed in March guarding the oil field he worked for, one of the first but by no means the last of Libya's oil workers to die defending the country's lifeblood.
Abandoned by their foreign owners during the uprising against Muammar Gaddafi, the fields have been watched over by local workers aiming to deter looters and prevent facilities from falling into disrepair.

Altako, who worked for private German oil and gas company Wintershall, was starting his morning guard shift when he was ambushed and shot dead in his car.
"We have a lot of patriots protecting fields. I signed orders that sent engineers out that ended up dying," interim oil and finance minister Ali Tarhouni told Reuters in an interview.
Tarhouni credits the heroism of ordinary Libyans for the fact that the industry is returning to normal faster than expected. But the sacrifice will come to nothing if oil firms are not prepared to send foreign workers back.


Libya is reliant on oil for about 80 percent of its GDP, exporting around 1.3 million barrels of oil per day before the war. Other potential sources of wealth -- a neglected tourism industry and unexploited mineral reserves in the south -- will take time to develop.

Almost all of Libya's estimated $170 billion in assets are still frozen despite sweeping pledges to make funds available, and the country is desperate for cash.

It is little wonder then that there are still many Libyans prepared to make dangerous journeys to isolated areas of the vast Saharan desert, accompanied by squads of rebel fighters or simply armed locals, to evaluate the damage inflicted by the war and to carry out essential repairs.
"Makes sense really; no point in getting rid of the regime if you're not willing to then do what it takes to repair the damage to the economy (and) oil sector," said Zara Rahman, a researcher at OpenOil, an organization that promotes transparency in the oil industry.

Rahman spent a week in October interviewing oil workers at different companies in Libya for an OpenOil report.

"Given the high level of education that is required to have any sort of position in the oil sector, they're all educated enough to realize that the oil sector is what drives the Libyan economy," she said.

But there are still few signs foreign oil firms are prepared to take the plunge.

Oil companies are still mainly visible only in hotel lobbies in the form of security contractors hired to assess infrastructure and monitor threats to security. The first step no doubt, but it is only a tentative move.

The few foreign engineers here are understandably rattled by the constant ring of gunfire even in supposedly peaceful areas like Tripoli, where gun battles between rebels and pockets of Gaddafi loyalists erupted in four districts only a week ago.

Anti-aircraft rocket launchers and machine guns mounted on pick-up trucks across the capital and fighters brandishing AK-47s at every turn do little to soothe worries about further outbreaks of violence.

Foreigners are also disgruntled about a perceived build-up in tension within the new government and between tribes, and some are preparing for the worst.

"They put a lot of pressure on us to come back. But you'll see, in a month we'll be gone again," said one Italian engineer, one of the first to be sent back by the foreign oil company he works for.


The dangers that local oil workers are agreeing to undertake to restart production remain unthinkable to many in the west.

Wintershall, Libya's second largest foreign oil producer, succeeded in restarting output largely thanks to a small, mustachioed colonel.

Abelulla Mahdy volunteered to fly a team of around 20 of the company's Libyan employees past the battlefield at Sirte, Gaddafi's hometown and the city outside which he was killed last week, and over the Sahara for nearly 200 km (125 miles) to a base at an oil field called Amal, an hour's drive to the Wintershall site.

The flight required special permission from NATO and the usual company plane had to be left behind in Tripoli.

"The pilot was too frightened to fly," said Mahdy, dressed in his usual army-green jumpsuit, the lines on his deeply tanned face creasing into a grin.

Mahdy flew the team in a small cargo plane. Many of the passengers spent the two-hour flight on the freezing floor in between luggage, munching on cakes, flatbreads and cheese distributed by two engineers who had volunteered to act as stewards. As the plane began its descent, the tension in the air broke into smiles and laughter.

"The most important thing is that Libyans restart production," said Sammy Nuas, one of the workers who had volunteered to return.

Many workers are anxious, however, worried that they are sitting ducks in the middle of the Sahara, armed with only a handful of Kalashnikovs and a few machine guns. Militia armed by Gaddafi still roam the desert and remote oil fields are obvious and vulnerable targets for groups aiming to weaken the new government.

Without the help of foreign workers, flows can only ramp up to a third or at best half of capacity depending on the field, Libyans say. The speed with which flows rise is tied to the state of wells and pipelines that have not been used for eight or nine months.

Even at Wintershall's site, which pumped close to 100,000 barrels of oil per day before the war -- and where there is no trace of the battle that has scarred other parts of Libya -- it could take six months or more for flows to reach their pre-war output rate, according to workers onsite.
"It all depends on conditions here, whether pipelines are in good condition or we find leaks," said Salah Abdulmalik, a product controller.

The return to production could take much longer in areas sabotaged or looted during the war, and some sites were even bombed by NATO because they were being used as a base for Gaddafi's fighters.


In the southwest region of Fezzan, the scale of destruction at two huge sites that produced almost half a million barrels per day is severe, and firms have taken the first step of deploying small teams with squads of fighters to assess damage and begin making essential repairs. It could be many months before significant volumes of oil begins flowing from this area.

Meanwhile, in early October, even in safer, southeastern parts of the oil-rich Sirte basin, local workers were alone and still prepared for the worst.

Close to Wintershall's site in the southeast, at the Amal oil field joint-operated by Canadian oil firm Suncor, the manager recounted how locals defended the site from looters and attacks during the war and were ready to face more action.

When war broke out, they obtained weapons from the local authority and were briefly shown how to use them. Then, alone, they mounted a defense for eight long months.

"We loaded trucks with missile launchers and coordinated with towns close by to protect the fields," said Saad Ali Eshiem, who oversees the 50 or so workers who have returned so far.
The field's 24-hour patrols continued and machine guns were still mounted in a row on pick-up trucks standing to attention in the shade.

Mohammad Zuay, a 26-year-old oil worker on patrol, was armed with a Kalashnikov. When asked if he had ever had to fire his gun, he broke out into a tired smile.

"Many times," he replied.

Big Oil Sees Huge Opportunities in Post-Gaddafi Libya, but Shouldn't Expect Any Favors


By Oilprice.com Oct 24, 2011 1:45 pm

If you're imagining the whole global energy sector packing flights to Tripoli to cut deals for a piece of the action, you're exactly right. But they're about to find the new bosses aren't necessarily their friends.

Colonel Gaddafi's brutal 42-year reign over Libya is over, but the future looks murky ahead for a country primarily known for exporting oil and terrorism.

One thing is for certain: International oil companies will be packing flights to Tripoli to cut deals for a piece of the action.

Libya remains the wildcard in oil, with only 25% of the country's oil potential territory explored. Whatever the sins of the Gaddafi regime, it kept tight rein over its oil industry, and that, combined with international sanctions for its terrorist proclivities, largely stymied development of the country's resources, much in the way that the development of Iran's petrochemical sector has been largely devoid of foreign capital. After all, they did not call the 1996 US legislation "Iran-Libya Sanctions Act" for nothing. In September 2006 the law was renamed the Iran Sanctions Act, or ISA, as Gaddafi was making moves toward behaving himself, but the damage to the country's energy infrastructure was by then deep and systemic.

The Libyan economy depends primarily on revenues from the oil sector, which contribute about 95% of export earnings, 25% of GDP, and 80% of government revenue. All of this is up for grabs now.

Prior to the outbreak of conflict in February, Libya was exporting about 1.3-1.4 million barrels per day from production estimated at roughly 1.79 million barrels per day of high-quality, light crude, of which approximately a mere 280,000 barrels per day were indigenously consumed. But current production is the proverbial mere drop in the bucket. Libya has the largest proven oil reserves in Africa with 42 billion barrels of oil and over 1.3 trillion cubic meters of naturalgas, according to conservative estimates.

Now that the fighting is apparently over, the issue of Libya's oil production will swiftly move front and center in international interests.

On October 19 International Energy Agency official David Fyfe said in Paris that despite IEA official estimates that Libya could be pumping around 1 million barrels a day by the end of 2012, a fraction of its 1.79 million barrels per day output pre-military action, all estimates of Libya's future output are a "shot in the dark" before adding that there are "many logistical, operational and security related challenges" to overcome before full production is restored. After military intervention began, by September Libyan oil output shrank to a measly 100,000 barrels per day.

While Libya's National Transitional Council has made vague indications that it will honor current oil and natural gas contracts at present, this does not preclude the National Transitional Council from future re-negotiations of the oil and gas contracts' terms, much less signing new ones.

Furthermore, until he learned how to speak diplomatese, National Transitional Council head Mustafa Abdel Jalil alluded to the fact that the National Transitional Council would assign a higher priority for reconstruction and the allocation of oil contracts to countries that supported their uprising, remarking that nations would be rewarded "according to the support" given to the insurgents -- which means NATO European coalition members will have the inside track, particularly as before the fighting erupted Europe got over 85 % of Libya's crude exports.

Under such considerations, one of the clear winners will be Italy's Ente Nazionale Idrocarburi S.p.A., better known by the acronym ENI, which saw pre-conflict Libya accounting for 15% of ENI's output.

The major losers in such a scenario will be those nations that held out against military intervention, most notably the Russian Federation and China. Since 2005 Russian state-run natural gas monopoly Gazprom invested $200 million in energy exploration in Libya even as state arms exporter Rosobornekhsport sold Gaddafi over billions in armaments, before the UN Security Council in March imposed an arms embargo on Libya -- many of which arms were subsequently deployed against NATO forces and Libyan rebels, a fact doubtless not lost on National Transitional Council members. Russia's state news agency ITAR-TASS estimates that Russia could lose as much as $10 billion in business if the National Transitional Council challenges the legality of the existing contracts.

China, which has a massive oily African footprint elsewhere in Sudan and Angola, received a paltry 150,000 barrels per day of Libyan oil, a mere 3% of its crude imports. On August 23, when asked about the possibility of the National Transitional Council renegotiating contracts, Wen Zhongliang, deputy head of the Chinese Ministry of Commerce's trade department, blustered, "I can say in four words: They would not dare; they would not dare change any contracts."

Aside from the oil issue, another murky situation is the future makeup of Libya's post-Gaddafi government. Last month Libya's interim leader, National Transitional Council chairman Mustafa Abdel Jalil, in his first public appearance in Tripoli told his audience, "We seek a state of law, prosperity, and one where Sharia is the main source for legislation, and this requires many things and conditions."

As Sharia is Islamic law and Libya's future government will doubtless contain many Islamic elements, it is hardly likely that the country's future administration will be willing to sign "sweetheart" deals with foreign energy firms on terms more favorable or even as favorable as those Gaddafi signed with foreign energy firms, as populist Islamic government elements will undoubtedly demand greater financial transparency than that provided by the Gaddafi administration.

But Gaddafi is dead, and so Libya and the National Transitional Council enter a brave new world with few signposts. As regards Western intervention in the turbulent oil politics of the Middle East, one is reminded of what, according to Washington Post journalist Bob Woodward, US Secretary of State Colin Powell told President George W. Bush in the summer of 2002 about the possible consequences of military action in Iraq, in what has subsequently become known as the "Pottery Barn" Rule: "You break it, you own it."

Brussels and Washington have a growing pile of Middle Eastern ceramic shards to sweep up.

This article was written by C.K. Daly of Oilprice.com.

How Did Our Oil Get Under Their Sand?

By Dylan Ratigan, Reader Supported News
24 October 11

It's somewhat rare to hear a Senator tell the truth about American foreign policy, but we did get a glimpse of reality last week when Senator Lindsey Graham lustily talked about the death of Gadhafi. He said, "There's a lot of money to be made in the future in Libya. There's a lot of oil to be produced. Let's get on the ground and help the Libya people establish a democracy and a functioning economy based on free market principles."

Though rare, this is not the first time a high profile American politician has accidentally told the truth about our foreign policy. In March, 2003, Secretary of Defense Donald Rumsfeld told a Senate appropriations committee that the war with Iraq would be paid for by Iraqi "frozen assets" and "oil revenues." This was not completely crazy - the first Gulf War had largely been financed by foreign countries who saw value in the oil supply lines we were protecting.

At the same time last week, the American solar industry filed a trade complaint against Chinese solar makers, who produce 55% of the world's solar panels. They allege that China is selling its solar panels below cost, which would be consistent with the Chinese industrial policy of preparing for a post-oil world. According to Stephen Leeb's new book "Red Alert," China spends over $350 billion a year on renewable energy infrastructure, locking up critical supplies of zinc, silver, gold, copper, and rare earth minerals. Meanwhile, America spends its money keeping sea lanes open for dwindling oil supplies.

The Chinese are improving their skill at making solar panels, whereas American policymakers are explicitly avoiding building a post-oil energy infrastructure. Chinese elites want to secure oil and coal, of course, but they are also rapidly preparing for the day when these resources cannot be profitably extracted and used. American elites are engaged in a more short-sighted strategy of destroying any possible bridge to a post-oil energy future to protect their status quo profits. Leeb believes that this is a choice that could mark the end, not just of American dominance, but of American civilization.

It isn't that this possible doomsday scenario is hard to grasp; promises of alternative energy and threats of higher oil prices have been around for decades. So why is it still going on? My suspicion is a mixture of greed and inertia.

We have an industrial policy driven by oil, which has been the case for nearly a century. Initially, when oil was cheap and we produced most of it, this made sense Our advantage in oil helped us win World War II. Our national highway system, our network of airports and gas stations, suburban sprawl and the associated property tax base was all funded by fossil fuels. These huge oil fortunes played a major role in organizing our political system. When America could produce more oil than anyone else, or had the military alliances to do so, this worked in our favor.

Starting in the 1970s, oil became a strategic drawback, which is why President Carter tried a logical plan - an infrastructure bank - to get us off oil. Yet, our politics is so entwined with oil that Carter was crushed, and no one has since been able to break our oil obsession.

Oil still drives our industrial policy, and now petro-politics is so routinely dominant that it's almost pointless to even think about politicians not funded by oil. Lindsay Graham, for instance, has received a little less than a million dollars from the energy sector over the course of his career, so his lust over Libya's energy profits isn't surprising. Republicans are the party of oil - both Bush and Cheney were knee deep in the oil industry before entering the White House. On the other side of the aisle, TransCanada, which is seeking to build an enormous oil pipeline to bring in shale oil from Canada that will pump as much carbon into the atmosphere as all the oil in Saudi Arabia, just bragged about 22 Democrats who signed a letter asking for approval of the pipeline.

Both Secretary of State Hillary Clinton and President Barack Obama will likely boost the project.

These are just the most recent examples of petro-politics; next month there will be different, equally odious examples.

Many Americans believe that oil is bad for us, and do want to invest in a non-oil infrastructure. Though our industrial policy remains consistent regardless of which party is in power. This doesn't make sense to most voters, because it cuts against the way we think about ourselves as a relatively just democratic society. Our politicians should work for us, but they don't. The traditional model for understanding power in American politics is polling and elections - will Democrats or Republicans win the ability to organize our cultural resources? But this has obvious problems, since we've seen through multiple administrations congruity in policy-making.

A better way to think about power is to follow the money, because money is how our society allocates resources. The money is in fossil fuels and finance, which opens the door to Congressional offices and sells political power to the highest bidders. The Koch Brothers recently held a retreat in Vail, where they thanked those who had given more than a million dollars to their political causes - the so-called "million dollar" club. Mother Jones magazine was able to get a list of those people. Eight finance tycoons and seven fossil fuel (coal, oil, natural gas) magnates were the majority of the twenty eight families listed (the others were in retail and housing). The Koch Brothers themselves make enormous sums from oil, chemical products, and finance.

While we have the illusion of choice in our politics, the only real consistency in policy-making is Washington's commitment to war and oil, and increasingly often, war for oil. Libya was the oil dealer to Western Europe, but the market for oil is global. And oil is the prize, not democracy. This is why John McCain praised Gadhafi in 2009 for his peacemaking efforts, and applauded his death last week. It's also why our military is increasingly extended across the world in oil-rich regions.

Our oil-drenched, defense-heavy industrial policy is increasingly creaky, but it is protected by the money that flows into the political system to wall off politicians from voters. We know that we must restructure our energy system, but it's not as simple as plugging in a new green battery to replace coal plants and gas stations. Just as we must restructure a financial system to ensure investment and value-creation, we must also restructure our industrial policy to get off oil, and our politics to get off oil money. This will require a new way that citizens relate to each other, more local production of goods and services, stronger community ties, and a politics that isn't dominated by big money, but instead by public spaces and deliberation. If you look at the Occupy Wall Street protesters in Zuccatti Square and the others across the world, they may not articulate this, but this is what they are asking for.

Without a reformation for new politics, and a different way of relating to one another, we will continue with the status quo. And we will have to keep finding countries and asking the question of how our oil got under their sand.

Libya's National Oil to Takes Rare Step Of Disclosing Oil Deals
By Benoit Faucon & Iman Dawoud and Sarah Kent
Published October 28, 2011

| Dow Jones Newswires

LONDON -(Dow Jones)- Libya's National Oil Co. this week took the unusual step of disclosing oil transactions--from fuel purchases to cooperation agreements with foreign giants--made by rebels during the civil war.

The new government, dominated by the opposition to Moammar Gadhafi after they toppled him in August, has said it wanted to break with what it sees as a legacy of opacity and mismanagement under the previous regime.

The documents offers an unprecedented insight into Libya's oil industry during the civil war, revealing the steps taken by the likes of Vitol Group and Repsol YPF SA (REP.MC) as they jockey for positions in the country holding Africa's largest oil reserves. In a statement accompanying hundreds of individual transactions spanning from March to Sept.15, NOC said they were published to apply "the principle of transparency in light of the new era heralded by the revolution of 17 February," the date of the beginning of the Libyan uprising.

The disclosures came after speculation over the terms of deals with Vitol and over discussions with foreign companies on services or security to NOC.
One document says the rebels examined competing bids submitted by foreign companies offering to sell fuel and Vitol made the most satisfactory proposal.

Crude--used in repayment for Vitol fuel supply--carried a $1.5 a barrel discount for Mediterranean delivery compared with the competing U.K. Brent contract and $4.4 a barrel if sent East of Suez. Vitol declined to comment on the disclosures.
Vitol also typically offered a premium of about $40 per ton for oil products supplies, according to the documents.

In a July 4 memorandum of understanding, a unit of Turkiye Petrolleri AO also offered to supply oil products. In the same document, NOC agreed to accept TPAO, which has exploration and production licences in Libya, "as an eligible partner to cooperate in oil field development, production, exploration etc. in the near future." TPAO didn't return a request for comment.

In a proposed, unsigned MoU, Repsol said it supplied food and medicine to rebel-held cities and offered fuel supplies, oil equipment and to help restart production in assets, including where it is not a titleholder.

A Repsol spokesman said the company "gladly provides aid, be it humanitarian or technical assistance, if we are in a position to do so."
The disclosure is unusual because though most national oil companies in Africa--such as Angola's Sonangol and Algeria's Sonatrach--do publish their accounts, they don't detail individual contracts or transactions.

With the disclosure, "businesspeople will be less likely to offer, and officials to demand, bribes if they know that it will be very difficult to square the accounts with a demanding public," said Robin Hodess, director for research and knowledge anti-corruption watchdog Transparency International. "This is one step to ensuring that Libya's citizens see more benefits from Libya's oil wealth," Hodess said, adding foreign companies should "match the disclosure by publishing their own payments."

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