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Samuel Ciszuk / IHS : IOCs, traders halt
libyan dealings on sanctions and security concerns


Oil companies, traders and shippers are all increasingly wary of dealing with Libyan crude and state entities amid uncertainty over the severity of international, and some unilateral, sanctions and a clear trend towards the deepened isolation of the Libyan regime.

 

Implications

Fears over sanctions are doing their part to isolate the Libyan regime. Meanwhile, fighting around several of Libya's key export terminals in recent days has been sufficient to halt Libyan export flows almost completely and deter shippers from approaching Libyan harbours.

Outlook

Fears over sanctions are doing their part to isolate the Libyan regime. Meanwhile, fighting around several of Libya's key export terminals in recent days has been sufficient to halt Libyan export flows almost completely and deter shippers from approaching Libyan harbours.

Not as Rosy

Since the popular rising against the regime of long-term Libyan leader Colonel Muammar al-Qadhafi began in earnest and large swathes of Libya's territory and cities were liberated, there has been a determination from both the regime and the forming opposition movement to appear in control of the situation and downplay eventual oil industry problems. The opposition leadership in the eastern city of Benghazi has furthermore been keen to portray itself as responsible and capable, and willing to uphold Libya's strategic position as a supplier of crude for the global markets. A situation of general chaos has not aided either side in trying to ascertain the status of individual fields and facilities in the oil industry, as skilled workers have fled and abandoned remote desert oilfields, out of a fear of being trapped far from any easy escape routes if the fighting spreads inland and being stranded in the desert as industry supply chains break up.

Estimating the extent of Libyan upstream production rates has furthermore been complicated by the, where possible, gradual shut-down of oilfields in order not to lose important reservoir pressure and damage the fields and the frequent reliance by media on weekly production reports, which of course have shown a lag in reporting the most recent days' situation. Fighting in and around several of Libya's most important oil ports and refinery hubs over the past four days—airstrikes, shelling or ground combat have been reported in some combination from Zawiyah, Ras Lanuf, Marsa el-Brega and Zueitina, as well as from the offshore supply port of Misurata—has, however, made virtually all crude export loading impossible in the North African country, as well as most likely forced a shut-down of the majority of pipelines transporting crude from the inland oilfields to the storage and export terminals.

The only oil export terminals to have seemingly not seen some form of fighting in the past few days have been the main central export terminal of Es Sider, which seems firmly in the hands of forces loyal to the regime, and the far eastern port of Marsa El-Harigh, outside of Tobruq, deep in the eastern liberated area. Marsa El-Harigh's relative importance is limited, however, and it receives its crude from fields in the Sirte Basin, which in several spots is located not too far from the fault line between regime-loyal and opposition tribes. While some upstream operations there are quite likely to still be ongoing, under the guise of Benghazi-based state-owned operational entity Arabian Gulf Oil Co. (AGOCO), the shortage of staff is likely to see the already limited output fall even further. Government-controlled Es Sider is located close to Ras Lanuf, which has seen heavy fighting, meaning that shippers are unlikely to send their tankers into the port with such a fluid and violent situation so close by. Further west, the main outlet point from government-controlled western and south-western oilfields is Zawiyah, which is in opposition control and has seen very heavy fighting in most of the past week. "We are not aware of the current production status of the Libya oilfields where Oxy produces", a spokesman for United States midsize Occidental (Oxy) told Reuters yesterday (7 March), showing that IOCs increasingly are losing contact with their upstream assets in the country.

The actual situation is demonstrated by reports of a mounting fuel shortage in large parts of the country, as most refineries halted their operations more then a week ago. Dubai daily Gulf News has reported widespread shortages in rebel-held Benghazi, with fears growing over rebel forces gradually losing the ability to defend themselves should their armed forces and the parts of the Libyan army which have deserted, lose the ability to use their vehicles. Libyan imports of gasoline (petrol) have also been non-existent over the past two weeks, according to brokers contacted by Reuters.

Severing Relations

Meanwhile, fewer and fewer companies are willing to deal with Libyan state entities such as the National Oil Corp. (NOC), which at the moment controls Libya's crude and products marketing. ExxonMobil yesterday (7 March) was understood to completely have stopped trading crude with Libya in order not to fall foul of unilateral US sanctions and possibly tightening future sanctions. Rumours have reached Reuters that fellow US supermajor ConocoPhillips and midsize player Marathon, both with stakes in a large joint venture with the NOC called Waha Oil, also had decided to sever all trading ties with Libya. Among traders, the bank Morgan Stanley also said it had cancelled all crude purchases from Libya. Among European players the situation was less clear, with OMV still saying that it was receiving Libyan crude, likely referring to a tanker shipping its crude that was one of the last one to leave eastern Libya late last week, with the company already having reported last week that one of its main fields in Libya, Shateira, was shut already.

Implications

International UN sanctions do not target Libyan crude exports per se, however, the unilateral US sanctions seem more harsh and have led to such an interpretation among some US companies. On the whole, IOCs and traders seem to be taking a safe approach, having started to contain their dealings with Libya severely last week, as it was increasingly clear that the country was heading towards a civil war. With little, if any, crude now expected out of the North African country, there is little reason to keep relations open, given the potential relational damage from being caught paying money for crude into regime-controlled accounts. Also, shippers who now might be holding off on approaching Libyan oil ports because of fighting around the ports, will be in no hurry to return as long as insurers at the Lloyd's of London insurance market are classifying Libya as a high risk, or even war-zone destination. Insurance premiums play a significant role in the cost of crude shipping and escalated premiums for Libya mean that crude from other parts of the Middle East and North Africa, where sufficient capacity exists to replace Libyan output, instantly become more attractive. As IHS Energy flagged last week, a virtually complete shut-in of Libyan crude production until the civil-war situation clarifies, or until peace is restored, is therefore now under way.


 

Samuel Ciszuk's is IHS Senior Middle East Energy analyst. IHS is a global leader in economic and financial analysis, forecastin and market intelligence for more than 40 years. Petroleumworld does not necessarily share these view. Petroleumworld not necessarily share these views.

Editor's Note: For more information on IHS Global Insigth, contact: Margaret-Anne Orgill, IHS Global Insight, Media Relations Manager Corporate Communications. www.globalinsight.com.

All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld,

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Petroleumworld News 03/08/2011



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