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Samuel Ciszuk / IHS : Libyan rebels eye first export
cargo while Eni initiates contacts with opposition

Reports that a crude tanker is due today (5 April) at the rebel-controlled Marsa El-Harigh terminal to lift the first cargo since rebels set up their own marketing and payment mechanisms will buoy the opposition movement and establish its long-term viability. This was underlined further by Eni, the IOC with the largest operations in Libya, having moved to establish contacts with the rebels, braving the risk of government wrath.

IHS World Markets Energy Perspective

Significance

While exports, if sustained, are likely to remain too small to make any global difference for now, they will provide the rebels with their own independent revenue stream, making their operations and long-term existence much more viable, something reflected in Eni's decision to establish contacts with the opposition despite the risk of provoking the ire of the Libyan government side.

Implications

The detailed mechanisms involved in the likely crude sale are still not fully known, although it is believed that Qatar, through NOC Qatar Petroleum (QP), is assisting with some marketing services, to allay buyers' fears of international sanctions. Meanwhile, Eni's initiation of contacts with the rebels shows that the highly politically connected Italian player at the very least is keen to hedge its bets, but perhaps is even increasingly confident that international assistance to the opposition will be scaled up.

Outlook

With its own revenue stream, the opposition is sending a strong signal that it is not going to disintegrate, perhaps to the degree that further disillusioned government supporter defections are enticed; however, it can neither be ruled out that the government will attempt to disrupt the opposition's oil production by hitting the oilfields that it controls.

High Expectations

The Libyan rebel movement is today (5 April) hoping to export its first crude cargo under mechanisms allowing it to collect the revenue, in a move which, if exports can be sustained, would provide it with a revenue stream of its own. Shipping sources have reported that the tanker Equator, operated by Greece's Dynacom Tankers Management Ltd, with a capacity to lift 1 million barrels of crude was due to dock in Libya's easternmost Marsa El-Harigh crude export terminal outside of Tobruq today, although no information was available on who had chartered the vessel and to where it might take the cargo. It was understood that the ship would load a cargo of Sarir/Messla crude from storage at the terminal, which is believed to hold up to 3 million barrels of crude in total.

Libya's Benghazi-based opposition movement has, almost since the outset of violence, been in control of the oilfields belonging to state-owned Arabian Gulf Oil Co. (AGOCO) in the easternmost Sirte Basin, including some of Libya's largest oilfields, Sarir, Messla and Nafoora. AGOCO's production has normally been exported through Marsa El-Harigh or through Ras Lanuf and Es Sider in the Gulf of Sirte, but with heavy fighting ranging around those terminals over the past weeks, only the pipeline to Marsa El-Harigh, which is well within rebel-controlled areas, has remained open. Still, the exodus of foreign skilled workers as well as most Libyan workers, who abandoned the country's often remote desert oilfields in order not to either be caught out by fighting or left stranded as water and food supply chains broke down, has meant that production at AGOCO's fields, as at all other fields in Libya, has fallen to almost zero. The opposition movement has maintained that it has been able to continue production at a rate of 100,000-120,000 b/d, or close to a third of production before fighting broke out, although IHS Energy believes that such numbers should be treated with caution. Nevertheless, it appears likely that AGOCO has pooled much of its remaining workers mainly around the Aguila-Nafoora and Sarir field complex, in order to have some production capacity onstream feeding the refineries it controls to meet local demand, as well as to be able to scale up exports at least if they can be shipped successfully.


Source: IHS EDIN. Oilfields in italics, oil port facilities in black

Drawing Military Strikes

The opposition Libyan National Transitional Council yesterday (4 April) confirmed that troops loyal to the Libyan government under long-time leader Colonel Muammar al-Qadhafi had mounted an attack at installations in the vicinity of the Misla oilfield, although saying that "the damage inflicted was restricted to one diesel storage tank", according to Reuters. Given the impact on the rebel movement that the establishment of its own independent revenue stream would have, it is not surprising that the fighting could be drawn into the rebel-controlled eastern oil areas. Hitherto, clashes between Libyan government loyalist troops and opposition forces have almost exclusively taken place around towns on the coast of the desert nation. The government forces are, however, still much better armed, better organised and crucially having much better logistical capabilities, allowing them to successfully mount attacks into the remote desert areas in which the Sirte Basin's oil production takes place. The easternmost fields in the Sirte Basin that have come under opposition control are largely under the de facto control of local tribes, which have pledged their allegiance to the rebels. Their actual military capabilities in the face of much better trained government troops are as yet untested, but the expectation is that they would struggle to successfully repel well-organised raids to damage production and transport infrastructure at the oilfields.


Source: IHS EDIN. Oilfields in italics, oil port facilities in black bold, oil infrastructure in green, gas in red

If fighting is drawn into Libya's oilfields, the country's quick return to the global markets when a political solution is found would be severely jeopardised. About 80% of Libya's oil reserves are located in the Sirte Basin and with many of the main fields there being mature, reservoir damage from uncontrolled pressure falls to outright well fires, could cause irreversible capacity damage and year-long processes of reconstruction. While both sides so far have been at pains to make sure that oil installations are not destroyed, the regime might decide, given that it still controls the lion's share of Libya's oilfields, that some destruction is worth the risk, in order to make sure that the opposition's establishment of a sustainable independent economy is derailed.

Eni Hedges its Bets

Paolo Scaroni, the chief executive of Italian oil and gas company, Eni was yesterday (4 April) confirmed by the Italian Foreign Ministry to have established contacts with the opposition leadership in Benghazi. Italy's foreign minister Franco Frattini was widely quoted to have revealed that Scaroni travelled to Benghazi to hold meetings in person late last week, although his comments were later corrected by the ministry, to say that Scaroni had held meetings over the telephone with the rebel leadership. Eni has a long history in Libya and has been well connected within the Libyan regime, to the extent that it has been seen as rather afraid of what a regime change in Libya could entail. After Italy's initially rather lukewarm support for the opposition turned into participation in the no-fly zone coalition, the company even seemed at pains to assure the Libyan government that it would do its best to lobby for the lifting of international sanctions as soon as possible. Now, the official inception of ties with the rebels indicates that the company at least is starting to hedge its bets, either in preparation of a more permanent division or the country, or in the belief that the international support for the rebels is so solid that it will be scaled up until the rebels are strong enough to dislodge the Libyan regime completely.

Outlook and Implications

Eni's close political connections with the Italian government mean that it should have a particularly good insight into security debates at the highest levels of the international coalition. It is hence not the fact that Eni has established contacts with the opposition movement itself that is surprising—as IHS Energy has said since the rebel movement managed to take control of a sizeable part of the country, talking quietly to both sides would be the sensible thing to do for all large players in the country—it is rather the loud way in which this has been transmitted which makes it look like a way to mend fences with the opposition and shows a disregard for the consequences that it might have on the comoany's relations with the government. Given the still early days of the conflict, it looks like Eni is increasingly investing its interests on the opposition sooner or later emerging as a clear winner, or at least in control of most of the central and eastern Sirte Basin.

Establishing its own independent revenue stream is crucial for the opposition and , if successful, will allow it to emerge as a very sustainable threat to the regime, which hitherto has tried its best to discourage its supporters and check its progress on the hope that the rebellion will run out of steam. A sustainable source of income from oil exports will send a strong signal that the opposition is there to stay and only can grow as it tries to bring more and more crude exports onstream, while the rest of Libya is denied the ability to export crude as long as the open conflict ensues. This might in fact be enough to significantly turn the situation around and again provoke regime allies to waver in their support for Qadhafi, resulting in a renewed wave of defections not only from the top leadership of the Libyan regime, but also from its armed forces. At the very least, this is what many in the opposition and the international coalition monitoring the no-fly zone are hoping for.

On the other hand, the prospect of the opposition establishing its own revenue stream is likely to provoke attempts by government troops to disrupt the production and flow of oil by using its superior arms and logistical abilities to mount raids against the opposition-controlled oilfields and pipelines, some of which are not too far from current combat areas like Marsa El-Brega and Ras Lanuf. If so, a new, much more damaging dimension of the Libyan civil war would ensue, making the country's eventual recovery a significantly more drawn-out process.

 

 

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.

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Petroleumworld News 04/06/2011

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