Oil companies see quick return to Libya, once peace restored

McClatchy NewspapersAugust 22, 2011 

WASHINGTON — With the regime of Moammar Gadhafi on the verge of collapse, international oil companies began preparing Monday for what they hope will be a quick return to production in Libya, a move that’s expected to reduce the global price of crude and help drive down U.S. gasoline prices.

Companies, most of which withdrew their expatriate staffs when fighting began in February, said that Libya's oil installations appeared largely undamaged from months of warfare and that once peace was restored, production and exports should resume quickly.

“Our people are ready to go back to work when the conflict is resolved. From that point forward, they can return to production in four weeks or less,” said Carmen Herrero, a spokeswoman in Madrid for the Spanish oil company Repsol.

Before the war, Repsol’s joint venture with the National Oil Corp. of Libya was producing about 35,000 barrels of oil daily at the El Shararah oil field in the central Libyan desert near Ubari. The last word Repsol officials had from their Libyan staff, in late July, was that the fighting hadn't affected the installations.

“We have to see what happens going forward, the new government, the new authorities,” Herrero said. “If there are no problems and people can go back to the country, there can be production in about four weeks maximum.”

Italy’s foreign minister, Franco Frattini, told Italian television Monday that workers from Eni, Italy’s government-controlled oil company, were now in eastern Libya looking to restart oil production and transport quickly. Italy’s presence in Libya dates to its brief colonial rule from 1911 to 1934, and Frattini told his countrymen that “Eni will play a No. 1 role in the future.”

According to statistics on the National Oil Corp. of Libya's website, Eni was extracting about 196,000 barrels per day of oil from Libyan fields before the war. In addition, the company produces large quantities of natural gas.

A statement from the U.S. oil company Marathon said it wouldn't consider returning its staff to Libya "until we could ensure the situation was stable and secure." It said that "speculation on a time frame for our return would be premature."

The statement added, however, that the company had begun discussions with the rebel National Transitional Council on the condition of facilities in the Waha field it operates jointly with Libya's national oil company.

Before the war, Libya provided about 1.1 million to 1.6 million barrels per day, roughly about 2 percent of the world’s daily oil demand. But while that production made Libya only the world's 17th largest oil producer, it has the largest proven reserves in Africa and it played an outsized role in supplying Western Europe, where refineries easily process its lighter grade of crude.

Saudi Arabia stepped into produce more oil, but Saudi oil is more difficult for European refineries to process.

“There is a great incentive for the Europeans to get this oil back on line quickly because they’ve been hurt,” said John Kilduff, a veteran oil expert for Again Capital, an energy-trading hedge fund in New York.

The conflict in Libya sparked a spike in energy prices in the spring, as traders fretted that the civil war could spread to other oil-producing nations. Economists now think that price spike significantly slowed U.S. economic activity in the first half of the year.

Kilduff said American consumers should see the impact of the return of Libyan oil in lower gasoline prices, even if the oil wasn't directly distributed in the United States.

“There should be a decent decline as a result of this oil coming back on line,” he said. “Once you start to see the first … exports, you will see further (downward) pressure on prices rapidly.”

Gadhafi and the opposition appear to have spared most of the nation’s oil and natural gas infrastructure, viewing oil as a cash cow that must be preserved.

“I think certainly both sides saw the petrol dollars as the way forward, to placate the various factions within the country," Kilduff said. “The majority of the pipelines and other infrastructure are fine, and will be ramped up quickly.”

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