Oil
Tuesday, 27 September 2011 09:30

Libya’s sweet and sour

Although Libya produces less than 2% of the world’s oil, the high quality of its reserves is rocking the boat in world markets, because Libya’s “sweet” crude oil cannot be easily replaced in the production of gasoline, diesel and jet fuel, particularly by the many European and Asian refineries that are not equipped to refine “sour” crude, which is higher in sulphur content.

Saudi Arabia has more than four-million barrels of spare capacity and has promised to tap it if necessary, but that capacity is mostly for sour grades of oil.

Should the turmoil in Libya last for more than a few weeks, oil experts predict that European refiners will be forced to buy sweet crude from Algeria and Nigeria, two principal sources of sweet crude for the United States, almost inevitably resulting in even higher petrol prices.

With many countries clamouring to release tens of billions of dollars of frozen assets, which may be key to the country’s short-term reconstruction, without oil it cannot build a stable economy upon which democracy can flourish.

Therefore, Libya’s oil industry holds the key to the success of the fledgling regime and the wealth of its people. It previously accounted for a quarter of the country’s total economic output and 95% of its export earnings, but the bloody civil war has reduced Libya’s oil fields to production running at little more than 50 000 barrels a day, compared to 1,6-million before hostilities erupted.

However, the country is trying to restore its oil production after more than six months of fighting between rebels and forces loyal to Muammar Gaddafi – an event that has caused foreign oil companies to flee and led to infrastructure damage to oilfields and export terminals.

Libya’s new leaders are preparing a draft proposal to give more power to the oil ministry and carving up the National Oil Company’s (NOC) responsibilities, according to Mustafa el-Huni, member of the National Transitional Council (NTC) with the responsibility for oil.

“The ministry should make a policy. The NOC is a commercial entity, while the ministry is political and should be involved in international participation and putting policies in place,” El-Huni stated.

This would be a change from the system under Gaddafi, where the NOC handled both the daily operations of the oil sector and represented Libya at OPEC meetings. El-Huni said more freedom would be given to subsidiaries such as the Arabian Gulf Oil Company (Agoco) under the new plan.

Agoco spokesman Abdeljalil Mauf, who worked in the company’s exploration department before the revolt, says: “I don’t want an NOC. It is the biggest error that they control everything. They should leave more flexibility for national companies to compete with international companies.”

Currently the oil ministry is run by the NTC and Tripoli-based Ali Tarhouni, at least until the “liberation” of the country is declared, and there are plans to split the NOC into three parts to separate upstream and downstream activities in order to follow the pattern of other Gulf countries.

The NTC’s top upstream priorities would be to prepare for a new exploration round and to eke out more production from existing fields in a move that would hike output significantly from the pre-war level of 1,6-million barrels per day.

“On upstream, we could focus on new technology with joint ventures for secondary recovery and giving more concessions such as offshore Benghazi or in the Kufra basin. This is a virgin basin and has lots of potential,” El-Huni said.

Downstream, he said, the NTC would look to upgrade its largest refinery, Ras Lanuf, to increase its yield of gasoline and to build a sixth refinery of about  200 000 barrels per day, as Libya has long been reliant on imports of refined products to meet domestic use because of insufficient refining capacity.

Meanwhile, Russia is taking a keen interest, with Russian Foreign Minister Sergei Lavrov inviting members of Libya’s interim government to Moscow to discuss the future of Russian energy contracts in the nation.

Russia’s top oil and gas producers, Gazprom, Gazprom Neft and Tatneft, had invested hundreds of millions of dollars on exploration in Libya before suspending operations when the uprising broke out earlier this year, but the director-general of the Russia-Libya Business Council, Aram Shegunts, has stated that Russian energy companies are likely to be barred from resuming work in Libya after NATO-backed rebels ousted Gaddafi, who has been in power since 1969.

Info from Reuters and Upstreamonline.com