Who controls Libya's energy future?

With much of the globe focused on a Malaysian airline disappearance this week, Libya’s government has been faced with a mystery all their own – how had 200,000 barrels of the country’s lifeblood found itself on an unregistered vessel called the Morning Glory heading away from its own coast.

The answer came this week when U.S. Navy Seals quickly boarded the ship off the coast of Cyprus to find armed Libyan rebels on their first real attempt to sell the country’s vast energy reserves without the involvement of the country’s actual government.

Considering Libyan rebel groups and have held four of the country’s nine oil ports since the middle of last summer, including its largest at Es Sider, and the fact that they have openly discussed the option of selling oil without Tripoli or the National Oil Corporation, the attempt was not actually a surprise. However, the fact that the national government was unable to stop them from shipping 200,000 barrels so far east was certainly worrisome for a country so singularly dependent on oil and gas revenue (95% of government revenues).

For a bit of quick background, Libya is home to Africa’s largest proven reserves of oil, but has been unable to reach its full energy potential due to a number of structural and political limitations, none more damaging than the isolation of the government of Muammar Gaddafi. In the months after the 40-year dictatorship fell, there was some hope that output levels would return to form and help the country’s recovery and ensure future growth. Exceeding expectations, output recovered to near pre-war levels within months, with the country’s leadership certain that it would continue.

However, some in the country, mostly those in the oil-rich eastern half, felt they had been left out of the energy game for far too long by the western based capital of Tripoli and demanded greater political political representation and a bigger piece of the revenue pie. When simple demands did not work, a few groups decided the surest way to get Tripoli’s attention would be to seize oil and gas facilities and halt production and most importantly, exports. Since then, Libyan output has collapsed from 1.4 million barrels per day at the end 2012 to about 350,000 last month. Demands range from greater autonomy for the Eastern half of the country to a 15 percent share of the country’s oil revenue, all under the threat that rebels could and would begin exploring export options of their own. So far, Tripoli has said no.

After the departure of the Morning Glory from Libyan shores, the question of just who controls the country’s vast energy reserves became especially vague when the country’s prime minister, Ali Zeidan ordered the ship to be stopped by the country’s armed forces and then air force. Both appeals failed so Tripoli were forced to turn to a “loose alliance of revolutionary militias” that attempted to chase down the fleeing ship with 200,000 barrels of oil. According to a thorough Guardian report, the ship fired a few rockets at the ship before being told that the vessel could not stop due to armed security on board. The ship continued on.

With the ship now bound for a return to North Africa, it’s not entirely clear how the attempted rebel sale will affect negotiations between Tripoli and the country east moving forward. Will the government find some confidence in the support offered by the U.S. and European countries like Cyprus? Will the rebel groups find some momentum in the fact that they were able to get out of the Es Sider port without an effective response from Libya’s armed forces?

Geoffrey Howard, a North African analysts for Control Risks suggested that the incident has weakened any attempt to deal with Libya’s energy assets behind Tripoli’s back, saying that the Navy Seal response will make it difficult to find buyers. Regardless, the longer the country’s energy uncertainty lasts, the larger problem it will be for not just Tripoli, but the world.

Not Just A Problem For Tripoli

While the ongoing uncertainty is proving especially hard for a country so wholly dependent on energy revenue for all facets of public spending, amounting to about 95% of government revenue, it is also bad news for much of Europe. Since the 2009 Russian gas shutdown, which highlighted the region’s heavy dependence on Moscow for its energy needs, the EU has made a concerted effort to diversify its energy options, including domestic production, renewable alternatives and stronger trade ties with North African producers. However, the years since have also seen widespread unrest in the region, including substantial violence and delays in Libya. Even before the 2009 Ukrainian shutdown, export heavy states like Italy made substantial investments in Libya through energy giants like Eni to build new trade ties, only to see their efforts evaporate with the collapse of the government of Muammar Gaddaffi in 2011.

Further afield, the Libyan landscape has already affected global prices. According to a Bloomberg report, Citigroup cited Libya’s deadlock as reason enough to raise their 2014 forecast for Brent crude to $103 a barrel from $93 since last month. With tensions again running high with Russia, the need for stable alternatives, including efforts in Libya and Algeria, are especially important.

 

http://www.forbes.com/sites/christophercoats/2014/03/20/who-controls-libyas-energy-future/?ss=business:energy