Is Libyan energy ready for a comeback?

After eight months of delays and closures for Libya’s energy sector, rebel groups finally announced some progress in talks with the country’s current government.

Having occupied a number of oil and gas facilities for months, protesting an array of grievances, the groups had stifled Libya’s energy output, costing the country’s an estimated $7 billion in lost revenue by reducing exports to just 85,000 barrels per day, down from 1.6 million bpd the day before the Arab Spring uprising.

Without offering too many specifics, government officials announced that two ports would re-open this weekend and talks would continue towards reopening two others within two to four weeks. The first two ports, at Zueitina and Hariga, would add 110,000 bpd and 70,000 bpd, respectively, to the country’s overall output. The latter two would represent a much larger boost to the country’s beleaguered but vital energy landscape, with about 560,000 bpd added between the Es Sider and Ras Lanuf facilities.

Although state officials in Tripoli have downplayed the impact of the closures on the government’s overall financial standing, the reopenings are welcome news for an economy so heavily dependent on energy revenue. The Central Bank announced this week that they had enough in foreign reserves to carry the government for up to three years without another cent in energy earnings, however, Libya is especially reliant on the sector, with about 95% of government revenues coming from oil and gas sales. Despite such progress, there is still some concern that Libya’s energy sector recovery is far from certain.

“While on paper this agreement is positive, we will believe in a return in Libyan production when we see it,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas in London, told Bloomberg on April 7th. “Given past experience, the odds are not favorable for a material resumption of Libyan oil supply.”

There are a number of reasons for such concern, chief among them, the fractured nature of the protests movements who have occupied energy facilities throughout the country. Although this week’s announcement signals progress in Libya’s Eastern half, demonstrations have continued in the West, causing further closures.

Even those operating within close proximity have presented varying complaints, including issues tied to political autonomy, energy revenue, access to jobs, corruption allegations and in some cases, separatist movements in the East. While government officials have praised the new agreement as real progress towards opening Africa’s largest proven reserves of oil to the global marketplace, its not yet clear how much progress has been made in addressing the issues that led to the port closures. According to a Reuters report, the draft agreement did not include any mention of “a greater share of oil revenue for their eastern region, known as Cyrenaica”, which has often been a point of contention.

No Rebel Sell

One possible advantage for Tripoli in the current energy standoff is the effect of a recent effort by rebel groups to sell oil directly to foreign buyers without bothering with the government or the National Oil Corporation. Using a North Korean-flagged tanker, the rebels attempted to ship about 200,000 barrels out of the country. Reportedly forced by armed rebels to head east, the ship made it as far as Cyprus before being stopped and boarded by U.S. Navy Seals. More than just a lost opportunity for the rebels to take control of the energy export market on their own terms, the failure sent a message to any potential buyers that the U.S. and international community would not tolerate rogue energy sales. Without potential buyers in play, the Libyan rebels have far fewer options for what to do with the country’s reserves, making an agreement like they announced this week more likely to succeed.

In addition to the port reopenings, this week’s agreement includes a pledge to offer amnesty to the rebels involved in the closures, as well as back-pay for those who left the country’s Petroleum Facilities Guard to take part in the demonstrations.

 

http://www.forbes.com/sites/christophercoats/2014/04/09/is-libyan-energy-ready-for-a-comeback/?ss=energy