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As Libya’s crude output rises, so do oil workers’ expectations

Talk to Libyan oilmen and their message is as optimistic as it is clear: they’re bringing their sector back on stream quickly and are ready to supply the West with its light sweet crude. They’re not wrong

WITH little fanfare, a tanker carrying 381,000 barrels of oil left Hariga, a port next to the eastern town of Tobruk, for southern Europe on 25 September. Its final destination was ConocoPhillips’s Miro refinery, in Germany. The cargo’s departure didn’t prompt celebratory gunfire in Tripoli, but it was a milestone for the revolution, marking a free Libya’s entry into the global crude market.

It also sets the clock ticking on how post-Qadhafi Libya will reorganise an oil sector that was riddled with corruption. As export money begins to pour in, long-suffering oil workers, foreign investors and Libya’s newly empowered citizens want to know that their energy industry – which accounts for half of the country’s GDP and almost all of its export receipts – will benefit the country, and no longer a small elite. Everyone in Libya has a view of how to reorganise the sector, and the country’s new rulers may need the wisdom of Solomon if they are to meet popular demands for reform.

For now, the oil sector is getting back to business willy nilly. The first cargo of crude was from Arabian Gulf Oil’s (Agoco) Sarir field, southeast of Benghazi, one of the rebel-held fields knocked out of action by rocket attacks from Muammar Qadhafi’s forces early in the war. Since it shipped, Agoco alone has exported almost 4 million barrels of crude from Hariga. So far, at least one 600,000 barrel cargo has gone to feed the Zawiyah refinery, in Libya’s west. Seaborne supplies to the 120,000 barrel a day (b/d) plant, which supplies Tripoli, will continue until the Sharara oilfield, which pipes crude to Zawiyah, is brought back on stream.

But exports are ticking up, as oilfields in Libya’s vast desert interior spark back into action. The fields of the southwest, including Sharara, are either back on stream or close. The prolific Sirte basin, home to the bulk of Libya’s oil reserves, including the Waha complex, is also near to production.

None of the export facilities along the coastline in the centre of Libya has been significantly damaged. Sidra needs some repairs, including to parts of the tank farm. But the swift return to production is good news for a cash-starved economy and a jumpy international oil market.

Libya’s oilmen are bullish and they don’t take kindly to outsiders who say the country and its energy sector will struggle to recover from the conflict. Output will reach pre-war levels of 1.6 million b/d within a year, reckons Nasser Aljaly, chairman of Zawiyah Refinery. Western analysts’ pessimism – some said such lofty levels would be reached again only by 2014 – was totally wrong, he said in an interview in Zawiyah. By then, Libya would have brought new fields, and new oil, on stream. Already, there is talk of pushing output to 3 million b/d, a target well beyond the country’s Opec quota.

Such optimism reflects an attitude that is obvious everywhere in Tripoli now, too, as a country receives an injection of can-do thrust from the younger generation that unseated the dictator. "We thought these kids just sat around playing computer games," said a Zawiyah oilman with pride. "But they were brave and they defeated him."

Volunteers have been cleaning streets of debris left by pitched battles. Painters have already daubed most available walls with revolutionary graffiti (common theme: "We’re free!"). Markets are doing brisk trade in new goods. Tripoli’s port is running smoothly.

And airlines have opened offices – even if each flight into the capital’s airport must secure Nato’s go-ahead first, and foreign carriers still have cold feet about a return to the country.

Libya’s oil industry is coming back on line while the National Transitional Council (NTC) squabbles over who should be in the first post-regime cabinet (see p14). It’s a remarkable testament to a country’s – and an oil sector’s – will.

But the new freedoms are bringing some new frictions, too. Tripoli is alive with rumours about which Qadhafi henchmen have pulled the wool over the NTC’s eyes to remain in positions of power; which are still playing by the same corrupt rules; and which units of National Oil Company (NOC) aren’t yet co-operating with the new rulers.

"These bits of information cross Tripoli in a matter of minutes," said one senior executive in an interview. He didn’t want his name to be used, because he is already one of the targets of such gossip. "People don’t know who did what during the regime, or helped the rebels. They don’t know Libya’s libel laws, either, which are very strict."

That much is clear from the signs held up by protestors outside of NOC’s head office, where sporadic protests have taken place since the end of September. When Petroleum Economist visited the state-owned company, the protestors were upset that they hadn’t yet been paid and had taken their complaints to the top. Tarek Mohammed Abu Azza, a welder at Arab Drilling and Workover (Adwoc), an oilfield services firm, said he’d received only LD1,200 ($950), or two month’s wages, since the rebellion started. Other protestors said they hadn’t been paid at all.

But their bigger beef was with management, against whom most of the protestors alleged gross corruption. "Where did you get your money from?" read one sign, with a well-known Libyan oilman’s name at the end.

The more benign placards carried ominous warnings. "We will judge all who stole our money," said a sign held by Omar Ali Omar, a 36-year-old driller. He didn’t have details of how the money had been "stolen", or when, but he was convinced it was true. The men said that, god willing, they’d be back to work the day after.

Adwoc, for which most of the protestors worked, isn’t even really an NOC company (its main shareholders are in the Mideast Gulf, although Libya has an indirect stake). When a heavy rain fell on the men, NOC flung open its doors to welcome them inside. Their miniature strike won’t put the brakes the oil sector’s break-neck recovery.

Under Qadhafi, even minor protests were punished. "The Egyptians used to joke about us Libyans," said one of the men. "You can’t remove a school administration without blood," they said. But things have changed. Intoxicated by new freedoms, Libyans are intent on exploring them. The NTC, NOC and the other big authorities in free Libya have a job on their hands: to meet unpaid salaries and, to avoid more foment, satisfy rising expectations from their people.

As foreign employers return to the oil sector they, too, should expect to find a more restive, determined and bullish workforce.

A strategy to deal with former regime figures still in power would be a good start. But, admit senior NTC people, there is no broad agreement on how to do this. And popular impressions aren’t necessarily correct. "Not everyone who worked for the regime supported Qadhafi," said one executive who spent most of his adult life abroad before returning to help the revolution. Nor did seniority in the oil industry necessarily mean a man was corrupt – as many Libyans seem now to assume.

Mazin Ramadan, a diaspora Libyan who returned to the country to run the Temporary Financial Mechanism, the fund set up by the NTC’s foreign backers to accrue unfrozen Qadhafi billions, talked of an executive at Ras Lanuf Oil & Gas Processing, an NOC subsidiary, who spent the past five years walking to work. His company car had been stripped after he’d raised questions about some irregularities at the firm.

Other executives actively helped dismantle the regime from within. Hussein Elhengari spent recent years as a senior executive at Akakus Oil, the joint venture between NOC and Spain’s Repsol. It’s the kind of CV that could now make lower-ranking oilmen at the firm suspicious. Yet it was Elhengari who identified which valve on the Sharara-to-Zawiyah oil pipeline could be shut off, ending supplies of crude to the Zawiyah refinery and helping to starve Qadhafi’s troops of gasoline. Although the military advance on Tripoli of rebels in the Western Mountains garnered most of the praise, shutting down that pipeline was a crucial moment in the war.

(Elhengari told Petroleum Economist that he and others deliberately leaked to media – Petroleum Economist included – intelligence that the valve had been cemented. In fact, the valve was closed by two rebels from the mountains and the manhole welded shut. The disinformation was designed to convince Qadhafi troops that restarting the line would be too difficult. In fact, restarting the undamaged valve in September was a simple job.)

"Regime associations are a risk for Western investors"

But other hands are not so clean. Although most Libyans seem willing to identify by name which of their compatriots enjoyed the regime’s favour, proving the allegations may be difficult.

Ali Tarhouni, the interim oil and finance minister, says the NTC will go back over regime contracts and assess their legality and validity. But Libya’s legal system wasn’t lacking, even if the behaviour of regime figures was. So checking for irregularities in the deals may not bring the kind of retribution many Libyans wish for.

In theory, moreover, such investigations may worry some foreign investors, especially those that fostered close personal alliances with Qadhafi and his sons. For all the favour their support of the revolution has garnered, British, French and Italian firms also cultivated strong ties with Qadhafi. Tony Blair, the former UK prime minister who visited Qadhafi in his desert tent to broker a big upstream deal for BP, has certainly lost credibility among average Libyans. So has Italy’s Silvio Berlusconi, whose favours for the colonel are now legendary among morally outraged Libyans. "Regime associations are a risk for Western investors," says one North Africa analyst.

Nonetheless, the position of Russia’s Gazprom, Algeria’s Sonatrach, and other companies from countries that did not endorse the rebellion – or even actively opposed it – is far more doubtful. Existing contracts will remain in place, insists the NTC. But everyone agrees that future deals will reflect the geopolitics of Libya’s war.

In the meantime, the rapid recovery of Libyan oil production – so far achieved almost entirely by Libyan engineers and oilmen, without outside help – may begin to stall if foreign companies don’t begin sending their capital and employees back to the country. Shukri Ghanem, the former oil minister who fled Libya as the rebellion advanced, reckons the country needs as much as $4 billion to return output to pre-war levels of 1.6 million b/d. And tens of thousands of foreign oil workers have yet to return to the country.

A thorough campaign of de-Baathification – the policy imposed on Iraq by US occupying forces in 2003, which overnight removed all members of Saddam Hussein’s Baath party from positions of power – would be a disaster for Libya’s oil sector

That means Libya can scarcely afford to purge the sector of politically incorrect oil executives. "Every other day experienced people are being sacked," Ghanem said at a conference in London last month. "It’s a big problem." A thorough campaign of de-Baathification – the policy imposed on Iraq by US occupying forces in 2003, which overnight removed all members of Saddam Hussein’s Baath party from positions of power – would be a disaster for Libya’s oil sector.

But winning the trust of the workers on the ground is also a priority, and many aren’t in a forgive-and-forget mood. For now, NOC seems to be culling the least popular figures. Among recent reported dismissals was Waha Oil’s chairman, Bashir Elshahab, who was said to have been a regime stalwart. Tarhouni, according to one report, met Waha’s striking oil workers and agreed to their demands. Petroleum Economist could not confirm the news.

Other subsidiaries are likely to undergo similar reforms. The fall of Sirte will speed management changes to the local oil company, another NOC unit whose workers have gone on strike. And the spotlight is also on executives at NOC itself, where rivalries between managers who were in place before the rebellion and new ones appointed in Benghazi during the uprising are now coming into the open.

Some Tripoli-based executives are said to be annoyed by the NTC’s creation of a shadow NOC in Benghazi during the war – and reject its authority

One source told Petroleum Economist that Omar Shakmak, Libya’s new deputy oil minister, was locked out of the NOC building when he arrived in Tripoli in October. Some Tripoli-based executives are said to be annoyed by the NTC’s creation of a shadow NOC in Benghazi during the war – and reject its authority.

All of this will leave the country’s oil sector in flux in the coming months. The picture may not be clear until a new, elected government is in place. That could be a year away, or possibly much longer. The NTC is trying to smooth the intervening months, with promises that the oil ministry will hand more power to NOC; and NOC will cede more control over upstream developments and contracts to its subsidiaries.

Tarhouni has pledged that the new Libya will "practise transparency and not just talk about it". Shakmak has invited workers to submit evidence of management wrong-doing.

But as crude production and oil sales recover, Libya will also soon be contending with big inward flows of export revenue. Transparency groups say now is the time to institute sound and open reporting processes to account for the money, and to lay down new modes of behaviour for a sector that was riddled with corruption. That, too, will take time.

The revolution has left Libya and its oil sector with a blank slate. Filling it to the satisfaction of all parties will not be easy.

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