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Libyan rebel oil-export prospects limited

A shipment of oil has made it out of war-torn Libya, but it may be last for some time to come

The departure of a tanker laden with oil from rebel-held territory in Libya, to an unspecified destination, should bring badly needed funds to the cash-strapped insurgents. But damage to rebel-held oil infrastructure resulting from government military action and the high risks involved in shipping the crude mean the event may prove to be little more than a one-off.

While oil exports from government-held territory are banned under the terms of the tightly enforced international embargo on Libya, the rebel-held eastern sector of the country is being allowed to trade, if it can.

The shipment of up to 1m barrels left Hariga port, near Tobruk, last Wednesday on the Equator, a vessel operated by Greek-registered Dynacom Tankers Management and chartered by Swiss trading house Vitol, according to market sources. The vessel, which passed through the Suez Canal on Saturday, is believed to be heading for a southeast Asian market, probably China, but there has been no confirmation of this.

Qatari assistance 

The rebels’ Transitional National Council (TNC) said earlier this month that it has reached an agreement with Qatar, under which the emirate would market oil from the rebel-held fields in southeast Libya. Qatar’s involvement is likely to be have been vital in making the deal happen, effectively providing Qatari backing for a transaction that buyers may otherwise have flinched at.

Qatar has yet to confirm its involvement in the deal, or any longer-term agreement with the rebel authorities, but whoever facilitated it, it seems likely the deal was motivated by a desire to help the rebels, rather than commercial considerations.

While the recent rise in oil prices – Brent futures were trading at $121 a barrel at the time of writing – may be partly attributable to worries over the loss of Libyan oil to global markets, supplies from elsewhere are covering demand adequately, so the risks involved in shipping a relatively small amount of oil from a conflict zone would not seem justified on commercial grounds alone, analysts said.

The deal is thought to have raised over $100m, providing valuable cash for the rebels, although how the oil was paid for and who paid for it remains unclear. The TNC has said an escrow account was established in Qatar into which the money could be paid, although this has not been confirmed by Qatar.

The halt in Libyan oil exports has left a gap to be filled for European oil importers – before the conflict, Europe took over 85% of Libya’s crude exports, according to the International Energy Agency.

But similar sweet crudes from elsewhere in north Africa and Azerbaijan, more of which might be expected to head for Europe in the event of a shortage, are generally still bound for US and Asian markets. That reflects higher liftings of sweet crude from west Africa and the ability of the more sophisticated European refineries to process sour crude from the Middle East and Russia to meet demand – and that the second quarter is generally a period of relatively low oil demand, according to Fred Doll, managing director of Doll Shipping Consultancy.

“The world is managing without Libyan oil. If the supply/demand balance shifts significantly, then things could change, but we're not there right now,” Doll said.

Limited supply

But, even if Europe could do with more Libyan crude, it seems unlikely that the rebels will be able to supply much of it in the near term. There is said to be around 1m-2m barrels of oil in storage at Hariga – enough for only one or two more tanker shipments – and the rebels look unlikely to be in a position to top that up soon, given damage inflicted last week by government troops on oil infrastructure in the rebel area, which has brought pipeline supply to the port to a halt.

The extent of the damage has not been detailed by the rebel authorities, but even if it were relatively minor and could be repaired fairly easily – a ruptured pipeline, for example – that would be unlikely to be the end of the story.

“It will be a very long time before we see Libya back to full production,” said Samuel Ciszuk, a senior analyst at consultancy IHS Energy. “If the rebels were able to bring crude back on stream, the chances are they would just attract new attacks from the regime – and it seems they aren’t in the best position to defend the fields down there.”

The rebels’ oil comes mainly from three oilfields in the east of the country, the largest of which is the 12bn barrel Sarir field, a long way from the rebels’ coastal strongholds. When production was stopped, the fields were producing only around 100,000-120,000 barrels a day in total, according to the rebels. The fields are run by Arabian Gulf Oil (Agoco), which said in March it would sell oil separately from the state’s National Oil Company, effectively siding with the rebels (PE 4/11 P8).

There is little potential for natural gas production in rebel-held territory – the country’s main reserves and the trans-Mediterranean Greenstream pipeline to Sicily all lie within the government-held area. The country’s one antiquated liquefied natural gas export facility is in rebel hands, but the port in which it lies, Marsa el Brega, has been heavily fought over. The facility was producing less that 1m tonnes a year before the conflict halted exports, all of which went to Spain.

Uncertain future

Wahid Bourgaighis, the head of Agoco, told the BBC last week that the company was talking to “national oil companies” in “about three” European countries that could be big customers for Libyan oil, although he declined to name them. Italy’s Eni has said it has been in talks with the rebels – in 2010, over 20% of Italy’s crude imports and 13% of its gas imports came from Libya (PE 4/11 p9).

But analysts say the form of a post-conflict Libyan oil industry is impossible to predict. If the rebels eventually assume control of the whole country, then there would be an opportunity to bring greater transparency to an oil sector, whose opaque framework was intended to help bust international sanctions in the 1980s.

Campaigning group Human Rights Watch last week called on any emerging Libyan authority “to break with past practice in Libya and open the books on oil and gas transactions”.

But should the country becomes partitioned roughly along the present line between government and rebel forces, then organising oil production in some parts of the country could prove near-impossible, not least in the Sarir field, which could end up split between the two camps.

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