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Libyan chaos stirs global panic over oil supplies

28 February 2011

By Alan Clendenning

Associated Press

MADRID: Libya’s oil industry is in chaos, and that’s no exaggeration.

Armed men loot equipment from oil field installations.

British commandos execute secret raids in the Libyan desert to rescue stranded oil workers as security disintegrates rapidly in remote camps.

Libyan port workers, frightened of being caught up in Moammar Gadhafi’s violent crackdown on protesters, fail to show up for work, leaving empty tankers floating around the Mediterranean Sea waiting to load crude.

And the European oil companies extracting Libya’s black gold are operating in crisis mode, trying to get stranded expatriate workers out and safe amid conflicting information on how much oil is still being pumped and just where it all is.

That was just this week. The situation may not get better in the near future. No one knows whether Gadhafi or the rebels trying to oust him will end up controlling Africa’s biggest oil reserves.

Fears abound that Libya could turn into a fractured nation with competing armed groups ruling over rich and remote desert fields lying hundreds of kilometers apart from each other.

The chaos in Libya as it descends into virtual civil war has sent international oil prices skyrocketing despite a pledge from Saudi Arabia, the world’s largest oil exporter, to ramp up exports. And that volatility is likely to continue, because it could take weeks or even months for Libyan production and exports to return to normal levels, experts said.

That has sent already over-caffeinated oil traders into a frenzy that won’t calm down until there’s more clarity about what is happening on the ground in Libya.

The International Energy Agency reported late Friday that Libya is probably still producing about 850,000 barrels of oil daily, down from its normal capacity of 1.6 million barrels – but acknowledged the estimate is based on “incomplete, conflicting information.” Libya produces just under 2 percent of the world’s oil, but its customers are overwhelmingly European. Hardest hit by the sudden oil shortage are European refiners that receive 85 percent of Libya’s exports, turning the country’s highly valued crude into diesel and jet fuel.

The biggest buyers are Italy, France, Germany and Spain – and Spain is so concerned it announced Friday that highway speed limits will be reduced in March in a desperate bid to cut fuel consumption.

The biggest problem facing oil companies and European consumers who depend on Libyan oil is a near-complete breakdown in solid information. Phones in Libya rarely work, Internet is intermittent, workers are fleeing and looters are grabbing what they can or pose a threat until order is restored.

While British military planes staged a daring desert rescue Saturday of 150 oil workers, hundreds of other workers were heading across the Sahara Desert in bus convoys toward the Egyptian border – a grueling trip.

One evacuee said the military plane he boarded in Libya was supposed to carry around 65 people, but quickly grew to double that.

“It was very cramped but we were just glad to be out of there,” Patrick Eyles, a 43-year-old Briton, said at Malta International Airport.

Spain’s Repsol -YPF oil company announced Tuesday it had suspended operations in Libya, only to find out a day later that the oil fields it operates with other firms were still producing 160,000 barrels of crude daily.

Still, that was less than half of the 360,000 barrels produced before the crisis began.

Despite reports that production was still under way in the vast Saharan desert Amal fields, Libyans never before permitted to approach the oil fields under Gadhafi’s reign showed up armed and took anything they could – four-wheel drive vehicles, pumps, generators. One group came with a trailer and tried to remove a huge crane, said Gavin de Salis, chairman of Britain’s OPS international oil field services company.

“Nobody shot anyone,” De Salis. “But people were wandering around with guns saying ‘Thanks, we’ll take your vehicle since you’re leaving anyway.”’ Two buses arranged by De Salis’ company were ferrying 117 expatriate workers toward Egypt Sunday, a trip expected to last 24 hours or more, and he said another bus was expected to take 25 expatriates out.

Even though production appears to be limping along – with Repsol reporting that Libyan oil workers are increasingly running operations as expatriates leave – the oil isn’t getting out. The 520-kilometer natural gas pipeline under the Mediterranean from Libya to the Italian island of Sicily has been shut down for a week, with no guidance from its owner, the Italian energy firm Eni SpA, on when it might start pumping again.

“Most Libyan ports are closed due to bad weather, staff shortages, or production outages,” the IEA reported. Ports are key because Libya’s crude heads abroad on tankers.

Major container ship companies have suspended deliveries or pickups from Libyan ports with no word on when shipments might resume.

Tanker ships that deliver to Europe have been told to stay more than 160 kilometers offshore from some Libyan ports and await information on whether they can safely dock and take on oil.

The massive oil terminal at Brega, Libya’s second-largest hydrocarbon complex, was nearly deserted over the weekend, with operations scaled back almost 90 percent because employees had fled and ships were not showing up.

The Brega complex, about 200 kilometers west of the rebel stronghold of Benghazi, collects crude oil and gas from Libya’s fields in the southeast and prepares it for export. Since the crisis began Feb. 15, however, general manager Fathi Eissa said production had dropped from 90,000 barrels of crude a day to 11,000.

With huge spherical storage containers and reservoirs rapidly filling up with oil and natural gas and no ships to take it away, production in the southern fields has been throttled back until Brega can clear some of its capacity.

The big oil companies have been mum on how the political situation may pan out, because they want to produce oil whether Gadhafi or someone else ends up in charge, and it’s not worth it for them to risk alienating any of the groups vying for power, said Mohammad al-Katiri, a Middle East analyst at the Eurasia Group risk consulting group.

In a worst-case scenario, Katiri predicted it could take between four to six months to for Libya’s domestic unrest to ease.

“Such a scenario bodes poorly from an oil production point of view on two counts: Not only will it compromise production with Gadhafi still in power, but ongoing violence could further complicate the ability of a post-Gadhafi political order to emerge in a manner that creates a stable domestic security environment,” Katiri said.

Repsol’s chairman, Antonio Brufau, told reporters he would get his last expatriate workers out using bicycles if necessary – and Katiri said oil companies won’t send them back in until they know it’s safe.

De Salis said some expatriates could return without a functioning central government but only if local security situations improve.

Leaving oil fields deserted in Libya creates even more security problems. In Nigeria, opportunistic villagers, rebels or pirates often tap pipelines in a dangerous bid to steal fuel, leaving many killed or maimed in accidents and pipelines compromised by sabotage.

About the only positive sign for Libya’s oil future is that experts believe both Gadhafi and the rebels want to restart suspended oil operations as quickly as possible because they covet Libya’s oil wealth.

“For Gadhafi, the money helps because he can keep on paying his militias and mercenaries to keep them fighting and loyal,” Katiri said.

The rebels, meanwhile, don’t want to alienate Western governments that depend on Libyan oil, he said, and also need money to be strong enough “to resist attacks by Gadhafi.”

© Copyright The Daily Star 2011.