The international military intervention in Libya risks prolonging the shutdown of North Africa’s most productive oil fields as well as reprisals by Muammar Qaddafi’s regime against foreign energy assets.
Oil has
risen to a two-year high during the month-long conflict between government
forces and rebels. Prices may gain today after the U.S., U.K. and France
launched cruise missiles and airstrikes at targets in Libya March 19 and
yesterday, said John Sfakianakis, chief economist at Banque Saudi Fransi.
(BSFR)
Libyan
oil output has fallen to less than 400,000 barrels a day, about a quarter of
the production before the crisis, and may stop, Shokri Ghanem, chairman of
Libya’s National Oil Co., said on March 19. Italy’s Eni SpA (ENI), the biggest
foreign oil company in Libya, evacuated the last of its expatriate staff after
the United Nations authorized military action against Qaddafi.
“The
biggest risk for oil companies involves possible damage to their facilities
which would make it harder to bring production back up once the conflict ends,”
said Alessandro Marrone, a defense analyst at the IAI Institute of
International Affairs in Rome. “Some facilities could be part of collateral
damage from raids, others could be sabotaged as retaliation.”
Oil
futures in New York rose as much as 2.1 percent to $103.19 a barrel in
electronic trading today, after climbing 3.5 percent on March 17, the day the
UN Security Council voted in favor of intervention. The contract rose to
$106.95 on March 7, the highest since 2008. In London, Brent futures advanced
1.8 percent to $116 a barrel today.
‘Prolonged
Uncertainty’
“Western
oil companies will have to hope Qaddafi does not destroy their facilities,”
said Johannes Benigni, chief executive officer of consultants JBC Energy GmbH
in Vienna. The foreign intervention means “prolonged increased uncertainty and
thus volatility in oil markets,” he said.
As well
as Rome-based Eni, foreign oil producers in Libya include France’s Total SA,
Austria’s OMV AG (OMV) and Spain’s Repsol YPF SA. (REP) The U.K.’s largest oil
companies Royal Dutch Shell Plc (RDSA) and BP Plc (BP/) were exploring for oil
and gas before suspending operations when the anti-government uprising started
in the east of the country in mid-February.
Libya
produced 1.59 million barrels of oil a day in January, making it the biggest
oil producer in North Africa, according to estimates compiled by Bloomberg.
That accounted for about 2 percent of global production.
‘More
Speculative’
“Oil
could go up tomorrow -- there’s more uncertainty,” Banque Saudi Fransi’s John
Sfakianakis said by phone from Riyadh yesterday. “Oil markets have already
priced in the Libya uncertainty over the past three weeks, and they’ve also
priced in the oil that has been taken off the market. So if there is a spike,
it will be more speculative than real.”
There is
no need to call a special meeting of The Organization of Petroleum Exporting
Countries to address the situation, Abdullah Al-Attiyah, Qatar’s deputy prime
minister and former oil minister, said in Doha.
“The
disappearance of the Libyan production hasn’t really affected supply and demand
because we see compensation from other sources” including Saudi Arabia, Kuwait
the United Arab Emirates and others, Attiyah said. “When I look to the
inventory, I see that the inventory is very high, over 60 days.”
Demand
Reduced
Some
refiners in Japan have closed because of damage from the record earthquake that
struck March 11, eliminating about 1 million barrels a day of demand that can
go elsewhere, he said.
Qaddafi
threatened to replace western oil firms with companies from India and China in
a March 2 speech and more than 10 days later discussed possible investments
with the ambassadors of the two countries and Russia, state-run television
reported.
“We will
not leave our oil to America or France or Britain or the enemy Christian states
that are aligned now against us,” the Libyan leader, who has ruled since 1969,
said on state television yesterday. “ We will fight for every inch of our land
and liberate every inch of it.”
The push
by Qaddafi to take back rebel-held parts of the country, which provoked
international action to protect civilians, saw fighting near oil installations
at Ras Lanuf. Libyan’s oil and gas fields are split between the east of the
country, where the rebellion is strongest and the west, where the capital,
Tripoli, is situated.
No-Fly
Zone
A no-fly
zone is now in place over Libya, Admiral Mike Mullen, chairman of the U.S.
Joint Chiefs of Staff, said yesterday. The opening phase of the military
strikes on Libya has had “a pretty significant effect very early” and Qaddafi’s
forces have been pushed back from the rebel stronghold of Benghazi, Mullen said
on CNN’s “State of the Union” program.
The
conflict is likely to halt Libyan exports for months, the International Energy
Agency said in a report last week, adding that output had already been reduced
to a “trickle.”
“Supplies
are already cut, so the question is how long it lasts,” said Artem Konchin, an
oil and gas analyst at UniCredit SpA (UCG) in Moscow. “There is no easy way out
of this situation. It’s a matter of how Qaddafi goes.”