Confusion Reigns in Libya

Jim Brown
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Conflicting stories about restarting production, honoring existing contracts and the amount of damage done to the oil facilities suggests there are too many chiefs and not enough indians.

The spokesman for the Libyan oil firm Arabian Gulf Oil Co (AGOCO) said all five of Libya's refineries were offline due to a lack of crude production and damage to facilities. Libya has 378,000 bpd of refining capacity. Another AGOCO spokesman said there would not be any material production from Libya for at least 9-12 months because of the many parts to the puzzle and the more important tasks the government needed to handle like power, water, food and medical care for the millions of Libyan residents. Yet another AGOCO official suggested they might be able to restart 60,000 to 100,000 bpd to be exported from Tobruk by the end of September.

On Saturday a Libyan National Oil Co. (NOC) official, Ali Tarhouni, said Libya could resume production of 500,000-600,000 bpd within 2-3 weeks. The remaining ramp to prior production levels of 1.6 mbpd would be complete within a year or so. He said damage to oil facilities was minimal.

Obviously one of these officials is misinformed and that is a big problem. The world oil consumers are going to listen to these conflicting estimates and like all good consumers hoping for lower oil prices they are going to believe the bigger estimate because it sounds better. We won't know for months which one is actually correct.

The press is also reporting increased tensions within rebel oil circles. The struggle for power has already started. Libya has 140 tribes and nearly every oil facility is located in a region occupied by a different tribe. There is constant animosity between the tribes thanks to 40 years of instigation by Gadhafi. By keeping the tribes hostile towards each other they would not band together to push him out of office. Obviously they eventually overcame that tactic but now that the war is over they are likely to go back to hostility towards each other.

Now that the rebels have take over the capital and moved their new National Transitional Council (NTC) to Tripoli they are now the "government" and suddenly the target of all the complaints from tribes across Libya.

The NOC is already angry the AGOCO is not consulting the NOC on deals with foreign suppliers. In return the AGOCO threatened to go on strike when the NOC tried to apply its authority. Suppliers and oil companies claim they got a chilly reception when they told AGOCO they wanted to deal with the NOC.

This internal strife is happening just one week into the new post Gadhafi era. As conditions begin to return to normal there is likely to be more conflict from tribes that want a piece of the oil pie for production in their regions. Democracy is a funny thing when you have been under an iron rule dictatorship for 42 years. Suddenly everyone wants to be recognized and have a piece of the action.

Owning a firearm was strictly prohibited while Gadhafi was in power. Now there are hundreds of thousands of firearms consisting of everything from pistols and AK47s to anti-aircraft guns and anti-aircraft missiles in civilian hands. Putting the genie back into the bottle is going to be very difficult.

Interviews with returning rebel fighters, some with armloads of weapons, universally claim those weapons are now theirs and they plan to keep them until they die. This is a recipe for civil strife for years to come because we all know the new government will not be able to please every person or even every tribe.

I would not bet on a quick return to production. Maybe the fields and facilities are not damaged as much as people have said over the last several months but that does not mean they are just going to push a button and have the entire supply chain from pumping, piping, refining and loading just operate like it did when the conflict started.

What we can expect is for Brent crude prices to be volatile until production actually starts to flow. Until then every comment from anyone in Libya on oil production is going to cause volatility.

Jim Brown

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