Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18
How to Know If This Stock Market Rally Will Continue for Two More Months? - 14th Jan 18
Everything SMIGGLE from Pencil Cases to Water Bottles, Pens and Springs! - 14th Jan 18
Land Rover Discovery Sport Very Bad MPG Fuel Economy! Real Owner's Review - 14th Jan 18
Gold Miners’ Status Updated - 13th Jan 18
Gold And Silver – Review of Annual, Qrtly, Monthly, Weekly Charts. Reality v Sentiment - 13th Jan 18
Gold GLD ETF Update.. Bear Market Reversal Watch - 13th Jan 18
Stock Market Leadership In 2018 To Come From Oil & Gas - 13th Jan 18
Stock Market Primed for a Reversal - 13th Jan 18
Live Trading Webinar: Discover 3 High-Confidence Trade Set-Ups - 13th Jan 18
Optimum Entry Point for Gold and Silver Stocks - 12th Jan 18
Stock Selloffs Great for Gold - 12th Jan 18
These 3 Facts Show Gold Is Set to Surge in 2018 - 12th Jan 18
How China is Locking Up Critical Resources in the US’s Own Backyard - 12th Jan 18
Stock futures are struggling. May reverse Today - 12th Jan 18
Three Surprising Places You See Cryptocurrency - 12th Jan 18
Semi Seconductor Stocks Canary Still Chirping, But He’s Gonna Croak in 2018 - 12th Jan 18
Land Rover Discovery Sport Panoramic Sunroof Questions Answered - 12th Jan 18
Information About Trading With Alpari And Its Advantages - 12th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

Libya's Slippery Oil Prize

Politics / Crude Oil Sep 01, 2011 - 03:14 PM GMT

By: Andrew_McKillop

Politics

Best Financial Markets Analysis ArticleMuammar Qaddafi’s exactly 42 year-old regime is now firmly on its way into the dustbin of history, sealing the fate of his quixotic and brutal administration that many outsiders found more comic rather than dangerous - but above all supplied high quality light sweet crude.


The basic question is “what next?”

The glittering prize is Libya’s 1.6 million barrels per day (Mbd) output of high quality crude. This accounted for about 1.8 percent of world total oil output, but its approximate average daily export supply of around 1.3 Mbd made up at least 2.5 percent of world traded exports. Loss of Libyan exports, from April, provided strong support to global crude prices, but recession fear and falling equities - and the prospect of Libyan export supplies being restored - have recently undermined oil prices.

Libyan production draws on reserves claimed to exceed 44 billion barrels, the largest in Africa, and theoretically could be sustained for over 60 years at 1.6 Mbd. Since the start of NATO military operations in March, which to end-August have totalled around 20 000 sorties and about 7 800 strikes by bomb and missile attack, Libyan oil exports have collapsed. Production fell to to a reported present level of about 50 000 barrels per day, which only covers around one-sixth of Libya's prewar domestic demand. The rate of recovery for Libyan production, and therefore export capacity is one of the major question marks, but at least as acutely interesting for corporate and national strategists is the question of which oil companies will get the biggest share of the oil pie ?

Who will control this asset, which at a restored 1.6 Mbd production and 1.3 Mbd exports would generate a turnover value of close to $ 100 million-a-day at present oil price levels ?

The main players are Italy’s ENI, France’s Total, Britain’s BP, several U.S. companies - and a string of companies from China, Russia, Brazil and elsewhere. The carve up is already to a certain extent becoming known, following the 31st August Paris meeting of the NTC's leaders and its main western backers, with French sources claiming that Total and other French oil interests will have "about 35 percent" of the pie.

AND THE OTHERS ?
China has for more than 10 years assiduously and expensively invested in Libya, with prewar supply to China ranking it as China’s eleventh largest source of oil imports. Politics and geopolitics immediately enter, here, due to the NTC leadership's angry reaction to perceived lack of political support from China, Russia, Germany and Brazil - among others. Despite this, when the uprising against Gaddafi began six months ago, according to Chinese media, there were about 40 000 Chinese workers in Libya working on more than 50 infrastructure, housing and economic projects including oil, railways and roads, light industry and telecom projects.

Cautiously accepting the new reality of who has won, Chinese Foreign Ministry spokesman Ma Zhaoxu said in a statement posted 28 August on its official website, “The Chinese side respects the choice of the Libyan people. The Chinese side is willing to work with the international community to play a positive role in the reconstruction process of Libya in the future.”  The key word here is “reconstruction,” a word that is conspicuously downplayed, and often absent from statements by the NATO coalition members, for whom and in reality Libya = Oil.

Given the revenue earning capability of the country and its low population of 6 million, the reckoning is that Libya can buy whatever it needs by throwing money at its problems - and the new Libya will likely buy a lot of it from China, as it did in Gaddafi days. Apart from Russia, Germany and Brazil, it is also likely India will move in, using its across-the-board capability in engineering and construction, and garnering oil import supply to help meet India's appetite for oil.

China's Libya strategy was in fact similar to its operating mode in other African countries - with or without oil or mineral wealth to produce and export. When the uprising against Gaddafi began, the 75 major Chinese companies and corporations operating in Libya had already invested billions of dollars of their own money in Libyan infrastructure projects. China's "long march" strategy is shown up again as radically different from that of the western capitalist democracies. China's highly planned and organized stance was also shown by how it evacuated its nationals: when the insurrection erupted in February, China ran a substantial land, sea and air evacuation operation of all its nationals.

THE HORSETRADING STARTS
Benghazi-based Libyan rebel oil firm Arabian Gulf Oil Company's director Abdeljalil Mayouf says that China’s “softly, softly” approach to the NTC-versus-Gaddafi struggle could cost China influence in the new Libya, relative to the NATO coalition's most active members, France and the UK, and to a lesser extent the US and Italy. This is brave talk, but due to the reality of China's very deep pockets and its willingness to invest its own money in supposedly unattractive - but needed - projects like railways and social housing construction the betting is that China will be back.

Most analysts and commentators are increasingly sure that Italy’s ENI will lose out to France’s Total and Britain's BP, but these 3 corporations will likely rule the roost, along with American companies - and  other players after the right kind of jockeying. These will include Spanish, German, Brazilian and Russian oil and gas interests, because the final question is simple: funding and industrial muscle. Given Beijing’s clout, despite its caution on who would win, and its calculatedly vague foreign policy, China has the edge but China will be carefully and discreetly shadowed by India, whose oil concessions in Syria are now threatened by the tide of Syrian political events.

Today, in the glare of victory for the NTC solely due to NATO firepower, western commentators make a point of not remembering how, a couple of months ago, the Libyan dissidents and insurgents were literally begging for financial, as well as military assistance. Both China and India have the all-sector reach to address a developing country's infrastructure essentials - such as roads, schools, health clinics and basic consumer needs - all of which are in short supply in post-Gaddafi Libya.

When the NTC airs its grievances for China's lack of support, and thanks its military benefactors from France and the UK, and military support from Italy, this will be easily waved aside even inside Libya. China has no history of colonialism in North Africa. Libya was occupied by Italy through 1911-1947, at the cost of around 600 000 Libyan lives.  Tunisia was occupied by France through 1883-1956, Morocco was occupied by France through 1906-1956, and France's brutal colonial war in Algeria closing more than 130 years of colonization killed at least 500 000 Algerians. Egypt was occupied by Britain through 1882-1922, with periodic and bitter uprisings.  While such issues are not fiscally tangible, the emerging economy leaderships can argue they have cleaner hands than the Europeans, and in time this may influence post-Gaddafi economic relations.

OIL STRATEGY
Apart from Chinese oil interests, several U.S. and Canadian major companies are primed to move into, or back to Libya. These firms include Marathon, ConocoPhillips, Hess, Occidental and Suncor, all of which withdrew from Libya or heavily reduced operations in the 1980s and 1990s, and withdrew again at the onset of insurrection in February. Russian companies, including oil firms Gazprom Oil and Tatneft, had projects worth billions of dollars in Libya, alongside Brazil’s Petrobras. Their likelihood of buying their way back in is high or even certain, despite the political flak.

For the oil majors, Libya presents both immediate and longer term opportunities. For Total and ENI with a direct and short line of view from their refineries and national markets, to Libya across the Mediterranean, restoring production and exporting crude will be the main goal. For American and British companies, but also companies from China, Russia, Brazil, Spain, Germany, India and others, the need to repair, rehabilitate and refurbish Libya’s decrepit energy infrastructure, and engage in E&P (exploration and production) will likely take the prime slot.

But it is too early to count China out from the race – they do not come burdened by history, and they come with deeper pockets than all their competitors. The NTC, if it indeed represents the Libyan people, will not be unswayed by such concerns, as the European rivals have yet to utter the one of the words most dreaded on Wall Street in considering future corporate earnings, “reconstruction.”

Whatever the shortcomings of Beijing’s strategic view of events in Africa’s largest oil producer, China, and possibly India have the wherewithal to engage in operations that extend beyond short-term corporate earnings, to include reconstruction, rebuilding and relaunch of Libya's torn economy, which is likely to ensure them a place at the table. Mixing oil with water - and agriculture - is anathema for the western corporate players, but Libya's taste of food and water shortage will leave lasting needs, and desire for action to develop its resources and ensure infrastructure security in a murky global economic context, in which oil prices have as much potential for free fall, as meteoric gains.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2011 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules