Libya’s Production Back on Track but Foreign Partners Could Still Be Frozen Out

As oil and gas production levels continue to rise in post-Gadaffi Libya, government officials have grown more confident that the country’s best chance for economic growth is back on track to meeting and exceeding pre-conflict levels. However, mixed messages to foreign partners and a lack of progress dealing with vital structural and stability issues threaten to derail the energy sector’s return before it can take hold.

By the end of February, members of the country’s appointed transitional government reported that oil production had reached 1.4 million bpd and would likely reach pre-war levels of 1.6 million by mid-summer. The country’s natural gas output also increased to 2.3 billion cubic feet during the same period from 2.2 billion at the end of January. Adding to the good news, Libyan officials have reported that new exploration efforts have finally become possible again.

However, reports detailing a national energy infrastructure unprepared to cope with a return to service and certainly unable to host the sort of production expansion the country has set as an overall goal have cast doubt on Libya’s production future. Even before being damaged in the violence that halted most energy activity last year, Libya’s energy infrastructure was viewed as out of date and insufficient for modern operations, causing an unrepresentative contribution to global markets despite hosting the continent’s largest proven reserves. Attributed to the country’s economic isolation under the leadership of Muammar Gadaffi, the infrastructure deficit had seen some signs of improvement since sanctions were lifted in 2004, but not nearly enough.

Attracting foreign investors and project partners has emerged as pivotal to Libya’s ability to return to adequately exploit their energy potential, but a series of mixed-messages about requirements has continued to hurt that process. While the country’s transitional government stated energy efforts would favor those firms from countries that had supported their anti-Gadaffi campaign, the actual approach has been more scattered. While both China and Germany did not initially vote in support of international military action in the country, Chinese firms have recently received a series of new contracts while many arriving from Berlin and Frankfurt have found themselves frozen out, according to a recent report in Der Spiegel.

Still, the progress thus far has been heralded by government representatives, like Deputy Minister Omar Shakmak, as proof of the country’s progress, adding in local press reports, that the production return had come with the help of local staff.

“All oil and gas facilities are now being managed by Libyan engineers and workers, a remarkable achievement by Libyan work force which has proved to be well trained and without technical assistance from outside the country,” Shakmak told the Tripoli Post. Shakmak has also told a number of media outlets that he too expects the country to reach 2010 levels by mid to late summer, though with elections planned for June, it’s unclear just how many current leaders will be around to answer for such an estimate.

The minister’s assertion comes as several international firms continue to weigh the risks of the country’s political and security uncertainties and returning their staff and overall presence to pre-conflict levels – a development seen as necessary to helping Libya get production levels back to form.

In addition to questions of overall security and repairs to the country’s energy infrastructure, which experienced damage during Libya’s civil war last year, foreign firms have expressed caution about the country’s political future.

“It is a question of what framework we are going to have. We are waiting for a long-term sustainable situation in the country. How long it would take, I don’t know,” Wintershall Chief Executive Rainer Seele told Reuters. The German firm represents the country’s largest foreign partner until violence forced the company to halt operations at the end of last year. Since returning, Wintershall has tripled production levels since last fall but has said that it could easily reach 90,000 bpd if not for the country’s out of date infrastructure.

Meanwhile, Libya’s largest foreign partner, Italy’s Eni, has steadily worked to return to their pre-conflict production levels after a slight, early misstep when it appeared uncertain whether anti-government forces would succeed in ousting Gadaffi.

When asked about progress last week, Eni press officer Fabio Cesaro stated that since the conclusion of the internal conflict, and the gradual return to political and social normality in the country, “we have stepped up our efforts to fully resume production at our Libyan sites and facilities and gas exports through the Greenstream pipeline on the back of our stable contacts with the Interim Transitional National Council and continued collaboration with the NOC.”

Citing major milestones achieved in the final part of the year, including the restarting of oil production at the Wafa and Bu Attifel fields in September, the reopening of the Greenstream and gas production at the Wafa field in October, and the return to production of the Sabratha gas platform at the Bahr Essalam field in November, Cesaro said the company was aiming to reach pre-conflict goals by the second half of this year.

Still, the country’s overall economic and political uncertainty has kept other foreign firms at bay. Previously, BP press representatives expressed caution to suggesting that they would return when security for all company staff, both foreign and local, could be assured. So far, this level of confidence has not been reached.

Image: Telegraph UK

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