The TNC leadership, which views oil revenues as a means to rebuilding the country, and participants in world oil markets, who continue to grapple with tightness in the global supply of high quality crude, share a common interest in restoring Libya's oil production and exports. When this will happen is uncertain and depends to a significant extent on the political, military, and security situation that will determine when companies can return to oil fields to repair and/or restart production. It is also worth noting that at the time of writing, only the European Union and United Nations had lifted sanctions on Libya; U.S. sanctions remain in place.
Opinions vary across analysts. Some predict a slow and protracted recovery, while others are more optimistic, pointing to TNC statements on its commitment to restarting oil production. Most international oil companies (IOCs) have been cautious regarding their public statements on resuming production.
Political and military outcomes will each play an important role in creating conditions that speed or retard production activity. Politically, there must be sufficient legitimacy and legal clarity to allow for financing activity and exchanges of funds. A recognized government with the institutions in place to uphold contracts and manage revenues will be necessary for the IOCs to return. While the TNC has stated that it will respect existing contracts, IOCs seeking to purchase oil from Libya or invest in the country's oil sector must be able to identify their institutional and financial counterparts within the new regime.
One question to be addressed is whether oil revenues should be paid to the national oil company, to the oil ministry, or to other parties. Another option might be to allocate funds to an escrow account pending clarification of future arrangements so that operations can resume. IOCs also need to consider that the government and its institutions are likely to continue to evolve over time.
Militarily, remnants of the conflict may also continue to present challenges. As of this writing, Gaddafi loyalists are still in control of a few areas of the country and some analysts believe that pockets of resistance will remain even after the fighting has come to an end. Beyond the military conflict, security concerns could delay the return of oil workers and the resumption of production. While the oil industry is not very labor-intensive, a large part of the labor employed in the sector is highly specialized, and, in many cases, comprises expatriates who are likely to have found employment elsewhere. The conflict also scattered the Libyan workforce. It will take time to reassemble the staff, and even then there is a risk that the aftermath of the conflict could affect workforce morale and cohesion as employees face up to their differing roles and loyalties before and during the fighting.
Some of the security concerns are directly tied to the oil infrastructure (Figure 1). For instance, Gulf of Sirte, an area that accounts for about two thirds of Libyan oil production, saw the heaviest fighting and the most damage and is likely to face continuing security concerns. In terms of security, press reports suggest that the oil terminals and surrounding infrastructure of Ras Lanuf and Brega have been booby trapped with explosive devices.
Figure 1
The Financial Times cited land mine experts as saying it could take 18 months to clear some of the explosives, an issue that will need to be addressed before the known damage can be fully repaired. Resuming production will bring with it its own security concerns as the infrastructure is a relatively easy target. During the conflict, oil production out of the east was sporadic at times because when production resumed, it became a target for loyalist forces.
Read the entire article at www.eia.gov
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