Libya’s oil and gas sector tries to restart production

25 August 2011

Zawiya refinery close to resuming operations

Libya’s rebel leadership is taking steps to resume oil and gas production, as well as fuel and power supply, as the hold of the Gaddafi regime over its former stronghold Tripoli is broken.

In the city of Zawiya, one of the country’s key refineries is already close to resuming operations, members of the National Transitional Council (NTC), the rebel’s political leadership, have claimed.

“The refinery is not so severely damaged, there is some minor damage and [that is] being fixed,” Aref Ali Nayed, rebel ambassador to the UAE, said at a news conference in Dubai on 23 August.

Libya is facing severe fuel shortages after production came to a halt during the six-month civil war that looks like it may be drawing to a close. Domestic power generation is also failing to keep up with demand, leading to NTC to negotiate with neighbouring Tunisia over electricity to the capital Tripoli.

“We have negotiated more electricity from the Tunisian government and we have got the Zawiya refinery working,” Mahmoud Shammam, an NTC spokesman, said the same day.

Nayaed added that crude production will resume soon, with offshore fields likely to be the first to come back onstream.

“We expect oil production to resume as quickly as we can. The oil platform in the Mediterranean [is] sharing arrangements with some companies now that Gaddafi is finished; judicially and legally we are able to go forward. There are no physical reasons for stopping production,” he was quoted as saying by Reuters.

Opinion among observers is divided over how fast production will resume and to what extent. At the beginning of the year, Libya was producing almost 1.7m barrels a day (b/d), a level that will not be reached for some time. But some analysts say a significant amount of oil can be produced within a short period of time. While UK-based consultancy Woodhouse MacKenzie does not see pre-war production levels for at least another three years, Ross Cassidy, North Africa energy analyst at the firm, believes that production of 600,000 b/d could be attainable within two months after the cessation of hostilities.

Domestic needs will take precedence over exports at production resumes. “The priority will be to supply the countries domestic energy needs. Gas will go to power stations and oil into the refinery,” says Cassidy.

Oil and gas production in Libya relies heavily on international oil companies. Fortunately, these are keen to return to the country once the security situation has stabilised. Italian oil major Eni has already flown staff in to assess the state of its oil installations, according to Italy’s Foreign Minister Franco Frattini.

The NTC is aware of the importance of foreign companies for the country’s oil industry. The council, or the transitional government it will form within the coming weeks, will not seek to nationalise assets or renegotiate contracts handed out by the Gaddafi regime for fear of delaying the recovery of the sector.

“We don’t have the intention to nationalise or cancel, or something like that, we will respect all the previous contracts or deals,” says Mustafa Elhuni, a member of the NTC’s economy and finance committee.

The NTC may, however, review “one or two” deals it suspects are tainted by corruption, adds Elhuni: “We have to review some contracts that we feel are suspicious. We have to study this first, I can’t tell you now which ones.”

Libya’s National Oil Company will escape a rigorous reshuffle by the council to not disrupt the recovery, with the rebel’s limiting a purge to members of the Gaddafi regime.

“Generally in the oil sector not many people are politicised, most of them are technocrats, so we don’t have the intention to remove many of them,” says Elhuni.

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