Sorry – you still can’t buy OR swap Libyan oil easily, at all | FT Alphaville

Sorry – you still can’t buy OR swap Libyan oil easily, at all

Conversely: ‘sorry rebels – you still can’t get cash to fight the brutal dictator easily, at all’.

Oh dear: one great big flaw has emerged in any plan to buy oil from Libya’s rebels, despite them forming a parallel oil infrastructure.

Joining several other flaws that are only growing bigger as the country’s civil war goes on, as it happens.


You cannot buy…

The great big flaw is that this week’s US Treasury financial sanctions on Libyan oil assets ended up including Agoco — which while a once a subsidiary of the Gaddafi-controlled state oil company, rebelled in March and was supposed to be seeking buyers for oil controlled by anti-Gaddafi forces in the east.

Why is it on the sanctions list? Partly, we think it’s because of lacking recognition of Libya’s rebels under international law as the legitimate government of Libya. The US hasn’t done this yet — but France has, and it’s very interesting to see that Agoco does not come under the EU’s sanctions targeted at the National Oil Corporation!

However, Libya’s state oil company was tied to every pre-war contract with western producers, and thus owned title to assets involved.

Any third party now buying that oil off the rebels therefore faces possible legal risks from those long-term contracts. Or as an IHS Energy report by analyst Samuel Ciszuk noted on Thursday:

IOCs are, of course, also facing the increasingly perilous prospect of long shut-ins given the recent turn of events into an international air campaign over Libya, but even more so after the sanctions were tightened. Under such hard and comprehensive sanctions, the restart of operations when hostilities end will be very complicated and will await the due process of repealing legislation within both the US and EU machinery. This could add several months at best (or even potentially over a year) to the timeline after hostilities have ended and some form of settlement for the post-conflict situation has been reached.

The rebels have always said that they will honour the contracts of western companies once they are power — but getting there is the problem. As the war goes on, technical obstacles to restarting any production only grow, as IHS point out:

It is also worth keeping in mind that Libya was in dire need of advanced enhanced oil recovery (EOR) technology investment at most of its large mature oilfields before this crisis began and with even low-key reservoir protection operations by IOCs—using a skeleton staff of locals—under threat, the risk of Libya’s oilfields being permanently damaged by long outages could possibly be rising.

The last problem with buying oil is ensuring that the rebels could control not only the oilfields but refining and terminal facilities. It remains uncertain, according to Eurasia Group:

The implications for oil markets of a de facto partition are negative. While the largest oilfields in eastern Libya are located in remote desert areas to the southeast of Benghazi, the largest ports which handle those exports are located along the Gulf of Sidra to the southwest, in areas held by Qadhafi’s forces. Ras Lanuf and Es Sider together exported about 650,000 bpd in January 2011. The only tanker terminal firmly under rebel control is Tobruk, which has pre-crisis exports of only 51,000 bpd. Zuetina, which has a damaged terminal which exported a bit over 200,000 bpd, is near the scene of the recent fighting around Ajdabiya…

Indeed Agoco has lately been producing 95,000 bpd compared to 400,000 bpd before the war, Reuters reports.

It makes complete control over the eastern Sirte Basin oilfields all the more important — and gives Gaddafi all the more reason to disrupt the emergence of a comprehensive parallel infrastructure.

And if the only option to get at it is smuggling, it’s not looking too promising.


…Nor can you easily swap

Meanwhile, it’s worth checking in on continuing efforts to source or blend grades that can replace the very high quality crudes in Libya.

They’re actually coming in from all over the place.

We’d point to the Apex data compiled by Lloyd’s List for some very interesting insights — just looking at Italian refiners, replacements have already come from Azerbaijan via Turkey and Kazakhstan via Black Sea ports. The next — big — steps are Saudi Arabia and West Africa. The former is already blending its mostly heavy grades for Europe’s refining needs, Lloyd’s List says, and adds that this could involve sending supplies via the Sumed pipeline across Egypt, in order to avoid piracy in the Red Sea. (The Yemen coast isn’t looking too stable these days, either.)

Readers might remember Sumed, of course, from Egypt’s own turmoil earlier this year.

Nigeria, of course, is a future turmoil risk too as elections near — over 50 people have been killed in campaign-related violence since November 2010, according to Platts.

Spare oil capacity ≠ supply, more than ever, no?

By Joseph Cotterill and John McDermott

Related links:
Is a Libyan oil-for-food program on the way? – Turtle Bay / FP
Why you really can’t swap Libyan crude easily, at all – FT Alphaville
Scrambling to swap Libyan crude for Saudi – FT Alphaville
Oil shock 2.0, or, the benchmark wars – FT Alphaville