Last month FT Alphaville asked: “Might access to Libyan oil decide the conflict just yet?”
News from both rebel- and regime-held parts of Libya on Tuesday and Wednesday provide a bit more help in answering this question, which could become ever more important to the ensuing civil war. And to a growing humanitarian crisis: the World Food Programme warned Wednesday that 3.6 million people may need aid given that Libya’s publicly subsidised food system is in tatters.
Representatives of the rebels met with Arab and African officials in Doha on Wednesday. Nato, meanwhile, is divided on the desired intensity and frequency of air strikes, reports the New York Times. Le Monde adds that the French foreign minister, Alain Juppé, has called on others to carry out more attack flights, echoing previous comments by William Hague, the UK foreign secretary.
Fortunately for the rebels, Tasweeq, the marketing division of Qatar Petroleum (QP) is on hand. QP confirmed Tuesday that it had sold one million barrels of crude last week on behalf of the rebels and helped them purchase four cargoes of refined products.
That’s Libyan crude, liberated and exchanged via the Brega barter trade. This allows the rebels to avoid cash transactions when money supplies are extremely limited and transfers difficult.
And there’s more to come thanks to trading houses Vitol and Trafigura, says Reuters:
Oil traders told Reuters on Tuesday trade house Trafigura planned to export a cargo of Libyan oil from the port of Brega and Vitol had shipped a gasoline cargo into rebel-held Benghazi.
Vitol and Trafigura declined to comment. It was unclear if Qatar had a role in either transaction.
If placed, the Trafigura cargo would be only the second oil shipment to leave Libya after Vitol shipped a cargo to China last week.
The US state department has applauded Qatari efforts despite the Obama administration’s having included Agoco in its initial list of sanctioned entities.
But diplomatic promises are one thing and legal certainty for traders is another, as the Iraqi Oil for Food programme showed. The problem over who would be at legal risk from purchasing rebel crude — including all the pre-war contracts tied to the NOC — now appears to have found some form of Qatar-shaped stopgap solution. With no end to the civil war in site, Doha seems to be taking on the role of long-term rebel oil custodian and accepting the accompanying counterparty risk.
IHS Global Insight’s Samuel Ciszuk addresses this point in a research note published Wednesday:
The role played by Tasweeq appears to have been to help the Libyan opposition to find buyers and to facilitate the “paperwork” and payments, rather than lifting the crude itself and transporting it to Qatar or a trading hub…
Through this set-up, most of the legal risk of buying Libyan crude from the opposition-controlled part of the country’s oil industry has been taken on by Tasweeq, as the trader buying the crude is effectively buying Tasweeq-owned crude, albeit for lifting at a Libyan port. If the Libyan regime were to go ahead and sue the buyer of the eastern Libyan crude for dealing with an officially unlicensed selling entity within the country, then Tasweeq would be in the position of direct buyer.
We note the use of “most of” — as we suspect will the more risk averse trading houses.
And how much is there for the rebels to sell anyway? As the war continues, logistical problems due to damage and lack of maintenance will only grow — a point made by IHS and BarCap recently. The Libyan National Council said Wednesday that it was producing 100,000 barrels per day, though this is unverified. Ciszuk estimates that regime attacks last week halted rebel oil flows but:
The Libyan opposition still has between one and two million barrels of crude in storage at Marsa El Harigh which could be sold, although with raids by regime forces having destroyed some pipeline installations and generators at the crucial rebel-controlled Sarir field last week, the rebels’ oil production remains down. Moreover, a restart would be likely to draw renewed regime attacks on the lightly protected opposition-held eastern oilfields, meaning that the marketing of opposition exports might turn out to be a very rare occurrence.
So the Qatar marketing service and the Brega barter trade will help, but don’t count on them to hand the rebels victory.
Especially since over in west Libya, regime crude production is allegedly picking up again. IHS notes that NOC sources claim production is up to 470,000 bpd (350,000 bpd in the Murzuq fields and 120,000 bpd offshore). An exaggeration, surely, given the shortage of skilled workers.
As a sign of renewed activity, Italian oil firm Eni is ready to charter a tanker from regime-controlled western Libya, reports Reuters. No payments will be made to the National Oil Company or other prohibited entities so no sanctions are broken, even though the oil is from Gaddafi-run territory, adds the news agency.
The regime is — and please get in touch if you’ve found the loopholes — shut out of global crude markets, so these operations are presumably for stockpiling ahead of a drawn-out conflict. Attention until now has been focused on getting energy out of Libya. But the longer the war drags on, the more important becomes the amount of fuel in Libya.
With all of this disruption to production — and to that sweet, sweet Libyan crude — along with rising oil prices, you’d have expected Opec to have made up the difference in March. Not according to Wednesday’s IEA data, blogs Platts:
The IEA shows Libyan production falling by 940,000 b/d month-on-month to 450,000 b/d and total OPEC output falling by 880,000 b/d. The EIA puts Libyan production at 300,000 b/d, 1.04 million b/d lower than February levels, and OPEC output at 28.72 million b/d, 1.27 million b/d down from February.
Saudi Arabia’s March output is pegged at 8.9 million b/d by the IEA, 8.961 million b/d by OPEC, 9 million b/d by Platts and 9.1 million b/d by the EIA.
All of which begs the question: What are the conditions Saudi Arabia and OPEC see as the justification for the sort of output increase that will at least cover the entire loss of Libyan production?
A good question — and we’d speculate that it may have something to do with the new bills piling up in Riyadh for those all-important bribes welfare projects.
Related links:
Navigating the Gaddafi asset freeze – FT Alphaville
Oil and the cash battle in Libya – FT Alphaville
Settling in (or not) for a long-term Libyan oil swap – FT Alphaville
Libyan crude, liberated? – FT Alphaville