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Libya kept in the dark
The reinstatement of National Oil Corporation chairman Shokri Ghanem is a positive sign, but Libya’s increasing oil nationalism is alienating foreign firms and governments, says Trends magazine.
March 3, 2010 10:26 by Clare Dunkley
All this did was further blacken the country’s reputation for policy coherence towards IOCs. Ghanem was widely reported to be caught in the middle, supportive of pre-emption but with the process removed from his hands and thus prevented from being concluded in an orderly and uncontroversial fashion.
Only after the Chinese finally withdrew its offer in exasperation in September was a preliminary memorandum of understanding signed for the state wealth vehicle, the Libyan Investment Authority, to purchase Verenex for $295 million.
Such a cavalier attitude towards foreign oil firms would be more understandable were it not for the fact that NOC desperately requires their finance and expertise to raise production from the current capacity of 1.8 million barrels a day (b/d). In December, Ghanem finally admitted that the government had abandoned its evidently unrealizable 2012 target date on which to reach 3 million b/d of available production.
“Our plan was to try to reach three million barrels per day by 2012, but because of the market conditions as well as budget constraints, we plan to reach this target by 2017,” he said.
As the oil price rose towards its 2008 peak, NOC began renegotiating historic EPSAs with major companies such as Eni, the America’s Occidental, Austria’s OMV, and Spain’s Repsol to conform to the EPSA-IV contract model used in the post-sanctions licensing rounds – while at the same time reducing the companies’ production share by some 50 percent in return for the extension by two decades and more of the deals.
This was done both to give security to and encourage investment in existing production areas. In the later EPSA-IV auctions too, production shares on offer dropped from 30 to 40 percent to 20 percent or lower, and consequently fewer firms expressed interest.
While state-dominated oil industries across the world took advantage of rocketing oil prices to extract tougher terms from IOCs during the 2003 to 2008 period, Libya’s position became more, rather than less, uncompromising as prices slumped and global economic downturn set in from late 2008.
In a speech delivered in January 2009, Gaddafi even mooted nationalizing all IOC holdings in the country – with Ghanem later being forced to dismiss the idea as nothing more than media exaggeration of his boss’s comments.
At least the government’s strategy is becoming clearer – focusing on the more assured results of investing in increasing production from existing fields rather than in fresh exploration.