By Matthew M. Reed
Libya’s success depends on oil no matter who runs the country. Here’s a quick review of where the industry is today and why it’s so important.
According to the US Energy Information Agency (EIA), total Libyan production was 1.8 million bpd in 2010. That’s a modest figure for a country blessed with Africa’s largest reserves. The Oil and Gas Journal estimates that Libya possesses 46.4 billion barrels of oil in reserve and close to 55 trillion cubic feet of natural gas. Decades of chronic mismanagement prevented more extraction and fuller exploration; in fact, production peaked at 3 million bpd in the 1960s and then declined after Qaddafi took power. With Brother-Leader most likely out of the picture soon, however, there’s reason to believe Libya will finally tap its potential. In a matter of years it could pump millions of barrels more and invest it at home with huge results.
Libya is producing only 100,000 bpd right now–94% less than last year. And, worse yet for Qaddafi, that small amount is now politically “radioactive” since his regime controls the industry. Foreign markets stopped buying and major consumers have released strategic reserves in response to Qaddafi’s brutality. Before the civil war, oil amounted to 95% of Libya’s export earnings, 25% of GDP, and 80% of government revenue. Any new government will be just as dependent on these revenues. And considering the reconstruction efforts ahead, oil will be a major preoccupation for all concerned. New revenue will alleviate the suffering of citizens, help staff new institutions, set the pace of reconstruction, and build democracy if the “resource curse” can be overcome. There’s no way around it: oil is oxygen for Libya.
It may surprise many but there’s little evidence the civil war has ruined key infrastructure. A statement released by Goldman Sachs on June 22 was encouraging. “The opposition forces could resume about 200,000 bpd of crude exports as some fields and their related export terminals are largely intact,” according to the investment firm. “A further 155,000 bpd could potentially be exported at a later stage from a second loading port under their control.” When asked how long it would take for the rebels to return to pre-war production levels, Nouri Burrien, director of the rebel “National Oil Company” had this to say on June 13: Once the civil war ends, “it will take 10-12 months before we can start producing the 1.6 million [bpd] like we used to.” After that development could take off.
In the same interview, Burrien noted that “some of the fields were cannibalized.” He also referenced an “ongoing battle in Mesla and Sarir fields.” While battles have been fought elsewhere, like the Ras Lanuf terminal and the Sirte basin, both sides have shown restraint. This makes sense if rebels and loyalists both expect victory and subsequent profit. Restraint is not timeless, however, and it appears the rebels are on the march. If Qaddafi becomes truly desperate he could try and deny Libya it’s black gold inheritance. This would be a disaster for the new government. Qaddafi is, without a doubt, the primary threat to Libya’s most precious industry–and its future.
That said, NATO attacked Libyan oil assets for the first time earlier today. This headline shouldn’t raise alarms though. As reported by The Independent, “The airstrikes on the complex at Brega, one of the countries’ biggest petrochemical complexes and port for export, was designed, says Nato, to prevent regime troops from mounting attacks.” Even then, NATO was careful not to destroy supplies but, instead, they limited strikes to refueling terminals, British Rear Admiral Russ Harding said. Like rebels and loyalists, NATO has avoided damaging oil infrastructure because they too expect the rebels to profit later. Judging by the Rear Admiral’s cautious statements there’s no question NATO knows just how important oil is and will be.
It’s easy to imagine a wealthy and democratic Libya perched enviably on the Mediterranean. But once the civil war is resolved things will get trickier still: building democracy on a single commodity is something no nation has been able to do in the region. And so careful attention, system-wide accountability, and international encouragement will help decide whether oil is a blessing or a curse.