Libya Courting Oil & Gas Investors but Faces a
Tough Sell Following Recent Government Fiascos
The Libyan government has been sounding off lately about
boosting the profile of its oil and gas market, but it’s questionable whether
international companies will ignore the government’s missteps in the industry -
not to mention the recent lackluster energy finds - and keep injecting money
into the North African country.
The head of
Libya’s
National Oil Corp., Shokri Ghanem, has his eye on expanding gas exploration and
production in a bid to raise exports to
Europe,
as well as privatizing oil refineries and the petrochemical sector, according
to an interview he gave this month to the Oxford Business Group.
Once an international outcast for its penchant for terrorism
and weapons of mass destruction,
Libya
now wants foreigners to take a greater stake in the oil market and in turn
encourage local firms to play a larger role as well.
More than two-dozen companies from around the world are
betting on
Libya
these days, said Ronald Bruce St John, an analyst for Foreign Policy in Focus,
a Washington-based think tank. He has served on the international advisory
board of the Journal of Libyan Studies and the Atlantic Council Working Group
on
Libya.
The government of Muammar Gaddafi has relied on foreigners to scout for new
wells and bolster current production, “if they’re ever going to come close” to
a target of three million barrels a day, he explained.
The burning question, though, is “how profitable would it
be” for an overseas oil concern to forge ahead in the country’s hit-or-miss
exploration climate, a situation made even more dicey by
Tripoli’s
erratic policy moves,
St John
told OilPrice.com.
Libya’s
national oil company chief has talked about the need for foreign investment
over the last few years, he noted, but this time Ghanem’s words follow months
of government bungling and less-than-stunning results in the oil and gas
fields.
One of last year’s biggest shocks was Gaddafi’s suggestion
to nationalize the country’s oil and gas interests, a consideration that seemed
to echo the early days of the Libyan revolution when the industry was partially
nationalized. These words set the stage for the National Oil Corp. to
renegotiate long-term contracts in
Libya’s
favor with major oil companies operating in the country, such as
Italy’s
ENI, the
United States’
Occidental,
PetroCanada,
France’s
Total and
Spain’s Repsol,
St
John added.
International investors were also a little unnerved by the
Verenex Energy Inc. fiasco,
St John
added. He said the small Canadian oil exploration player was the only company
to make a sizeable discovery – more than two billion barrels of oil – under
strict EPSA, phase four, contracts awarded after 2005.
But
Libya’s
interference in negotiations between Verenex and the China National Petroleum
Co. over the sale of the Canadian firm’s exploration contract drove down
Verenex’s share price by 30 percent and forced it to sell the contract to
Libya
at 70 percent of the original offer to
China,
he said.
Dampening enthusiasm still more, no company under these 2005
agreements has scored big in oil apart from Verenex,
St
John maintained.
So where does this all leave
Libya
and its nervous investors today?
Ghanem’s latest declarations are obviously attempts to “put
a positive face on an industry that has not been going well in the last 12 to
18 months,” St John said, adding that these events have prompted “great
uncertainty” in the oil and gas industry, and “a lot of that’s their own
fault.”
The oil chief is a little anxious that international
companies potentially stumbling across petroleum finds may one day “cap the
wells,” while unsuccessful players will pull out entirely,
St
John said.
And now, a sector which has been “relatively efficient and
transparent” is following other parts of the Libyan economy that so far have
rejected reforms, he warned, saying the oil industry seems to have fallen prey
to conservative factions within the government coveting more control.
The Gaddafi government is arguably on an uneasy footing as
it makes a play for more international money, noted Simon Henderson, a Baker
fellow and director of the Gulf and energy policy program at the Washington
Institute for Near East Policy.
Within the Libyan government there is resistance to
encouraging more foreign investment in the oil market, but Ghanem’s argument is
the country cannot go it alone, said
Henderson.
The North African country sorely needs foreign investors but wants them to view
such requests as a partnership rather than as an invitation to take over
sectors of the economy, he explained.
“The difficult challenge is at home, Arab nationalism is a
very strong thing,”
Henderson
told OilPrice.com “Foreign investors are seen as diminishing Arab nationalism
and therefore are resisted ideologically. And from a foreign investor’s point
of view, selling the notion to your shareholders that you can get a good
agreement with an apparent eccentric like Col. Gaddafi is questionable.”
For the most part, larger companies will probably “soldier
on,” predicted St John, but smaller companies will be more careful about “how
much, and how fast” they invest in Libya -- especially if there’s a better game
in town.
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This article was written by Fawzia Sheikh for
OilPrice.com who focus on Fossil Fuels, Metals, Crude Oil Prices, Alternative Energy and Geopolitics. To find
out more visit their website at: http://www.oilprice.com
