Libya's oil facilities bombed as sanctions begin to bite the regime

Oil facilities in eastern Libya came under heavy air attack Mar. 9, while the country’s leader Moammar Gadhafi taunted Western powers over their reported plans to establish a no-fly zone over the North African country.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 9 -- Oil facilities in eastern Libya came under heavy air attack Mar. 9, while the country’s leader Moammar Gadhafi taunted Western powers over their reported plans to establish a no-fly zone over the North African country.

“If they take such a decision it will be useful for Libya, because the Libyan people will see the truth, that what they want is to take control of Libya and to steal their oil,” said Gadhafi in an interview by Turkish television channel TRT news.

“Then the Libyan people will take up arms against them,” said Gaddafi, who added that the rebels wanted to pave the way for a new colonial era that would allow the US, UK, and France to divide up the country and control its oil wealth.

Gadhafi’s defiance toward the Western powers coincided with reports that forces loyal to his rule struck an oil pipeline and oil storage facility as they pounded rebels with artillery and gunfire in at least two major cities.

An explosion with a giant yellow fireball rose from the area of the Sidr oil facility, 580 km east of Tripoli, while a rebel spokesman said government air strikes and artillery fire hit an oil storage depot and a pipeline supplying Sidr from oil fields in the desert.

For the past week, government forces and rebels have been battling around several key oil ports east—Brega, Ras Lanouf, and Sidr—which together handle 715,000 b/d. A fourth eastern port, Marsa al-Harigah, handled another 220,000 b/d.

Facility damage
Oil analyst Samuel Cizsuk of London-based IHS Global Insight said, "It was only a question of time before the escalating violence would damage oil facilities." According to Cizuk, "Libya has been discounted from the global markets.”

In spite of the turmoil in Libya and the evacuation of many expatriate workers, Eni SPA has continued to work with Libya’s National Oil Co. to produce oil and gas, although at considerably reduced levels, according to the company’s Chief Executive Officer Paolo Scaroni.

Eni is producing about 100,000 boe/d compared with more than 270,000 b/d before the fighting erupted last month, with natural gas from the Wafa field representing more than 50% of the output.

“It is for the Libyan people. My view is that if we can produce gas for the domestic electricity market, this is positive for everyone,” Scaroni told the Financial Times. “If the international community tells us not to produce in Libya, then we won’t produce.”
Scaroni also told the paper that he was aware of at least one shipment of oil by the state-owned NOC that had been produced by Eni. “We have a contractual obligation to NOC,” he said. Asked whether the fields were under government or rebel control, he said they were deep in the desert and “under nobody’s control.”

US President Barack Obama's most senior advisers were reported to be meeting today to outline what steps are realistic and possible to pressure the Libyan leader into ending the violence and surrendering power.

While Britain and France are pushing for the United Nations to create a no-fly zone over Libya, such a move is considered unlikely to win the backing of veto-wielding Security Council members Russia and China.

US Sec. of State Hillary Clinton underlined Washington’s belief that any decision to impose a no-fly zone over Libya is a matter for the UN and should not be a US-led initiative.

“We want to see the international community support it (a no-fly zone),” she told the UK’s Sky News. “I think it’s very important that this not be a US-led effort,” she said.

Imposing sactions
Still, other efforts do seem to be taking hold against the Libyan regime, with the country’s central bank governor Farhat Bengdara trying to intercede with international financial institutions to soften the effect of any freeze of Libyan assets.

Behgdara said he traveled to Istanbul to contact the European Union, IMF, World Bank, and US Treasury and do his best to stop the sanctions that would freeze the central bank's money, adding that the Libya’s revenues have fallen dramatically because of the country's inability to export oil.

Beghdara’s actions confirmed reports earlier this week that said Libya’s oil trade has been paralyzed as banks decline to clear payments in dollars due to US sanctions.

"Banks don't want to finance the system in Libya, so for the moment no one is getting money for oil. There are big problems for payments," said a senior trader with a European oil company.

Sources at or close to major European buyers of Libyan crude, including Eni and Saras, told Reuters news agency that the decision by banks to stop export financing of Libyan crude had virtually brought all transactions to a halt.

"It's not a matter of choice, there is an embargo on US dollars coming in and out of Libya," said a trader with one of the firms, referring to banks' resistance to clear payments in the US currency.

"All US dollar transactions are being blocked," the trader said, adding it was not clear at this stage if payments were possible in other currencies.

Western countries, the EU, and the UN began imposing sanctions on Libya and freezing government assets in response to forces loyal to Gadhafi firing on protesters.

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