IEA sees lengthy reduction in Libyan oil output

The International Energy Agency said Libya’s oil exports have ground to a halt due to the conflict between rebels and pro-government forces, and that it might be “many months” before the country's crude oil reappears on world markets.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 15 -- The International Energy Agency said Libya’s oil exports have ground to a halt due to the conflict between rebels and pro-government forces, and that it might be “many months” before the country's crude oil reappears on world markets.

"While approximately half the country's output was halted in the first few weeks of the rebellion, by Mar. 11 it appeared that production had slowed to a trickle, not least because of the fighting," IEA said, adding, "Indeed, it is understood that most oil field operations have been shut-in or sharply curtailed, with transport routes choked off."

IEA said while the rebellion against Libyan leader Moammar Gadhafi continues, “what is becoming clearer is the country's oil production and exports could be off the market for many months due to both war-inflicted damage on oil infrastructure and international sanctions.”

In its monthly report, IEA said, “Harsh reality now suggests either a prolonged civil war, or a resurgent Gaddafi regime that might reinstate control over production and export facilities, but with supplies to the global and European market limited by sanctions.”

IEA noted that the price of Brent crude has risen by 50% over the past 6 months, initially on very strong demand as global economies picked up post-recession and then “on increased regional geopolitical risk in North Africa and the Middle East, embodied by Libya’s supply outage.”

IEA warned, "If prices remain at current levels or rise further, by September 2011, if not before the global economy may feature a marked slowdown.”

OPEC increases output
IEA meanwhile confirmed that Saudi Arabia, Kuwait, the UAE, and other members of the Organization of Petroleum Exporting Countries have increased their own production to offset the shortfall in output from Libya.

According to IEA, Saudi Arabia produced an average of 8.9 million b/d in February, with production by the end of the month climbing 7.0% to 9.1 million b/d from 8.5 million b/d in December.

Kuwait increased production to 2.4 million b/d last month on average, up 100,000 b/d from 2 months ago, while the UAE likewise stepped up its output by nearly 100,000 b/d from December to average 2.5 million b/d in February.

“Key gulf producers led by Saudi Arabia with spare capacity are already ramping up output and are prepared to increase supplies further depending on market demand,” IEA said.

Despite the dire outlook for Libya’s oil production and its potential effect on European imports, France failed on Mar. 14 to persuade its G8 partners to support its push for a no-fly zone over Libya, a likely setback to any chances of swift action to halt Gaddafi’s eastward advance against rebel forces.

No mention was made of a no-fly zone in the final communique for the G8 meeting, although it did warn that Gadhafi faced “dire consequences” if he ignored citizens’ rights, and it urged the United nations Security Council to increase pressure on him.

“We just want to encourage people to take more steps to be more open and positive in New York,” said one French official. “To stop the violence we must act and to act we need a legal basis,” he said, adding, “The only place to get that is in New York at the Security Council.”

However, after debating the matter at the Security Council on Mar. 14, Russia's UN envoy Vitaly Churkin said crucial questions over how the zone would operate were not answered by its supporters.

"As far as we are concerned there are some fundamental questions that need to be answered," Churkin said. "If there is a no-fly zone, who is going to implement the no-fly zone? How the no-fly zone is going to be implemented?"

"We have not had enough information. To say, 'We need to act quickly, as fast as possible,' but not to provide the fundamental answers to those fundamental questions, to us is not really helping. It is just beating the air."

Bilateral relations
Churkin’s remarks came a day after the Libyan leader invited Chinese, Russian and Indian firms to produce its oil in a bid to replace Western companies that fled unrest in the North African nation.

"The leader of the revolution met on [Mar. 13] the ambassadors of China, Russia, and India, with whom he discussed the progress of bilateral relations and an invitation to firms from these countries to exploit Libyan oil," said Libya’s state news agency.

Despite Russia’s temporizing, Gerard Araud, France’s ambassador to the UN, said a Security Council resolution on an exclusion zone was still possible this week. “There was no total refusal. There were concerns, there were questions, but I think we are moving forward," Araud said.

"I think the problem for us is the urgency. As you know the Gadhafi forces are moving forward so we would prefer to act as quickly as possible," he said.

The ambassador’s concerns were underlined by reports over Libyan national television that troops loyal to Gadhafi were completely in control of the eastern city of Ajdabiya and are “cleansing it from armed gangs."

Savoring the apparent shift of momentum to his side, the Libyan leader said he expects victory, telling the Italian newspaper Il Giornale that the rebels' options are closing. “There are only two possibilities,” he said. “Surrender or run away.”

But one rebel fighter rejected the alternatives. He said rebels procured a handful of "very old" warplanes weeks ago but did not want to use them, believing that Western powers, with Arab diplomatic support, would impose a no-fly zone over Libya.

The activist, who confirmed the use of the warplanes against government ships this week, warned that rebel forces would now use them to bomb “oil wells and oil sites.”

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