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Is it Time To Forget About Libyan Oil?

German energy company Wintershall said last week it was optimistic about the prospects of a return to Libya. Tripoli, however, is once again asking for international help with security issues. With oil production in decline, the investment prospects may be grim.

While international energy majors are still holding out hope for stability in Libya, a diverse portfolio is needed to protect against escalating security concerns.

The Libyan government issued a statement following a spate of assassinations and bombings in the restive eastern city of Benghazi saying terrorist groups are waging war in the eastern region and outside help was needed again more than three years after civil war.

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"Libya's interim government asks the international community and especially the United Nations to provide assistance to uproot terrorism," the government said.

Following the loading of oil onto the vessel Morning Glory last week, the Libyan National Oil Corp. declared force majeure on the Es Sider, Ras Lanuf, Zuetina and Hariga export terminals.

"NOC will pursue all of its remedies to preserve and enforce its rights over the cargo and to hold responsible all the parties participating in illicit transactions relating to it in any jurisdiction, both within and outside of Libya," it said.

Libyan oil production has struggled to return to the pre-civil war level of 1.6 million barrels per day. Rainer Seele, chairman of Wintershall, which operates eight fields in Libya, said last week operations there were suspended by strikes at the country's export terminals. The chairman said it was unclear when the blockade would be lifted, but expected onshore production could begin in short order. That was before the Libyan appeal for assistance, however.

Wintershall said it had a good year in terms of net income. What would've been a disappointing year because of the production outage in Libya was saved by the company's assets in Norway and Russia. In early March, British energy company BP said it was considering "alternative approaches" to onshore operations because of mounting security concerns. While most offshore concessions were spared from the violence, onshore operations are under threat.

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The U.N. Security Council responded to security concerns by approving a Chapter VII resolution that authorized member states to seize vessels carrying oil illegally from Libyan ports. The reaction, though strong, does little to help the Libyan government extend its security reach into eastern territory.

The Organization of Petroleum Exporting Countries said in its monthly market report that Libya's oil production is barely above 300,000 bpd because of the recent halt to production at the El Sharara field. That's more than a 30 percent drop from January figures.

Most of the oil facilities are beyond the control of the central government in Tripoli. While companies like Wintershall and BP are able to shield themselves with a diverse energy portfolio, imminent signs of a fractured Libya, and growing Western intervention, suggest Libya is far from a stable place for business.

By Daniel J. Graeber

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