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Libya: The Energy Player Not to Be Dismissed

On September 1, 2009, Libya lavishly celebrated the 40 years in power of its leader Colonel Muammar Gaddafi. Once qualified as the mad dog of the Middle East by President Ronald Reagan, Gaddafi has demonstrated a sheer ability to make of his once pariah country of 6 million people, one of the most assiduously courted both by countries and companies. Libya is the perfect example of Realpolitik at work where pragmatism prevails to promote commercial and national interests. The September 2009 Staff Report from International Monetary Fund summarizes the situation well: “the ongoing normalization of diplomatic relations with the U.S. and the European Union since 2007 continues to contribute to foreign investor’s interest, particularly in the hydrocarbon, banking, and infrastructure sectors.”

Back in the Concert of Nations

After recognizing in 2003 its responsibility in the bombing of the PanAm flight over Lockerbie and offering US$2.7 billion in compensation to the victims’ families, the United Nations Security Council lifted sanctions against Libya. Shortly thereafter Libya renounced to its weapons of mass destruction program. In 2006 the United States restored full diplomatic ties with Libya. These events opened the floodgates for foreign companies to explore business opportunities in Libya without the fear of incurring severe penalties.

In January 2008, Libya became for two years a non-permanent member of the United Nations' Security Council and in February 2009 Gaddafi was elected Chairman of the 53 members African Union. On September 23, 2009 Gaddafi addressed for the first time in his 40 years as ruler of Libya the General Assembly of the United Nations.

What is at Stake?

Many countries are tripping over each other to get a piece of the Libyan energy cake, oftentimes putting their leaders at odd with their public opinion. The stakes are high, notably for European countries that are eager to secure a southern route for their energy supply as the Eastern route has proven to be unreliable.

According to the US Energy Information Agency Libya holds the largest proven oil reserves in Africa, followed by Nigeria and Algeria.  As of January 1, 2009, total proven oil reserves stood at 43.7 billion barrels - up from 41.5bn barrels in 2008 - and proven natural gas reserves are estimated at 54.4 trillion cubic feet. Dr. Shukri Ghanem, President of the National Oil Corporation (NOP), recalls that Libya use to produce 3.7 million barrels per day in 1970 and states that it was planned to raise the production to 3 million barrels per day by 2012 “but this now will take longer for a number of reasons taking into consideration the international economic situation” and 2015 or 2016 seem to be more realistic targets.

Occidental Petroleum, ExxonMobil, Marathon, ConocoPhillips, Hess, Royal Dutch Shell, Petrobras, Verenex, Nippon Oil, Gazprom, and Repsol are among the many companies positioning themselves in oil & gas exploration, production and transportation, field development and improvement, refinery upgrades, etc. in order to assist Libya meet its ambitious objectives.

Libya also enjoys vast quantities of gas: its proven natural gas reserves as of January 1, 2009 were estimated to be over 1.54 trillion cubic meters and the fourth largest in Africa. No less than 11 billion cubic meters/year of natural gas transit from Libya’s gas field to Italy via the underwater Greenstream Pipeline.

This said, the intense activity in the oil & gas sector should not be a distraction from paying attention to other developments, notably in the banking sector, which has shown a noteworthy transformation.

To be or not to be in unpredictable Libya?

Undoubtedly Gaddafi’s bravado, shocking statements and unpredictable actions are an aggravation for the West. They are also a distraction from the mutual benefits to be gained from greater trade exchanges. His recent call in February 2010 for holy war against Switzerland and his statement that “any Muslim in any part of the world who works with Switzerland is an apostate, is against Muhammad, God and the Koran” are concerning. One should note the analogy with what happened to Denmark in 2005 and the calls to boycott Danish products after the controversial depiction of prophet Mohammad in the Danish press. The use of religion as a federating tool to go after Western countries is unsettling, though Libya’s calls to unite for certain causes are often dismissed by the Muslim world.

Gaddafi’s closing of Nestlé’s and ABB’s offices and the freezing of all visas for citizens of the Schengen Area, which affects 25 countries, is highly disruptive to business as many foreign businessmen and managers are unable to get back to Libya. These events serve as a dire reminder that nothing is set in stone and that decisions can be adopted against foreign interests irrespective of their damaging impact on Libya’s economy and image. Gaddafi’s wrath originated with the arrest of his son Hannibal by the Swiss police in July 2008 for allegedly assaulting his servants, which escalated with the arrest of two Swiss citizens for overstaying their visas followed by Switzerland banning 188 Libyans from entering its territory, Gaddafi included.

Once again Gaddafi masterfully toys with Western nations, knowing very well that their appetite for Libyan natural resources will tame their calls for greater freedom, democracy and openness.  Sanctioning 24 countries for the actions of Switzerland is also a very smart dividing strategy as it is doubtful that countries that have high stakes in Libya such as Italy will stand by Switzerland side. Also, the hope that Gaddafi will one day leave power leads many countries to keep a low profile and not shake the tree too hard in order to be in the starting blocks once the power transition happens. This is all wishful thinking: if we look at Cuba, everyone has been waiting for the departure of Fidel Castro who is very well alive… and so is his brother. Gaddafi is only 69 years old and his father is said to have been well over 90 years old when he died in 1985… Similarly, some see one of Gaddafi’s sons as a potential heir and read in his statements the possibility of a new era. Similar hopes were fostered when Bashar al-Assad took over at the death of his father in Syria in 2000 but change has not been overwhelming ever since.

Ultimately, the decision to be active or not in Libya is a judgment call and many countries have decided that the potential of the country far outweighs the risks, even more so as the negative attention of the Western public opinion is never sustained long enough to be a source of concern. Oil revenues and public expenditures will remain the two main GDP growth factors in Libya and real GDP growth is estimated by The World Bank’s 2009 MENA Economic Developments and Prospects Report to reach 2.9% in 2009 and 4.8% in 2010.

by Philip H. de Leon for Oilprice.com

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  • Anonymous on March 06 2010 said:
    Beyond Gaddafi? It is realistic, sensible & prudent for the "West" to work towards engaging positively with the 1.5 billion Muslims in the World...& increasing.The current corrupt politicians ("Watchmen"?) suppressing Muslims on behalf "Western" Corporations & politicians will soon be replaced by more enlightened leaders demanding better standards of living for their masses & controlled release of their natural resources.The "West" must learn to have a standard of living realistic enough to match its own limited natural resources.They can no longer loot other peoples' resources to live an unrealistic standard of life. Why should Muslim masses be denied the benefits of sensible & controlled marketing of their own natural resources? This injustice has to be put right..sooner than later.
  • Anonymous on March 07 2010 said:
    The author of this contribution provides a very important piece of information about Libyan gas resources. As for the rest of it, I'm uncertain. For example, the sooner the twisted opiniona of somebody like President Ronald Reagan are completely forgotten, the better it is for all of us.

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