Shots fired at an oil tanker and accusations of attempted thefts at port facilities have deepened a crisis in Libya's oil industry, triggering fears among major Western oil companies that one of Europe's largest suppliers could soon descend into lawlessness.
Shots fired at an oil
tanker and accusations of attempted thefts at port facilities have deepened a
crisis in
Libya
's oil industry, triggering fears among major Western oil companies that
one of
Europe
's largest suppliers could soon descend into lawlessness.
Strikes by security guards in eastern and central Libyan ports that started at
the end of July have effectively shut down shipments from terminals there,
which account for more than half of
Libya
's $60 billion of oil exports annually.
As a result, storage facilities have filled with crude, crimping any new
production. According to data supplied by the Oil Ministry,
Libya
's output fell in the first half of August to about 500,000 barrels a
day--about one-third the highs reached last summer and the lowest level since
just after
Libya
's civil war ended in late 2011.
Though the port closures were started by workers demanding the payment of wages
owed as well as higher wages or more jobs, Libyan officials say the situation
there is now turning into an occupation and that the armed guards are trying to
sell oil without government approval.
As evidence, Libyan officials said a major international commodities trading
house had recently received an offer to purchase Libyan oil outside official
channels, which the company refused and reported to authorities.
"It's not a strike. It's a coup," a manager at a company running one
of terminals said.
On Thursday, the Navy Special Forces, which acts as a coast guard, posted video
showing its members firing from a Navy ship at an unauthorized tanker as it
approached the country's largest oil terminal, Es Sider, in central
Libya
early this week. There was no sign that the tanker was damaged or
suffered casualties, but it retreated from the area.
The developments illustrate how
Libya
's oil industry, once a tightly run stalwart of supply to
Europe
, is
in danger of joining the ranks of countries whose industries are marred by
unrest, theft or corruption.
"The situation in the country remains volatile, and we cannot exclude
further disruptions in the second half," Eni SpA's (E, ENI.MI) chief
executive, Paolo Scaroni, said at the Italian oil company's second-quarter
earnings conference on Aug. 1.
He lumped the North African nation with
Nigeria
as the two areas where it faces "uncertainties" in future
production.
Like
Nigeria
,
Libya
has a prevalence of weapons, a lack of jobs for locals and militias
that are demanding stronger regional control of oil revenue. Those factors have
created the potential for lawlessness, leading to entrenched oil theft, said
Peter Hutton, a London-based analyst at the Royal Bank of
Canada
.
Libya
's problems are at "a nascent stage," he said, with its open
deserts making systematic theft through sabotage less likely than in
Nigeria
's swamps.
But Libya's insecurity is already damaging investment in the country, which
holds Africa's largest oil reserves, said Geoff Porter, head of
Washington-based North Africa Risk Consulting Inc.
Royal Dutch Shell PLC (RDSA, RDSA.LN) said last year it was exiting its Libyan
exploration blocks. U.S.-based Marathon Oil Corp. (MRO) recently signaled it
would like to sell its interest there, according to Libyan oil officials.
Marathon
declined to comment.
For those who stay, investment prospects may be severely curtailed. In the
light of recent events, "I expect we will freeze everything in the budget
in 2014," said a senior manager at a foreign oil joint venture.
The new wave of unrest in Libya comes as violence has gripped other countries
in North Africa that play a large role in producing and transporting oil,
including the terrorist attack and hostage standoff in January at the In Amenas
natural gas facility in Algeria, and the recent deadly military clashes with
Muslim Brotherhood protesters in Egypt.
Amid the disruptions, the price of European benchmark Brent crude oil futures
have risen by about 7% since July 1 to trade around $110 a barrel.
"
Libya
is rapidly building up a reputation for unreliability, which will
inevitably be built into prices," London-oil broker PVM Oil Associates
Ltd. said in a note last week. Shipping market operators also say insurance
underwriters are asking for an extra levy on top of the typical war cover for
Libya
.
The strikes have already cost the government at least $1.6 billion in lost
revenue in the past month--money it badly needs for postwar
reconstruction--Libyan Oil Minister Abdelbari al-Arusi said Aug. 15, according
to a transcript of his remarks on the prime minister's website.
If the closures continue another month, the country won't be able to pay
civil-servant salaries and pensions to veterans and will stop paying
contractors working on projects, he said.
The disruptions started about a month ago as members of the Petroleum
Facilities Guard, a specialized armed task force that protects oil facilities,
went on strike over what they said were unpaid wages. They were joined by other
people seeking jobs at the facilities and employees wanting higher pay.
In recent days two terminals near the eastern cities of Brega and Tobruk have
restarted operations. But three others remain blocked, including Es Sider.
On Tuesday, a Libyan official revealed that oil trader
Vitol Holding BV
and other large companies had received an offer to buy Libyan crude
outside official channels. Vitol refused the offer and told Libyan authorities,
the official said. Vitol declined to comment on the matter.
Prime Minister Ali Zeidan last week accused Ibrahim al-Jathran, the leader in
the central region of the Petroleum Facilities Guard, of having tried to sell
oil without approval.
Mr. al-Jathran, who was subsequently dismissed, couldn't be reached for
comment. A spokesman for the Petroleum Facilities Guard said he was now wanted
by the Libyan authorities.
Mr. Zeidan also warned that any vessel approaching Libyan ports without
clearance "will be bombed from the air and the sea," according to his
official website.
The video posted by the Navy Special Forces came from an incident on Monday. The
Liberia-flagged tanker, the A Whale, had come from
Port Said
,
Egypt
, according to the shipping tracking website MarineTraffic.com.
Videos posted on the Special Forces' Facebook page shows them shooting at the
ship as it approached Es Sider with AK47 machine guns while shouting "God
is great." Another man is seen aiming at the oil vessel with a
rocket-propelled grenade launcher.
The vessel wasn't on the official list of authorized shipments from the port,
which exports oil from concessions run by
Libya
's National Oil Company with U.S.-based ConocoPhillips (COP), Hess Corp.
(HES) and
Marathon
, according to Libyan officials.
The tanker left the area of Es Sider after being stopped but remained offshore
Libya
as of Thursday, according to MarineTraffic.com. A Whale is owned by a
global shipping group called Today Makes Tomorrow, or TMT, Group, with roots in
Taiwan
.
The crew of the vessel, which was used to skim oil during the Deepwater Horizon
oil spill in the
U.S.
, and a company spokesperson didn't respond emails and couldn't be
reached over the phone. Staff at Bracewell & Giuliani LLP, a law firm
representing TMT in a
Houston
bankruptcy court, declined to comment on the vessel.
Clashes also broke out Tuesday at another closed terminal, Zueitina, between
striking workers and opponents of the shutdown, another oil official said. Before
the closure, Zueitina shipped production from fields partly owned by
Austria
's OMV AG and U.S.-based Occidental Petroleum Corp.
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