Oil to feed civil war
By Stratfor Global Intelligence
Unlike energy produced in most African states, nearly all of Libya's oil and
natural gas is produced onshore. This reduces development costs but increases
the chances that political instability could impact output - and Libya has been
anything but stable of late.
Libya's 1.8 million barrels per day (bpd) of oil output can be broken into two
categories. The first comes from a basin in the country's western extreme and
is exported from a single major
hub just west of Tripoli. The second basin is in the country's eastern region
and is exported from a variety of facilities in eastern cities.
At the risk of oversimplifying, Libya's population is split in half: Leader
Muammar Gaddafi's power base is in Tripoli in the extreme west, the opposition
is concentrated in Benghazi in the east, with a 600 kilometer-wide gulf of
nearly empty desert in between.
This effectively gives the country two political factions, two energy-producing
basins, two oil output infrastructures. Economically at least, the seeds of
protracted conflict - regardless of what happens with Gaddafi or any political
changes after he departs - have already been sown.
If Libya veers toward civil war, each side will have its own source of income
to feed on, as well as a similar income source on the other side to target.
There have not been any attacks on the energy sector yet, but the threats to
stability - overt and implied - have been sufficient to nudge most
international oil firms operating in Libya to remove their staff.
These staff are essential. At 6.5 million people, Libya's tiny population
simply cannot generate the mass of technocrats and engineers required to run a
reasonably sized energy sector. As such, foreign firms do most of the investing
and all of the heavy lifting.
The Libyans are hardly incompetent, but even if their skill sets and labor
force simply were deep enough - and they are not - the political instability is
keeping many workers at home. Within the past 24 hours we have seen the first
reductions in output - about 100,000 bpd is now offline - and more are sure to
This will be the biggest problem for Italian energy major ENI. That firm's
relationship with Libya reflects Rome's, which has had influence in what is
currently Libya literally since the time of the Roman Empire. ENI has had boots
on the ground in the North African state since the dawn of its energy industry
in 1959 and has never scaled back its operations.
Even in the dark days of Libya's ostracism from the West in the 1980s, when
American firms left due to Gaddafi's backing of various militant factions and
United Nations and US sanctions were levied after Libyan agents downed Pam Am
Flight 103 in 1988, killing 270 people, ENI drilled on. As such, ENI produces
some 250,000 bpd in Libya, which accounts for 15% of the Italian firm's global
output. It is also the major power behind the country's moderate piped natural
ENI is also a partially state-owned firm and is thus susceptible to
inefficiency and a lack of propensity to rise to technical challenges. As such,
ENI has simply been unable to secure new energy sources except on terms set by
others. Unsurprisingly, it has seen its market share eroded by a more adept
private challenger, Edison.
All told, Italy has to find about 60 billion cubic meters (bcm) of natural gas
a year to cover the country's natural gas deficit. Despite the drawbacks of
partnering with someone like Gaddafi, Libya can provide about 11 bcm - and ENI,
fully supported by the central government in Rome, gets all of it. Italy, via
ENI, is also Libya's single largest oil consumer, with most of the rest going
elsewhere in Europe.
Whether ENI loses access to Libyan energy because of safety concerns, supply
interruptions or a new government in Tripoli that looks less than favorably on
the company that stuck by Gaddafi through thick and thin, there is much risk
and little opportunity ahead in ENI's future relations with Libya.
(Published with permission from STRATFORr,
a Texas-based geopolitical intelligence company. Copyright 2011 Stratfor.)