Tuesday, July 19, 2011

Qaddafi has told foreign operators to restart oil production

LIBYA’S state-owned National Oil Corporation (NOC) has told foreign operators to restart oil production. Chief executives of international oil companies (IOCs) were summoned to a show-down in Djerba last week to be told they must end.
NOC sent letters to all its foreign upstream partners, a senior Libyan oil industry source told but only Italy’s Eni attended the meeting in Djerba on 7 July, and sent a mid-ranking executive in place of the company’s boss, Paolo Scaroni. Eni would not confirm any of the details. No other foreign firms responded to the summons. Azam Messalati, NOC’;s general manager, attended the meeting, as did other officials from the state-owned company, including one legal representative.It is understood that Messalati told Eni that its declaration of, in place since just after Libya’s conflict erupted in February, no longer legally applied to its operations in the country. According to the source, if the lead party in the contract; NOC finds a suitable solution to the force majeure the junior parties are obliged to restart operations.
Ben Abderrahmane, a lawyer with expertise of Libyan law at Ben Abderrahmane & Partners, said that in such a situation any dispute would likely be settled by Libya’s state court. Only if the IOCs had stipulated in their contracts that they had recourse to international arbitration could the issue be legally settled elsewhere.

Russia and China moving in
Since the meeting in Djerba, a Libyan oil official has said that NOC is now in negotiations with Chinese and Russian firms to take over Eni’s contracts in Libya. But the regime’s priority is to get the operators to re-start production. NOC, said the source, told Eni that payment for any oil production would be siphoned through offshore accounts to avoid detection. The regime would also provide protection to workers.
Eni threw everything out of the window; the source said. Scaroni and Eni have already established contact with rebel groups. Italy, while remaining a reluctant Nato member, continues to support the action against Muammar Qadhafi. It is also one of the few countries to have recognised the Transitional National Council, the rebels’; Benghazi-based government, as representative of the Libyan state.

Eni has continued to produce gas from fields in the southwest, supplying about 55,000 barrels of oil equivalent a day. But all oil production in Libya, including the Italian firm’s, has ceased.

Operations at risk
Eni is not the only foreign oil company whose operations are at risk. Canada's Suncor Energy, the country's largest oil producer, was forced shutter some 50,000 b/d of oil production from the Ghadames basin in Libya's mid-west. Chief executive Rick George told a Montreal audience in June that the company refuses to do business with the Libyan regime and will likely take a write down on the Libyan assets when it reports second-quarter financial results on 28 July. Some financial analysts have speculated it could be a C$1 billion ($1 billion) hit to the company's bottom line.
Given that Suncor is willing to take a financial charge suggests that it doesn't expect the situation in Libya to be resolved any time soon. Canada has taken a role within the Nato bombing and has also imposed sanctions on the Libyan regime
Meanwhile, dwindling fuel supplies are putting severe pressure on Qadhafi’s army and its efforts to fight rebel forces, which are closing in on Tripoli, say military experts. Efforts to restart production suggest any output would be used for regime consumption, not for export.
Nato’s interdiction of seaborne petroleum supplies has shut down that supply route and on regime-controlled ports has also tightened the screw. The alliance has followed with new air strikes on fuel depots in Brega, which remains under Qadhafi’s control.

Pipeline close to dry
Some fuel continues to flow from Tunisia and Algeria, said sources. But rebels have also cut the pipeline that was sending crude oil from fields in the southwest to the Zawiyah refinery, west of Tripoli. It continues to operate, according to aerial surveillance, is close to dry; said a Western diplomatic source.
A rebel source said the regime’s desperation for fuel has grown so severe that it is trying to buy a floating refinery from a vendor in the Black Sea. Such a facility would give the regime a maximum 10,000 barrels a day of supply.

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