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Despite Kadafi's end, Libya will need time to boost oil exports

October 20, 2011 |  2:01 pm

Libya01

The demise of former Libyan strongman Moammar Kadafi is a welcome development for a fledgling government still trying to get on its collective feet. But it may be several months, if not years, before the country returns to its former prowess as one of the world's biggest oil exporters.

That was the assessment today of analysts Helima L. Croft and Amrita Sen, who took note of the fast-moving developments in the north African nation in a Barclays Capital Commodities Research Energy Flash.

"With Kadafi gone, the loyalists may become demoralized and abandon their cause. This, in turn, could make it easier for the international oil companies to return to areas that had been viewed as particularly volatile because of the presence of pro-Kadafi forces," the analysts said, but many potential stumbling blocks remain.

PHOTOS: Moammar Kadafi | 1942 - 2011

"Serious security challenges persist in Libya that could hinder efforts to restore Libyan production fully. Divisions within the rebel ranks are undermining efforts to craft a coherent interim government. Fault lines have become increasing apparent between acting Prime Minister Mahmoud Jibril and the Islamists within the rebel coalition," the analysts said.

Libya has about 46.4 billion barrels of oil reserves, the largest in Africa, and close to 55 trillion cubic feet of natural gas reserves, according to the U.S. Energy Department. In 2010, before the civil war that toppled Kadafi. total oil production was close to 1.8 million barrels a day.

That was completely shut down once the civil war began. Despite the fact that Kadafi was forced to flee the Libyan capital several days ago, the interim government has just barely begun to reestablish order and control.

Only a few days ago, for example, Libya resumed natural gas exports to Italy via the 340-mile Greenstream Pipeline that is jointly owned by the Italian oil giant Eni S.p.A. and the National Oil Co. of Libya. So far, the pipeline shipment only amount to about 150 million cubic feet per day of gas, which is just a trickle compared to the 900 million cubic feet shipped before the unrest began.

Croft and Sen also said that it was unclear just how much  damage the Libyan oil infrastructure sustained during the conflict, adding that it was also unclear whether the looting "that has resulted in significant losses of machinery such as power generators, pumps and trucks from oilfields" would be quickly brought under control.

"Thus, we maintain our view that while Libya can bring on 500,000 to 600,000 barrels a day of production by the end of this year," the analysts said "the road to the return to pre-war levels remains a treacherous one."

Energy markets did not react strongly to the news of Kadafi's death. On the New York Mercantile Exchange, oil fell $1.08 to $85.03 a barrel, far below the $114 it traded at during the most intense fighting in Libya and amid other Middle East unrest earlier this year. On the ICE Futures Exchange in London, Brent crude rose $1.37 to settle at $109.76 a barrel.

ALSO:

Full coverage: Death of Moammar Kadafi

Kadafi son also reported dead

Strongman cast shadow over Middle East

 --Ronald D. White

Photo: Anti-Kadafi militants ride through the streets of Surt in triumph as news of the former strongman's demise spread, but the country faces months if not years of work in rebuilding its oil export infrastructure, financial analysts say. Credit: Esam Omran Fetori / Reuters

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