Oil companies ready to jockey for position in new Libya

Scramble begins for Libya's oil

International oil companies are jockeying for advantage in the new Libya, buoyed by news that damage to the energy infrastructure appears to be slight. But they remain anxious about a lack of security and are holding off sending workers back into the country.

National Transitional Council officials report little damage to oil export terminals in eastern Libya (at Ras Lanuf and El Brega) and have appealed to employees to return to work. The two terminals handle the bulk of oil exports pumped from the Sirte basin. But the rebels have also begun to use, with help from Qatar, a terminal at Tobruk.

The NTC official in charge of oil and the economy, Ali Tarhouni, told Reuters news agency Thursday that he expects production can reach 500,000 to 600,000 barrels per day within a few weeks, and return to the prewar level of 1.6 million within a year.

Some industry analysts believe that is optimistic. Sources at Italian oil company Eni (the largest producer in Libya) forecast production at 750,000 barrels by sometime early next year. Energy consultants Wood Mackenzie estimate it will take three years for production to recover to the prewar level. But that would depend on the prompt return of foreign workers.

In a recent report, Wood Mackenzie estimated "six months will be required for NOC (Libya's state-owned oil firm) staff, international companies and foreign workers to return and re-establish supply lines and assess and repair damaged infrastructure."

Libya has always relied on foreign expertise to exploit its oil, but expatriate workers may be reluctant to return before the violence -- and the threat of abduction -- abates. The waters off Tripoli, where heavy gunbattles continued Thursday, contain important fields like the Bahr Essalam. But in the east, too, there are still pockets of fighters loyal to deposed leader Moammar Gadhafi and there are ongoing clashes.

Spanish oil company Repsol said last month that its assets in Libya were intact, but said staff would only return to the country when fighting ceased and it would take at least four weeks to resume production. Marathon Oil, based in Houston, said it has had preliminary talks with the National Transitional Council about restoring production when the situation stabilizes.

The worst scenario for the NTC -- and the oil companies -- is a prolonged campaign of sabotage by opponents of Libya's new rulers.

Wood McKenzie noted that Gadhafi supporters sabotaged the pumping station that moved oil from the Sarir and Messia fields early in the conflict and said: "Libya's oil fields are located in the vast, remote Saharan desert, making them impossible to defend from attack." Other analysts point out that only now, after a prolonged insurgency, is Iraq's oil output recovering to pre-invasion levels.

Rehabilitating the oil industry is one of the NTC's priorities because oil has provided 95% of the state's export revenue. While Libya's new rulers will benefit from the release of the old regime's assets and international aid, they need a predictable revenue stream.

A short journey across the Mediterranean, Libya is the ideal source for southern Europe, with its plentiful reserves of "light sweet" crude, a high-quality oil. Some European refiners are not equipped to process "sour" crude, industry experts said, and that has intensified competition for other sources (mainly Nigerian) of high-quality oil in the absence of Libyan exports.

However unpredictable the current situation, European oil companies are gearing up for battle. The major players from there before the uprising began were Italy's Eni, Total of France and Repsol. British giant BP is also trying to get a larger slice of Libyan exploration projects. It concluded a $900 million deal with the Gadhafi regime three years ago to explore for gas. Other players include OMV of Austria and Marathon. China, through its state-owned CNPC, had begun exploring off the Libyan coast to help feed its insatiable appetite for Africa's mineral wealth but recently terminated several contracts because of the unrest.

Eni has been lobbying hard to retain its dominant role, concerned that Total may get preferential treatment from the new government because of France's leading role in the military campaign to oust Gadhafi. Company officials said Eni has been in regular contact with the rebels since April and CEO Paolo Scaroni predicted a "positive future for Eni in Libya."

Scaroni is to visit Libya next week to sign an agreement to supply gas for vehicles and natural gas to make electricity.

Italy has moved quickly to unblock Libyan assets worth more than $500 million. But there may be concern in Rome that senior NTC member Mahmoud Jibril headed for Paris before Rome.

Some NTC officials have suggested that those states most heavily involved in the conflict against the Gadhafi regime -- which include Britain, France and Qatar -- will have an advantage when it comes to reconstruction projects. Other states -- like Russia, Brazil and China -- that opposed action against the Gadhafi regime may find it an uphill battle with Libya's new rulers.

Tarhouni told Reuters on Thursday that all current contracts would be honored. He said it was far too early to contemplate new contracts. "It's the last thing on my mind," he told Reuters.

NTC officials have also pledged to reform the notoriously corrupt National Oil Company, often used as a piggy bank by the Gadhafi family.