A day after Colonel Gaddafi made another characteristically lengthy speech threatening to violently quell widespread protests across Libya, the North African country, holder of the continent’s largest oil reserves and 15th largest oil exporter in the world, could see half of its oil production shut down in the coming hours.
In the last couple of days, IOCs operating in Libya have either partially or completely shut down their production activities and are evacuating most if not all of their staff from the country.
Experts widely believe that Libya’s 1.79 million barrels per day (bpd) production have been cut by at least half whilst other observers suggest the cuts could soon run much deeper.
BP has said that it has frozen its operations in Libya and was in the process of evacuating some 40 expat staff and their families, mostly based in the capital, Tripoli. It added that it was temporarily shutting down work on preparations to drill in the Libyan desert.
Austrian company OMV reported it may stop its Libyan operations completely. A company statement made today says: “Due to the current political unrest in Libya, OMV expects a temporary reduction of its Libyan production and can not exclude a complete stop. In 2010, Libya contributed approx. 33,000 boe/d, that is about 10%, to OMV’s total production. Concrete impacts are currently under evaluation. OMV’s presence in Libya has been reduced to few essential staff.”
The news comes as future delivery contracts for Brent crude surged to a 2-year high at $110 in Wednesday trading, reflecting the uneasiness of the markets on news of the growing unrest in Libya where between 300 and 1,000 civilians have been killed in a brutal government crackdown in the last few days.
OPEC is expected to be more than capable of making up the shortfall that the loss in Libyan oil production is likely to have with its estimated 5 million bpd of spare capacity. However Libya’s higher quality light sweet crude would be difficult to compensate for.
Saudi Oil Minister Ali Al-Nuaimi on Tuesday said OPEC was prepared to meet any shortage of supplies.
“There is absolutely no shortage of supply now…OPEC is ready to meet any shortage in supply when it happens,” he said. “There is concern and fear but there is no shortage,” he reiterated in a bid to allay consumer countries’ fears.
Libya began exporting oil in 1961, its economy heavily depends on the oil and gas sector which contributes about 95% of the country’s export earnings. The country has an estimated domestic consumption of some 270,000 bpd, Libya is a net‐exporter of oil. Europe receives over 85% of Libya’s crude exports, while about 13% heads East of Suez.
According to IEA figures, Libya exported 1.2 million bpd of crude oil to OECD countries in 2010. An additional 150,000 bpd of crude oil from Libya went to China in 2010, accounting for some 3% of the total crude imports for the energy-hungry Asian giant.
The IEA, which represents oil and gas-consuming nations has said that it is “ready, as always, to make oil available to the market in the event of a major supply disruption if alternative supplies cannot readily be made available via normal market mechanisms.”
Bahrain the “linchpin” of the Gulf
Meanwhile tensions are positively boiling over in Bahrain between the Shia Muslim majority protestors rallying against the Sunni Muslim minority-run monarchy of King Hamad Bin Isa Al Khalifa. The killing of 10 protestors in the past week has helped galvanise the opposition who are calling for greater political and economic participation and an end to the monarchy. In its response, the government has made efforts at striking a more genial tone with them.
Bahrain’s 300,000 bpd Abu Saafa offshore field contributing about 82% of its oil production, is operated by Saudi Aramco which shares the output on a 50/50 basis. The outcome of its political strife could potentially begin a turf war between the largely Sunni Gulf region and Shia Iran which is eager increase its influence in the region.
Some in the Islamic Republic’s government have been known to call for Bahrain to be considered its 14th province.
Although this is a distant prospect, it is a possible scenario, one that could dramatically affect the flow of oil and gas from this hugely important region, driving crude prices higher at a faster rate.
