Libyan oil fever fades as 2013 talks begin

Mon Nov 26, 2012 5:46pm IST

Related Topics



* Estimated $50 billion of oil for sale

* Rival militias, civil unrest still worry investors

* Traders complain of weak margins on Libya's oil

By Emma Farge and Jessica Donati

GENEVA/LONDON, Nov 26 (Reuters) - A year after oil firms jockeyed to secure the first deals in post-war Libya, political disorder and a large surplus of oil in Europe have sapped enthusiasm ahead of talks this week for 2013 contracts worth around $50 billion.

More than a year has passed since the ousters of Muammar Gaddafi took control of the OPEC country, and while oil output has risen back to pre-war levels of 1.6 million barrels per day, unrest still disrupt shipments and work at refineries.

Protests and strikes cause expensive delays, while the continued presence of guns and rocket-propelled grenades in the capital is a concern for investors.

"The political instability and security problems make it less attractive for the international oil companies and for the traders as well," said Charles Gurdon, managing director of Menas Associates, a political risk consultancy.

Libya's national congress appointed Abdelbari al-Arusi as oil minister earlier this month, although it is unclear how responsibilities will be shared with the National Oil Corporation (NOC), which currently oversees oil sales.

Complicating the talks is the fact that sweet, high-quality crude that Libya produces is increasingly difficult to sell.

Global supply of similar, sweet grades is increasingly abundant because of the U.S. shale oil boom, while at the same time, demand is falling because of closures at European plants, some specially designed to process Libyan crude.

Last November, major traders such as Vitol and Glencore made their debut in talks with Africa's third largest producer, vying alongside established clients such as Italy's Eni for deals in a departure from policies under Gaddafi.

Together, trading houses won close to 10 percent of Libyan oil exports in 2012, while Italian, French and Spanish refiners were given priority access to crude.

Now, oil firms gathering in Istanbul for the talks say the premium once sought for Libyan oil is no longer justified as the world is structurally short of sour not sweet crude.

"People have struggled. The future is clearly sour and they will have to adjust lower their selling prices," said a crude oil trader with a large independent trading house.

At some point this year, Libya set official prices so much higher than rival Kazakh CPC or Algeria's Saharan grades that buyers steeply cut purchases. That contributed to the country's output fall by 300,000 bpd and prompted crisis talks between the NOC and clients.

High prices have especially hurt oil traders with no refineries as they need to seek an extra margin in arbitraging tankers between producers and consumers.

Official prices have since fallen but Gurdon said there may be ongoing political pressure for Libya's oil chiefs to keep prices high, as the hydrocarbons sector accounts for around 90 percent of government revenue, according to a 2012 IMF report.

"It's very difficult to tell people after a revolution when there's a lot of resource nationalism that they need to give better terms to foreign companies," he said.


Industry sources have also complained that transparency on oil contracts had worsened after the NOC stopped releasing details of price and volumes on its website earlier this year.

NOC chairman Nuri Berruien said this month that it aimed to sell most of its oil via term contracts but would resort to spot sales if there was not enough interest.

Berruien did not give exact export figures for 2013 but Reuters calculations suggest availability of at least 1.3 million bpd based on NOC production targets for the first quarter minus refining capacity.

"The market is going to be open to everybody who is a credible buyer," Berruien said, indicating that trading houses were again welcome to compete for contracts.

Traders also complain that some of the problems that complicated deals last year, including a lack of clarity on whom to approach and what exactly is being sold, remain unresolved.

This has created a lack of trust between parties and the perception that some oil firms may be favoured above others.

For instance, on fuel imports, with contracts for over three million tonnes of gasoline to be purchased by the Libyans in 2013, traders complain that some firms have been approached first and others excluded.

"Trading houses will be excluded unless they have a term contract with a refinery," said a gasoline trader. "Saras, Litasco, Eni (all Italian refiners) and the Greeks are the favourites to win the contracts."

The talks will be led by NOC marketing representatives Ahmed Shawki and Naima Suani, trade sources said. Libyan officials said the purchase of over a billion dollars' worth of gasoline had not yet been discussed with any company.

But a second gasoline trader said that the supply of products was on the agenda, and that he had been told gasoline deals would be discussed at the Istanbul talks.

Despite complaints from traders, the oil talks in Istanbul are expected to be attended as widely as the previous year with Eni, Petrochina, Vitol and BB Energy all due in.

And Libya's biggest trading partners, such as Eni, are keen to display their commitment.

"Eni is committed to Libya, which is one of the countries we view as strategic," a spokeswoman for Eni said ahead of talks.




Fund Raising

Fund Raising

Flipkart raises $700 million in fresh funding.   Full Article 

Reforms Push

Reforms Push

Modi may order insurance, coal reforms if vote delayed - officials.  Full Article 

Reuters Exclusive

Reuters Exclusive

India looks to sway Americans with nuclear power insurance plan  Full Article 

To Boost Growth

To Boost Growth

Crank up public spending to revive growth - chief economic adviser.   Full Article 

Bold Steps

Bold Steps

SpiceJet rescue plan marks bold bet on Indian aviation recovery.   Full Article 

New Airline

New Airline

Tata, Singapore Air venture Vistara to take off on Jan 9.  Full Article 

Online Sales

Online Sales

Knock knock. Who's there? Amazon's best-selling holiday author.  Full Article 

Hacking Attack

Hacking Attack

N.Korea says did not hack Sony, wants joint probe with U.S.  Full Article 

Reuters Poll

Reuters Poll

BSE Sensex to hit 32,980 by December 2015  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage