We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Thu 19 Nov 2009 04:00 AM

Font Size

- Aa +

Crude concerns

Is Shokri Ghanem's authority at Libya's National Oil Corp being tempered by the conservative old guard?

Crude concerns
Analysts said Ghanem resigned because Libya blocked the sale of Canadian oil exploration company Verenex to the Chinese state-backed firm CNPC.
Crude concerns
Ghanem may have an increasingly strong ally in Saif Al Islam a reformist son of leader Muammar Gaddafi who led Libya’s efforts to cast off economic sanctions.

Relief among foreign investors at the return of Shokri Ghanem to Libya's National Oil Corp is being tempered by fears the conservative old guard is chipping away at his authority.

Shokri Ghanem, a former prime minister and prominent reformist in the north African OPEC member, has been reinstated as chairman of National Oil Corp (NOC) weeks after reports emerged that he had resigned.

Libya's secretive government never confirmed that Ghanem had left but NOC had been naming a senior executive as "acting chairman" in coverage of official functions on its website.

Ghanem said on October 26 that he was back in the job.

Ghanem has overseen a tightening of terms for oil firms in Libya but foreign executives say the new arrangements made it easier to plan for the future and bolstered Ghanem's reputation as a sympathetic partner to Western firms in an often unpredictable country.

Libya holds 42 billion barrels of oil reserves, the largest in Africa. Since 2003, when the United Nations economic sanctions against Libya were lifted, the country has enjoyed a boom in business. It currently pumps about 1.55 million barrels a day of crude, and 95 percent of the country's export revenues are from oil and gas.

Any sign that Libya may change or further toughen investment rules would be bad news for supermajors like BP, ExxonMobil, and ENI, which are sinking billions of dollars into the country after it cast-off sanctions.

Analysts said Ghanem resigned mainly because Libya's government blocked the sale of Canadian oil exploration company Verenex to the Chinese state-backed firm CNPC, in order to buy Verenex for less than the market price.

In February, Libya announced it would exercise its right to pre-empt the sale, but held back on making a formal offer for six months. The deal was closed in September with the country's sovereign wealth fund, the Libyan Investment Authority, paying $316m for Verenex - some 30 percent less than CNPC had offered.

"Despite Ghanem's return, it seems clear that political headwinds have shifted against IOCs over the past year, and that other voices in Libya will be part of the policy mix," said Ben Cahill, petroleum risk manager at consultants PFC Energy.

The forced purchase of Verenex, one of just a few companies to strike it big in Libya's vast exploration acreage, follows a series of setbacks that are tempering early optimism over Libyan business opportunities following the end of sanctions.The recent creation of a Supreme Council for Energy Affairs (SCEA), dominated by conservatives close to prime minister Al Baghdadi Ali Al Mahmoudi, suggests Libya's powerful old guard is trying to clip Ghanem's wings.

The council has been given considerable executive and regulatory powers, though its policy line remains unclear. If it takes an active role in decision making it could further slow the already glacial pace of energy project approvals that is frustrating many international oil companies (IOCs).

"If it is allowed to come into actual existence the supreme council will weaken Ghanem, who will have to fight it. But it may never come into being," said John Hamilton of industry newsletter African Energy.

Ghanem may have an increasingly strong ally in Saif Al Islam, a reformist son of leader Muammar Gaddafi who led Libya's efforts to cast off sanctions.

Islam became Libya's second-most powerful figure last month when he was named coordinator of a grouping of tribal, political and business leaders, according to local media.

Prospects for reform of Libya's centralised, statist economy seemed to be going into reverse earlier this year as Islam's star waned and his brother Mutassim Gaddafi - a conservative with strong allies in the military - grew in stature.

Mutassim stepped into the public eye in April when he visited the United States as Libya's national security adviser, and he is seen as influential in the SCEA.

Islam is better known abroad but has less support among the powerful apparatchiks who help keep his father in power.

"Behind the question of what Ghanem can do lies the usual unresolved political debate about Libya's ultimate political direction," said Hamilton of African Energy.

The uncertainty is frustrating for European countries hoping Libya, home to African continent's biggest proven oil reserves, will help them diversify energy sources away from Russia.

Exploration permits handed out in licence rounds since the end of sanctions have produced few major discoveries and progress developing new projects is slow.

Ghanem has said repeatedly there is no need for a new exploration licence round. That reticence mirrors recent policy in several oil-rich countries determined to maximise returns.

"Whether his return will translate into better investment terms for international oil companies is uncertain, especially for the upstream gas business," said Hakim Darbouche of the Oxford Institute for Energy Studies.

"However, many people in western companies would rather see him in than out because of his softer approach to foreign investment."

Arabian Business: why we're going behind a paywall