Analysts: Libya needs 2 years to restore oil output

WASHINGTON—It could take Libya two years to restore oil production to pre-revolt levels, analysts and a former Libyan oil minister said Monday as Western-backed rebels fought to take control of Tripoli.

But they also warned that disputes over who would hold power in any post-Moammar Gadhafi regime and the lack of any strong institutions could also delay rebuilding the energy-dependent economy.

As much as 400,000 barrels a day of production could be restarted by the end of the year, but much of that would be needed domestically, leaving little at first available for export, analysts said.

“I don’t think they can resume production immediately. It might take place in three or four months but to go back to the level they used to produce, it may take two years,” Shukri Ghanem, the exiled former Libyan oil minister, told energy news specialist Platts on Monday.

Ghanem, chairman of the Libyan National Oil Corporation from 2006 until he fled the country in May, said some key production and transport installations were damaged, and some oil wells were not shut down properly by operators, including foreign companies, as they removed their staff.

“They may start at 300,000 to 400,000 barrels per day and in a year’s time they may reach a million, maybe before that. But first there will be some repairs to the pipelines and the boosters and pump stations,” he told Platts.

Before the uprising began in February, Libya produced as much as 1.6 million barrels per day (bpd) and exported 1.3 million bpd, much of it light crude valued by Europe’s refiners, which have struggled to replace it.

Energy specialist Cliff Kupchan of the Eurasia Group consultancy said getting back to the pre-war level will depend largely on how soon foreign oil and oil service companies can be made to feel secure.

“The new government may be able to achieve a partial resumption of oil production by (the fourth quarter of) 2011, but probably no more than 400,000 bpd within that timeframe—and a substantial amount of the volume will be needed for domestic consumption.”

Kupchan said, aside from oil, starting up the economy will be a “major challenge” for the rebel National Transition Council.

“Libya has been a distributive state with no independent industries for over four decades—it imports roughly 70 percent of food.

“There will be a time gap between the NTC’s ascendance to power and revenue generation from oil needed to run the country—and that gap will be a dangerous period.”

Much depends on how well the fractious NTC can remain united as it replaces Gadhafi’s crumbling government, analysts said.

“The potential for a major political and security power vacuum remains elevated, in our view. Gadhafi has ruled Libya with an iron grip for over 40 years, and there are very few functioning institutions able to immediately step in and run the country in his absence,” said Helima Croft of Barclays Capital Research.

“International oil companies… will likely be reluctant to restart operations in a volatile security and political environment,” she said.

Getting them back could mean renegotiating their exploration and production contracts, she added.

Western and Arab powers are likely to provide the funds needed to get any new government going.

The United States has frozen $37 billion in Gadhafi regime assets since February and said Monday it was still working on ways to tap this to help a new regime in Tripoli.

“We are trying to accelerate our ability to get some essential funding to the (NTC), particularly for humanitarian needs, particularly for maintenance of essential services,” US State Department spokeswoman Victoria Nuland told reporters Monday.

She was referring to ongoing discussions with Britain, France, Germany, Turkey, Norway, Sweden, Canada, Denmark, the United Arab Emirates, and Qatar.