One of the most important stories in the last week, but one which didn't get much publicity, was in the October 8 Wall Street Journal. (Here's the link to it, but it's behind a paywall.)
The story somehow managed to be utterly predictable and shocking at the same time. Utterly predictable because it said what almost everybody sort of knew as the Libyan rebels took control of that country: that the unity showed in overthrowing Moammar Khadafy was very likely to dissolve into tribal and regional divisions once the common enemy was vanquished. But it was shocking also because most of the noise coming out of Libya's oil sector has so far been positive about the return of production.
At the recent Americas Assembly of The Oil Council, Arc Financial's Peter Tertzakian noted that there is no recent recorded instance of an oil exporting country going through an upheaval in the form of a coup or similar political disruption, and then getting back to the pre-crisis level.
The WSJ story came out a few days after that, and I sent Peter the link to the story. He responded by sending me a report his group did in late March, a month after the Libyan revolution began, laying out the sad history of post-revolution production. Among some of the more compelling points:
--There's a chart in the report that says it all. For example, before the Iranian revolution in 1979, Iranian output was as high as 6 million b/d. According to the chart, it dropped to as low as 1.3 million b/d (but there are other estimates that it actually sunk even lower.) Tertzakian's estimate of its highest recovery level is 3.5 million b/d after 15 years, which would be 1994. (However, Platts most recent estimate for Iranian production is 3.6 million b/d).
--Also from the chart: Iraq's pre-Gulf War I output was 3 million b/d; its low point was 500,000 b/d, according to Arc's data. That data also shows a post-Gulf War high of 3 million b/d; current output is 2.7 million b/d, according to Platts data. Meanwhile, before the big strike of 2002, Venezuela produced 2.5 million b/d, according to Arc. The Arc data shows a production low point of 1.4 million b/d, and a recovery level of 2.5 million b/d, but that's being generous; Platts data now shows it at 2.35 million b/d.
"Political unrest and military action often destroy physical infrastructure, but the collateral damage goes much further," the report said. "Technical expertise is lost as skilled workers vacate the country, going back slowly and only reluctantly apres the chaos. Financial institutions and government agencies that manage the domestic markets and regulatory bureaucracy are usually destroyed when rule-of-law breaks down (or if their office buildings are blown apart). Investor capital commands a huge risk premium to return. Insurance rates go sky high."
The road ahead is difficult. Earlier this week, the former top official of Libya's oil industry Shokri Ghanem told the Oil & Money forum in London that Libyan oil output is unlikely to recover to pre-uprising levels for at least 18 months. It would take until next June, he said, to achieve 1 million b/d. (It was 1.6 million b/d pre-revolution).
But one thing Arc wrote was notable, reflecting a skepticism last March that now might be moot. "What oil company will be eager to go back to Libya after billions of dolars have already been lost or put in jeopardy?" the report says.
This is where Libya might be different. The fact is that numerous companies have expressed their determination to restart production and get back to some semblance of normal: Italy's ENI, France's Total, Austria of OMV...all have issued updates of their operations, and none have given any hint of running for the exits. In the case of OMV, its CEO, Gerhard Roiss, even described Libya last month as "one of our core countries, and if we have the chance to expand there, we will do it."
(There were reports early Friday that Waha Petroleum, the Libyan joint venture that consists of Marathon, ConocoPhillips and Hess, also had settled some differences in Libya and was preparing a restart of production).
So maybe Libya will become the first oil exporting nation that underwent a traumatic change and still ended up with a future more bountiful than its past. But it would be bucking the odds.
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