Author: Fawzia Sheikh

(This guest post originally appeared at OilPrice.com)

The Libyan government has been sounding off lately about boosting the profile of its oil and gas market, but it’s questionable whether international companies will ignore the government’s missteps in the industry – not to mention the recent lackluster energy finds – and keep injecting money into the North African country.

The head of Libya’s National Oil Corp., Shokri Ghanem, has his eye on expanding gas exploration and production in a bid to raise exports to Europe, as well as privatizing oil refineries and the petrochemical sector, according to an interview he gave this month to the Oxford Business Group.

Once an international outcast for its penchant for terrorism and weapons of mass destruction, Libya now wants foreigners to take a greater stake in the oil market and in turn encourage local firms to play a larger role as well.

More than two-dozen companies from around the world are betting on Libya these days, said Ronald Bruce St John, an analyst for Foreign Policy in Focus, a Washington-based think tank. He has served on the international advisory board of the Journal of Libyan Studies and the Atlantic Council Working Group on Libya. The government of Muammar Gaddafi has relied on foreigners to scout for new wells and bolster current production, “if they’re ever going to come close” to a target of three million barrels a day, he explained.

The burning question, though, is “how profitable would it be” for an overseas oil concern to forge ahead in the country’s hit-or-miss exploration climate, a situation made even more dicey by Tripoli’s erratic policy moves, St John told OilPrice.com. Libya’s national oil company chief has talked about the need for foreign investment over the last few years, he noted, but this time Ghanem’s words follow months of government bungling and less-than-stunning results in the oil and gas fields.

One of last year’s biggest shocks was Gaddafi’s suggestion to nationalize the country’s oil and gas interests, a consideration that seemed to echo the early days of the Libyan revolution when the industry was partially nationalized. These words set the stage for the National Oil Corp. to renegotiate long-term contracts in Libya’s favor with major oil companies operating in the country, such as Italy’s ENI, the United States’ Occidental, PetroCanada, France’s Total and Spain’s Repsol, St John added.

International investors were also a little unnerved by the Verenex Energy Inc. fiasco, St John added. He said the small Canadian oil exploration player was the only company to make a sizeable discovery – more than two billion barrels of oil – under strict EPSA, phase four, contracts awarded after 2005.

But Libya’s interference in negotiations between Verenex and the China National Petroleum Co. over the sale of the Canadian firm’s exploration contract drove down Verenex’s share price by 30 percent and forced it to sell the contract to Libya at 70 percent of the original offer to China, he said.

Dampening enthusiasm still more, no company under these 2005 agreements has scored big in oil apart from Verenex, St John maintained.

So where does this all leave Libya and its nervous investors today?

Ghanem’s latest declarations are obviously attempts to “put a positive face on an industry that has not been going well in the last 12 to 18 months,” St John said, adding that these events have prompted “great uncertainty” in the oil and gas industry, and “a lot of that’s their own fault.”

The oil chief is a little anxious that international companies potentially stumbling across petroleum finds may one day “cap the wells,” while unsuccessful players will pull out entirely, St John said.

And now, a sector which has been “relatively efficient and transparent” is following other parts of the Libyan economy that so far have rejected reforms, he warned, saying the oil industry seems to have fallen prey to conservative factions within the government coveting more control.

The Gaddafi government is arguably on an uneasy footing as it makes a play for more international money, noted Simon Henderson, a Baker fellow and director of the Gulf and energy policy program at the Washington Institute for Near East Policy.

Within the Libyan government there is resistance to encouraging more foreign investment in the oil market, but Ghanem’s argument is the country cannot go it alone, said Henderson. The North African country sorely needs foreign investors but wants them to view such requests as a partnership rather than as an invitation to take over sectors of the economy, he explained.

“The difficult challenge is at home, Arab nationalism is a very strong thing,” Henderson told OilPrice.com “Foreign investors are seen as diminishing Arab nationalism and therefore are resisted ideologically. And from a foreign investor’s point of view, selling the notion to your shareholders that you can get a good agreement with an apparent eccentric like Col. Gaddafi is questionable.”

For the most part, larger companies will probably “soldier on,” predicted St John, but smaller companies will be more careful about “how much, and how fast” they invest in Libya — especially if there’s a better game in town.

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• Why The New Congressional Threat To Iran Is A Huge Gift To Russia And China
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• Threatened Sanctions Against Iran Is Proving To Be Another Wedge Between US And China

U.S. lawmakers are toughening their stance on Iran’s energy industry with new economic penalties, but experts doubt the Islamic regime will pay much attention and is more likely to open the doors even wider to other players eager to replace fleeing investors.
 
Long on Congress’ radar screen, Iran is being targeted by two bills: The Senate’s Dodd-Shelby Comprehensive Iran Sanctions, Accountability and Divestment Act passed in late January; and the House’s Iran Refined Petroleum Sanctions Act approved in December.
 
The bottom line is these bills, once signed into law by President Obama, will pursue financial institutions and businesses that do business in Iran’s energy sector or help the regime build its refining capacity.
 
To an outsider, the stakes appear high.
 
After all, Iran, an OPEC founding member, holds the world’s third-largest proven oil reserves and the world’s second-largest natural gas reserves, according to the U.S. Energy Information Administration.
 
Not to mention, its pariah status in the world makes luring investment difficult at times.
 
Despite that, the country is not all that concerned about the latest congressional maneuvering, observers charge.
 
“I think these measures are a good thing to do but let’s be honest [that] the impact is going to be not necessarily immediate, and that the first instinct of Iranian leaders will be to ignore it,” said Patrick Clawson, deputy director for research at the Washington Institute for Near East Policy and an Iran expert.
 
Iranian leaders are confident East Asian firms can fill a void left by major Western companies, Clawson told OilPrice.com. Iran is a major producer, but its oil fields are quite old and it has to do an “extraordinary amount” of drilling, he said. This makes the country a “very attractive place for international oil field services companies which are not represented there,” Clawson maintained.

Countries like Russia, China, Malaysia and India may potentially step up to the plate, Alex Vatanka, a scholar at the Washington-based Middle East Institute, said. “The Russians and the Chinese are sitting there thinking: ‘Great, Iran can’t deal with the West; the market is ours to be had.’”
 
Venezuela, a long-time U.S. foe, is close allies with Iran too, a Washington source familiar with Iranian issues said on the condition of anonymity. Venezuela has enormous petroleum and refining capacity and is not about to “go along with any embargo,” said the source.
 
The Islamic regime, moreover, believes it can get by without access to Western technology, Clawson noted.
 
But Iran, which draws 80 percent to 85 percent of its income from oil revenue exports, does indeed look to the West for technology and financing, Vatanka argued. Energy issues are seen as strategically important to Iranians, which means U.S. countermeasures will have an impact across the board, he said.
 
While Mahmoud Ahmadinejad’s government may yearn for Western advances to
boost its oil and gas sector, “from a political point of view, they won’t give up their nuclear program just for the sake of energy technology,” Vatanka added. Iran produces just above five million barrels a day and aims to boost that to more than six million barrels, he said.
 
“Their threat perception is totally different,” he noted. “It’s not even looking towards the West.” Rather, he said, the Iranian government is focused on battling a “domestic issue” in the form of the country’s rising opposition.
 
In some ways, the United States’ unilateral sanctions on gas shipments to Iran would actually be a “lifeline for Ahmadinejad,” asserted Patrick Disney, assistant policy director at the National Iranian American Council in Washington. The government has sought to cut gas subsidies for years, which drain 10 percent to 20 percent of the annual gross domestic product, but a “popular backlash” prevents such a move, Disney explained.
 
“If the U.S. goes after Iran’s gasoline imports, the government will have a free hand to drop these subsidies, blame the United States and free up tens of billions of dollars per year,” he maintained.
 
In this latest round of U.S. sanctions, Western companies probably will walk away unscathed, experts say. That’s because they have either not injected a huge amount of capital into the energy sector there or have already pulled out of the country, Vatanka noted.
 
The congressional bills will affect the top suppliers of refined petroleum to Iran, including the Netherlands, United Kingdom, France and Switzerland, a Washington source said.
 
The ultimate impact of the proposed law depends on its enforcement mechanisms, the source told OilPrice.com. As it stands, Obama can “literally preclude [certain Western] corporations from operating in the United States. So every British Petroleum gas station, for example, would be closed in the U.S.”
 
The White House is studying the final language of the bills, and wants “flexibility” to deal with those countries invested in Iran but also working with the United States in non-proliferation efforts regarding Iran, noted the source.
 
In the end, it’s doubtful the president would actually “bring the ax down on British Petroleum in the U.S. like that,” conceded the source.
 
Right now, though, Congress seems to be pushing for radical steps that will shake up Iran once and for all.

This article was written by Fawzia Sheikh for Oilprice.com

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See Also:

• Ayatollah Khamenei: Iran Set To Deliver Punch That Will Stun The West
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• Raw, Stunning Footage Of Iran Protesters Saving Prisoners From Getting Hanged