Easing tension in Libya could benefit oil firms

Written by MG Arun | Mumbai | Updated: Aug 29 2011, 09:20am hrs
The likely easing of months of tension in Libya, which holds Africas largest oil reserves, following the ouster of Muammar Gaddafi, augurs well for Indian refiners as well as exploration and production companies.

While Essar Energy will see its Stanley Refinery in the UK coming under less pressure on crude supplies, resulting in better margins for the company, an expected easing of crude prices is good news for refiners. Moreover, oil exploration companies like Oil India (OIL) have said that they are open to scout for blocks in Libya, although the company had to relinquish two of its blocks there as they turned out to be non-productive.

Once the geopolitical climate gets better, we will see things turn better at Stanlow, said Naresh Nayyar, CEO, Essar Energy. Essar bought the Stanlow refinery from Shell UK in February for $350 million. According to K Ravichandran, senior VP at Icra, the price difference between sweet and heavy crude in the international market should come down following a likely end to the tensions in the region, which will enable refiners in Europe to improve their margins. There is an expectation that Libya will be able to produce around 3 lakh tonnes of crude in a period of six months to a year, lowering the difference in prices of these crude varieties, he said. It is expected that normalcy in production would come back in one to two years, he added.

In the period before the current uprising, Libya had seen a per day peak production of 1.6 million tonnes, which fell to as low as 60,000 barrels during the days of the civil war. The shortfall in the Libyan light-sweet crude was replaced by the heavy-sour crude from Saudi Arabia.

The world crude production stands at around 86-87 million barrels per day. Brent crude oil prices were hovering around the $110 per barrel mark on Friday.

On the exploration side, companies that have moved their personnel out of Libya following the unrest are not averse to going back. BN Talukdar, director - exploration, OIL, said, We will study the situation, and if there are opportunities in future, we would like to explore that. However, the company, as part of a plan to maximise its return on investment, has put on hold further exploration of acreage overseas.

Although it is widely expected that a restart in production will weaken global crude prices, there are a host of other factors too that determine the price. Crude prices will be impacted by slowdown in the global markets, especially in Europe, US and Japan. Libyas National Transitional Council plans to resume production in a few weeks, as per recent reports.