Goerge Kerevan: All change in Libya, but UK’s oil firms won’t get it easy

While deals are signed with favoured allies, the future in Libya is not as assured as perhaps some oil giants would like

WHAT happens to Libya’s oil now that Gaddafi has gone? You don’t have to be George Galloway to forecast a scramble among the major Western energy companies to exploit the country’s fuel wealth.

Before the civil war, Libya was producing 1.8 million barrels a day, compared to Saudi Arabia’s ten million. However, Libyan petroleum is the low-sulphur “sweet” crude that goes into your car, and is highly prized. The country has Africa’s biggest proven oil reserves – enough to last 80 years, plus 55 trillion cubic feet of natural gas reserves that can be pumped straight to Europe.

The National Transitional Council (NTC) has made no secret it intends to reward those nations that backed the insurgents.

Russian’s Gazprom Neft and Tatneft, had projects worth billions of dollars in Gaddafi’s Libya. Brazil’s state-owned Petrobras also had a stake. However, Russia, Brazil and China were loathe to support the rebels, and so find themselves out in the cold.

Nor are the Americans in any better position. US firms such as ConocoPhillips and Marathon had deals with the old regime. But the Americans pulled out too hastily during the early stages of the insurrection and remain concerned over the security situation – reflecting their experience in Iraq. Besides, the NTC knows Barack Obama left the fighting to the Europeans.

Result: BP, Italy’s Eni, Total of France, and Repsol of Spain are now in pole position to develop Libya’s reserves.

That’s good news for BP shareholders. In 2007, BP signed a £550 million exploration deal with Libya’s state-owned National Oil Company (NOC). This gave BP rights to prospect 21,000 square miles onshore and offshore, near the Gaddafi stronghold of Sirte. Offshore drilling operations were due to begin in June.

However, it is Eni – the biggest producer in Libya – that is making the running. Eni shares shot up when chairman Giuseppe Recchi announced Libyan oil and gas flows would restart before the winter. However, it could take two years to restore Libyan output to pre-crisis levels. Gas exports to Italy via the 340-mile Greenstream pipeline have resumed in only modest quantities.

Gaddafi may be dead but Libya remains a security nightmare, riddled with tribal and regional divisions. There is also a strong possibility that NOC will prioritise its crude oil for domestic needs, limiting exports. That means Libya is only a medium-term bet in the exploitation stakes. This uncertainty was reflected in yesterday’s oil company share prices, where Gaddafi’s demise made little impact. Ditto for the price of benchmark Brent crude.

Even when production recovers, Libyan nationalism could lead to the country wanting to control its own resources. Witness Iraq. Although BP and other Western majors have access to Iraqi oil reserves, these are only “technical service agreements”. The oil firms get $2 on each barrel of oil they produce, they do not “own” the reserves.

My bet is there will be no easy barrel of oil at the end of the Libyan rainbow unless Libya’s NOC decides to buy shares in BP – something it has hinted at.

Airports look to bring the highest fliers into land

THIS week finds two of Scotland’s three Central Belt airports looking for owners. BAA surprised the market by deciding to dispose of its Edinburgh operation, rather than Glasgow. Meanwhile, Infratil, the New Zealand infrastructure group, is considering a sale of Prestwick, due to falling passenger numbers.

Even at £500 million, booming Edinburgh is a catch. Possible buyers include Global Infrastructure Partners, which bought Gatwick from BAA; council-owned Manchester Airport, Borealis Infrastructure, and Australia’s hungry Macquarie Group, as well as a consortium of Scots businessmen.

However, Edinburgh has limited expansion possibilities while the low-cost airlines are aching to exploit their new-found ability to play the airports against each other.

This gives Prestwick the chance to outflank its rivals. How? By emulating Dublin and Shannon and letting passengers go through US customs and immigration in Scotland. Of course, it would require US approval, but only Prestwick has the space to provide this facility. Anything to declare?