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Libyan oil flows may stall on fear and wrangling

With fractious armed militias in control, energy firms are having trouble guaranteeing security for the skilled workers who will play a vital role in restarting the country's oil production

Reuters, Thursday 27 Oct 2011
Libya oil
Workers check pipes and valves at Amaal oil field in eastern Libya (Photo: Reuters)

A speedy return of Libyan oil output to pre-war levels is facing new challenges as foreign firms are struggling to negotiate who will provide security for workers vulnerable to attacks in the desert and heavily armed cities.

The largest contractors working on Libya's oil fields say most foreign companies still have no timeframe in place for returning evacuated staff, and few have volunteered to return.

Libya, holder of Africa's largest oil reserves, is currently pumping around 500,000 barrels per day and industry sources doubt it can quickly triple output to pre-war levels, which represented around 2 per cent of global oil consumption.

"Foreigners are not coming back anytime soon. At the moment we are planning with a Libyan workforce, with the exception of a few expats who have opted to come back," said a manager at one of Libya's largest oil services companies.

Before the war, foreign workers, many with crucial industry expertise, made up as much as a quarter of the staff at some oil services companies.

Not only foreigners but locals with expertise are also unwilling to return to the fields, industry sources say.

Foreign oil workers are keen for protection by Western companies, believing they will provide a better standard of security. They are also reluctant to wait for the government to provide the troops required to secure vast and remote outposts in a process they say could take months.

But the National Oil Company (NOC) and the interim government are opposed to allowing foreigners to enter the fractious and heavily armed fray of armies keeping the country under control.

"The NTC does not want expats used as security forces in the field, but more in a training role," said Chris Penketh, a UK-based consultant for the oil and gas industry, on a mission in Benghazi.

"Before there was no real market for international security companies - oil and gas operations here had armed guards but they were Libyan military or local oil company employees".

The oil service company manager said he did not expect a significant number of foreigners back before March 2012 at the earliest.

Adding to the difficulty of assessing the threat to workers and who should provide security, firms are also wrangling over the costs of guarding vast stretches of desert and are confronted with skilled workers demanding more money to return to vulnerable areas.

The various disputes are another impediment to bringing back foreigners and reactivating service contracts, leading to lengthy and frustrating negotiations that can last for weeks.

Some companies say they are resigned to covering the bulk of extra expenses in post-war Libya, at least until an army is assembled and deployed to oil fields.

"Contractors coming from abroad are asking for more, for their firms and their workers, with rises of 30-50 per cent," said one contractor for a major oil firm.

"But Libyans are totally unreceptive to the need to increase pay and the increase has to be entirely absorbed by the foreign party," he added.

He said that Germany's Wintershall had already agreed to wage increases, while others including Italy's Eni were engaged in endless discussions over the terms of reactivated contracts.

Others appear to have found the procedure more harmonious and another manager at a major oil services company says the security cost issue has so far been an area where his firm was able to find a compromise with the Libyans.

"We say we cannot put our staff in danger, but the result will vary by agreement and volume of work," he said.

Even when both parties are cooperative, the scale of operations, which require assessing numerous and vast fields scattered across remote parts of Libya's desert, will take a long time.

In the west of the country and in areas south of Mesla the majority of sites have yet to be checked.

"We can start in places that require less security, some fields are in very remote places and huge and that will take more time," the manager said.

The prospects of Libya relapsing into war is also deterring oil companies from committing to the expensive process of sending foreigners and eventually their families back to Libya with widespread uncertainty about the government's ability to keep the country under control.

"They need to make laws and put security in place, and I'm talking about security in general. Like in cities full of guns, the last thing that we want is a stray bullet killing one of our employees," said the manager at one of Libya's largest oil services companies.

Oil fields may be prime targets for guerrilla-style attacks, but rival military groups screeching through towns and heavily armed are still a worry in Libya and oil companies are struggling to cope with it.

A London-based oil trader visiting Tripoli this week was prepared to give up on a meeting with new Libyan oil managers after the entrance to a government building was blocked by a convoy of chaotic fighters flashing their AK-47s.

"Perhaps we should just leave," he suggested.

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