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Oil flows again in Libya but challenges remain

German oil and gas giant Wintershall said it has resumed oil production in Libya following an eight-month suspension due to civil unrest.

“Wintershall has now restarted oil production in the Libyan desert again,” the group said in a statement.

“We reached a production level of about 20,000 barrels per day shortly after beginning operations. Now we have to technically stabilize production,” said Wintershall chief executive officer Rainer Seele.

Before suspending its operations in February, the German group had been producing around 100,000 barrels of oil a day at eight oil fields in Libya.

French oil giant Total and Italian group ENI have also recently restarted activities in Libya.

Libyan oil production has resumed more quickly than expected, but the country still has enormous political and technical obstacles to surmount before the situation returns to normal, experts said.

“The market should be ready for Libyan crude,” said Abdallah El-Badri, secretary general of the Opec cartel of oil exporting countries, at a conference last week organised by Oil & Money in London.

Libya, a key African oil exporter, produced about 1.6 million barrels per day before the rebellion against Col. Gaddafi broke out in mid-February. Production then slowed to a trickle.

Around 85 per cent of Libyan oil output was exported to Europe, with the disappearance of its high quality light sweet crude from the market one of the reasons why Brent crude from the North Sea has been trading much higher than oil quoted on US exchanges.

Opec sees member Libya resuming production to one million bpd within six months, while attaining pre-conflict levels by the end of 2012.

“Oil production will come back to the previous level in 15 months or less,” said Mr El-Badri.

“There is not much damage to the oil facilities and companies are really moving fast,” he added.

The International Energy Agency, which represents oil consuming nations, is more cautious.

“So far, there are still many conflicting reports about the state of the fields and infrastructure which need to be clarified,” it said in a report last week. It noted that production could be “hemmed in” by damage to the Es Sider terminal, through which a considerable portion of exports flow, with officials estimating repairs could take a year.

Oil fields and ports, in particular Ras Lanouf, “were battlefields” said Shukri Ghanem, who was head of Libya’s state-run National Oil Corporation before defecting to the rebels in June.

“Only the easy oil can be produced quickly. But after one million barrels (a day) it will be a tougher job to do” because of the need for repairs, he told journalists.

At least $3 billion to $4 billion is needed to restore full production, he estimated.

Other than infrastructure, labour is shaping up to be a problem. “Libya’s reliance on tens of thousands of foreign oil engineers, geologists and technicians, mostly from neighbouring Arab states, South Asia and China, will no doubt be an obstacle to a quick recovery,” said Samuel Ciszuk, an analyst at IHS Global Insight.

“Attracting these workers back will invariably take time.”

Libyan oil workers have also several times in recent weeks called for the ouster of colleagues and executives seen as too close to Col. Gaddafi’s regime.

“Every other day experienced people are being sacked,” said Mr Ghanem. “It’s a big problem.”

Mr Ciszuk said “giving in to the temptation to launch wholesale industry purges might seriously derail the country’s recovery, although some cleaning up after decades of corruption is badly needed”.

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