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The article explores the hurdles that Libya need to overcome, before it can emerge as a powerful producer of oil. Gaddafi’s death has put an end to the reign of terror but the violence in the region is far from resolved. Gaddafi loyalists stick to their arms which hampers the rebuilding of Libya. The oil issue in Libya still remains unsolved. The key infrastructure of the oil economy was damaged and destroyed by the civil war. Landmines near the oil fields in Libya still have to be cleared and pose a dangerous risk.
Libya is one of the richest reserves of oil in Africa. Who reigns over this vast well of wealth is open to interpretation. The varied tribes in Libya could disagree and fail to reach a common ground to form a representative government for Libya. Libya desperately needs those oil resources to be used to their fullest potential to rebuild the tattered Libyan economy. It is imperative that there in a legal framework in which the oil industry can flourish. There is a great chance that these resources will lie unutilised or misused in the war-torn and economically shattered Libya.
Whenever the new government forms, it could give access to foreign companies for Libyan oil reserves at reasonable royalty prices or could demand high royalties. The new formed government could also demand for reconstruction of the oil infrastructure in compensation for access to the Libyan oil.
Foreign companies that had huge oil investments in Libyan oil have already felt the sting of war and violence in Libya. Now they are doubly wary of making any oil investment in Libya. International companies will not set foot in Libya unless the security is improved and the safety of their workers is ensured. Investment in oil from international companies will not be made unless the conditions are conducive and profitable to their investments.
In the interim period the oil minister is making decisions regarding the granting of contracts to the international companies. However the terms agreed in the contract can change when a new government is formed. As a result no company will spend large expenses on the development of oil infrastructure in which it may have to back out in the future.
Predictions have been made that Libya can resume full fledged production in a year, however, there are doubts expressed by analysts to this optimistic prediction. However, the damage to the oil infrastructure is not as bleak as was feared earlier. The end of Gaddafi’s reign may not have solved the issue of Libyan oil but has certainly ended one of the obstacles in its path. The freelancer is a veteran writer in oil related fields, who periodically writes articles related to oil prices & indexes and crude oil including tips on investment in oil. Please visit oil.com for more details.
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