Don’t Count on Burning Libyan Oil Just Yet

Posted by Jeff Rubin on August 24th, 2011 under SmallerWorldTags: , , ,  • 7 Comments

With the sudden collapse of the Qaddafi regime in Tripoli, the oil industry is hoping it can repair enough of Libya’s damaged export terminals, pumping stations and pipelines to get as much as one million barrels a day of oil flowing into the market within the next six to 12 months.

But as I have argued before in this blog, regime change in the Middle East has seldom been bullish for energy exports.

If you want a recent example from the Arab Spring, just ask the Israelis or the Jordanians about their supply of natural gas. Israel and Jordan used to get 40% and 80% respectively of their natural gas from Egypt via a pipeline that goes from El-Arish, Egypt to Ashkelon, Israel, and then eventually to Jordan. That is until Egyptian strongman Hosni Mubarak was overthrown. It didn’t take long before the pipeline and pumping stations were repeatedly blown up, which would have been unthinkable during the Mubarak regime.

Needless to say, the pipeline, which opened in 2008 following a 20-year agreement that Egypt signed in 2005 to supply Israel with natural gas, was not exactly a vote getter on the Arab streets. Rumors abounded about secret payoffs to the Mubarak family.

In Mubarak’s Egypt, however, it didn’t matter whether the vast majority of Egyptians were opposed to selling natural gas to Israel any more than it would have mattered what the vast majority of Egyptians might have thought about anything else.

But the supply disruption may have some unintended consequences. For one, it is spurring Israel, which has always lacked its own hydrocarbon resources, to develop its giant Leviathan natural gas field, as well as other recently discovered gas fields in the Mediterranean as quickly as possible. So the bigger winner here is Israel’s energy industry.

The impact on Jordan, an Arab neighbor and historic ally, may be even more problematic for Egypt. The loss of Egyptian natural gas supply may drive Jordan into the arms of a patiently waiting Iran, which has opportunistically offered to replace Egypt as the country’s natural gas supplier. As is the case elsewhere in the world, energy links usually sprout political ones so the big winner here, both commercially and politically, will be Iran.

Egyptians, of course, have every right to sell their natural gas to whomever they choose. But before counting on burning another million barrels a day or so from Libya, Western oil consumers might want to consider what has happened to the flow of natural gas in post-Mubarak Egypt. Giving the people a say in the management of their country’s hydrocarbons doesn’t mean they will necessarily choose to export more of that fuel to you.

  • JB

    Libya will be a test for what could happen in Saudi Arabia and in the other oil&gas exporters of the region…


  • Montrealstewart

    so many known unknowns….

  • Mmartin

    I’m trying to get in touch with you about participating in a discussion on The Agenda with Steve Paikin.  If you’re interested please contact me at

  • Dave

    What will be the result on the oil supply when the Middle East finally has some sort of stabilitythey may turn to Europe or India and China as Quickly as the US.In the Next six months do you see a drop in oil prices or will they spike up as there is really now less stability there than before the uprisings

  • Instincts

    Ya, the middle east situation really is a convoluted mess that the rest of the world certainly can’t expect will lead to greater stability in oil supply.  Quite the contrary, whether we like it or not, its only because of the once dominant dictorships that the rest of the world enjoyed fairly known and steady supplies of oil.

    That’s why so many of us who are terrified of lifestyle changes will ultimately welcome Keystone in its ability to function as a ‘wild card’ in offsetting this instability over there that’s sure to continue — even when many of us know darn well that this cattle path we’ve been walking on for so long is NOT the road to prosperity.  But talk is cheap, aint it?

  • Anonymous

    The truly terrifying scenario is that libyans actually sell their oil based on what they will get in return. Will they go for pixels on a screen or precious metal in the hand?

  • Propensity6

    WRONG AGAIN…looks like a million barrels is a target soon to be met

    Libya’s interim oil and finance minister Ali Tarhouni said on Saturday that production will resume in three to four days and that the OPEC member country is set to reach full pre-war output levels within a year.
    Oil production in the North African country has been at a virtual standstill for months as violent clashes between rebels and forces loyal to Muammar Gaddafi have raged near coastal terminals, causing damage to facilities and driving out foreign workers.
    “On Tuesday or Wednesday we will start at Sarir and Mesla (oilfields). We also will produce gas and oil, not simultaneously, from Sharara and Wafa. We are looking at a difference of days,” the interim leaders’ top oil official Ali Tarhouni told reporters on an official visit to the country’s export terminal of Brega.
    The eastern fields of Sarir and Mesla have been in territory controlled by the interim government for months and a core group of staff are already on site, according to operator the Arabian Gulf Oil Company.
    Before the war, Libya pumped 1.6 million barrels per day.