Unreliable Energy Focus: Libya's Energy

Libya hasn't exactly been a united country since the fall of Muammar Gaddafi in 2011. The elected government has failed to control the rebel-held eastern half of the country, but compromise may be the order of the day. The two sides reached an agreement to return four ports (two immediately) to government hands. The ports handed over, Hariga and Zueitina, are the smaller of the four. The larger two ports, Es Sider and Ras Lanuf, will likely take more time to hand over. The first two represented goodwill while the last two are the stakes. Rebel leaders continue to demand measures of autonomy, revenue sharing, and development in return for the final pieces of the agreement. With oil exports being the primary bargaining chip, it would be expected that any agreement becomes more complicated and lengthy than the text on any page.

Libya's eastern ports (Source: WorldBulletin)

So why is Libya even important in the energy marketplace? It has lots of it, particularly oil. While currently only producing about 150,000 barrels of oil per day (leaving the government near financial disaster, though this is denied by the government), Libya has produced upwards of 1.4 million barrels per day since the civil war and upwards of 1.8 million in the years preceding it. Overall, Libya has the ninth most oil reserves in the world, even while a significant portion of its land remains a hydrocarbon terra incognita. In addition, Libya has large natural gas reserves. The upside of Libya's energy sector remains inviting, given its size, small population, and proximity to Europe. That last benefit, a geographic one that cannot be easily overcome by competitors, is critical. Much of Libya's oil is exported to Europe and it has important natural gas pipelines connecting it to the European mainland via Italy. These energy connections may prove increasingly important as European tensions with Russia increase.

The agreement this week between the government and rebels - indicating a possible resumption of Libya's higher export levels - led to a fall in the market price of oil. However, with a ten-day window before oil flows from the ports and two to four weeks before the larger two ports may be handed over, there is little celebration elsewhere thus far; even optimists are cautious. Libya is an important cog in the international energy wheel, albeit a damaged one that has been turning for some time now. If Libya re-enters the energy scene at previous levels, it will make an impact and balance Europe's energy sources.

Libya Update, Part II

Overnight, moves were taken to secure Libyan unity. United States Navy Seals boarded and took control of the oil tanker - Morning Glory - that had escaped the naval blockade of Libya's eastern, rebel-held ports. The tanker is now on its way back to Libya to an undisclosed, government-held port. This action underlines American support for Libya's government and greatly undermines the actions of the rebel government. Moreover, it emphasizes the willingness of action upon necessity, including appropriate military response.

In related news, two Israeli nationals and a Senegalese were detained upon suspicion of attempting to purchase oil from the tanker off the coast of Cyprus. They were released and it is, at this time, unclear if there is any suspicion remaining, if their actions were pure opportunism, or if they were part of any premeditated plan with the tanker's crew.

A Divided Libya in the Backlog of International News

International events seem to be ablaze right now. Between the fear of Crimea seceding to the frantic search for Malaysia Airlines flight 370, there's just not much else that is getting more than a byline these days.

Libya seems to be one of those stories being pushed below the fold. There remains a lack of unity between the eastern and western sections of the country. The 2011 Libyan Civil War may have freed the country from Muammar Gaddafi's dictatorial chains, but they have not mended social, political, and economic divisions since. As with many resource-based economies, some of the most potent underlying resentment stems from regions where resources are found and extracted and the capital, where they are often spent. Eastern Libya has been, by many definitions, operating as an autonomous region of Libya for over a year now.

The rebel government recently tested its autonomy. Just over a week ago, an oil tanker - Morning Glory - docked in Sidra, breaking the blockade of eastern ports held by the rebel government. The rebel government quickly began to load the tanker with oil. Somewhat ironically, the tanker is flying the flag of North Korea. Initially, Libya threatened to bomb the tanker were it to load oil and attempt to leave, having previously fired warning shots at other tankers near ports. The tanker ended up loading 234,000 barrels of oil, evading the naval blockade after being fired on for two days, and is now in the Mediterranean Sea, though the rebels claim it has reached its final destination.

                                          (Morning Glory, from marinetraffic.com via RT.com)

For what it's worth, North Korea denied involvement and claimed to revoke the tanker's registration. It is unlikely that any countries within so few sailing days are willing to risk strained relations with Libya; it's last recorded position seems to be off the coast of India, but that was prior to reaching Libya. It also may have truly been under the Liberian flag.

Nonetheless, any evidence of associations between Libyan rebels and North Korea are bound to strain relations further. The weakness of Libya's government in stopping the tanker led to Prime Minister Ali Zeidan being voted out of office, which doesn't exactly help strengthen faith in government. Around the world, there exists a fear that oil will prove to be Libya's undoing and lead to a second and more violent iteration of the Civil War. It seems that, for the time being, Libya is stuck between the possibility of further war and the Iraq-Kurdistan model of resource-based autonomy, which has not fared so well either. It couldn't hurt to suggest that oil revenues be used wisely, with perhaps technical assistance and planning from some experienced Western powers. Libya's population of just over six million is not so far from Norway's five million, after all.

Libya's East Side Story

Flying under the radar in late 2013, leaders in the eastern half of Libya, which holds 60% of the nation's oil production, declared an autonomous government. Libya has the world's ninth largest oil reserves, and other energy resources aplenty. This declaration came about two years after Libya's Civil War ended, which also ended the 42-year reign of Muammar Gaddafi. Gaddafi's dictatorship largely held in check a nation that had a history of regional autonomy. The political subdivisions throughout Libya's history are Tripolitania, Cyernaica, and Fezzan, with most of the population residing in Tripoliatania and Cyernaica.

Libya's Subdivisions (Source: Fragile States Resource Center)

The recent announcement was certainly a blow to the centralized leadership in Tripoli, but reading the events carefully helps add details to the story. Proponents would like the return of the three-state Libya, last extant under King Irdis in 1951, and one that existed, at times, throughout Libya's history. Although this certainly could lead to a break-up of the country, leaders from the region did not explicitly declare independence, or even self-determination. Leaders seem to be seeking a status closer to the experience of the Kurdish region of Iraq following the Iraq War (though even that status is still debated).

Much like in Iraq, it may boil down to natural resources, regional access, and service delivery. The eastern shadow government is offering up oil to foreign buyers and is promising to open the region's energy resources under its own terms. The central government, meanwhile, has indicated that it will use force, if necessary, to prevent any circumvention of its authority. It has already fired toward a Maltese tanker in order to force it to deviate from an eastern port. Meanwhile, regional access and governmental service delivery are both hampered by protests and a burgeoning insurgency that has blocked off the region for months. These issues sound familiar and are a formula for bigger problems.

Infighting, and possibly even open warfare, will continue to be a risk unless the structure of Libya indicates more clearly how the central government will work with regional authorities. While levels of autonomy are integral to regional function in a territory as large as Libya, it is important that those levels are determined wisely and with both sides in agreement. Nonetheless, all sides must recognize that central governance, to some extent, is necessary. 

Ukraine Protests Grow, Government Wavers, World Begins to Take Notice

Evidence of a split within the Ukrainian populace has not felt so clear as it does during the current protests in quite a while. Even government officials are failing to keep a coherent front, with differing claims of a complete lean toward Russia and a continued lead toward Europe. Moreover, pro-government protesters are being bused in from the East and South, which may only lead to further societal divisions. No matter - the faux protests are no match for the 200,000 rallying of their own accord.

Meanwhile, under all the protests, what comes next is still a question. Foreign Policy points out the waning influence of Russia's geopolitical energy strategies. This has been a concern for several years now, as Russian oil production has begun to collapse and its natural gas strength challenged by the early development of an international market (led by new technological development out of the United States).

Russia has not really developed a mixed economy, so were its geopolitical arsenal to weaken, it could become increasingly unpredictable politically. Has Ukraine become a battleground? Well, there's little other reason for current United States Congressmen to be addressing Ukrainians in Kiev, is there?

Unreliable Energy Focus: Subsea Operations & the Dream of Flatness

This article is the first (of hopefully many) that will focus on the international energy sector. Without a consistent publication schedule, they will be titled, for the time being "Unreliable Energy Focus."

                                          (source: Bloomberg Businessweek)

Floating oil platforms, subject to weather and waves, are expensive and soon could be a thing of the past, if the energy industry is taken for its word in a recent article in Bloomberg Businessweek. In fact, the industry wants to put nearly all the technology currently on the ocean's surface on the sea floor, sans humans. Subsea operations would be entirely mechanical and largely automated.

While the image above may look like fantasy, putting machinery down on the abyssal plain, able to withstand the extreme pressure and temperatures, is already happening, though not on the scale desired by the energy industry. The energy (largely oil, some gas) is currently pumped up, albeit inefficiently, often miles to the surface where it is processed.

There are, nonetheless, a number of technical and environmental factors to be considered that are being overlooked by the business case. To start, the abyssal plain is flat and largely featureless, but it is not "tabletop flat" and it is not entirely lifeless. To put it gently, humanity knows very little about the abyssal plain, and even less so about the natural processes that occur there. Putting major machinery there could disrupt fragile chains that we know nothing about (not that we haven't done that before).

Additionally, without humans, what is the plan for maintenance, repair, and damage control? It seems that the whole system would be built on sensors and robots that could fail and produce far-reaching issues. Deepwater Horizon happened not so long ago and the long-term effects of that spill are still unknown. In a sense, is the system setup to handle a black swan event?

It was in 1961 that the first pressure control valves were places on the seafloor by Royal Dutch Shell. Even though technology moves ever faster, putting everything on the seafloor and moving to entirely subsea operations so quickly is unlikely - it has been a long and gradual process since 1961. Moreover, an evaluation of the potential environmental impact needs to be conducted. The short-term benefits should not trump long-term concerns. After addressing these issues, it may be time to move forward, but it would be a failure if we kid ourselves about this being easy.

Is Canadian Oil Dirty?

While vociferous debate has sprung up in the United States over the proposed Keystone XL pipeline, a different kind of debate is brewing, starting in the European Union. The big question being being asked in Brussels is whether fuel should be taxed based on the level of pollution it produces as a byproduct. Moreover, how severe should that penalty be?

Although the tar sands may hold 170bn barrels of oil, getting it out is tricky, complex, and messy. The operation in Canada's back country is already considered by many to be an ecological and environmental disaster of historic proportions:

Prominent scientists even warn that the impact of tar sands oil production on climate change could outstrip nearly all other known contributors.

The European Union is on the verge of classifying fuel that comes from Canada's wild tar sands as dirtier than other types, thereby making it more expensive over time. Canada is pleading with the EU and even going through intermediaries in the United Kingdom to water down the proposal or scrap it altogether, even though Canada currently exports no oil to Europe.  Canada has gone so far as to threaten to take its case to the WTO.

The fear is not of Europe itself, but a precedent-setting international domino effect. Canada, the country of great environmental beauty, may actually end up on the wrong side of the climate change debate. This could spell the end not only of Canada's resource-intensive economy, but also the economic driver that has held Canada high during the recently leaner economic times elsewhere. It is, in a sense, an existential crisis that Canada has drummed up, all on its own.