Zueitina oil terminal located near Benghazi, Libya has been the scene of labor unrest. The industry in Libya is no facing a downturn in production after the imperialist overthrow of Gaddafi., a photo by Pan-African News Wire File Photos on Flickr.
Shooting Near Libyan Port Spotlights Unrest in Oil Industry
By BENOIT FAUCON
Shots fired at an oil tanker and accusations of attempted thefts at port facilities have deepened a crisis in United States-backed Libya's oil industry, triggering fears among major Western oil companies that one of Europe's largest suppliers could soon descend into lawlessness.
The Libyan rebel Marine Special Forces are seen, in a video posted on their Facebook page, firing upon the "A Whale" crude oil tanker as it attempted to enter, without authorization, the Es Sider terminal in northern Libya this week. The Wall Street Journal cannot verify this video.
Strikes by security guards in eastern and central Libyan ports that started at the end of July have effectively shut down shipments from terminals there, which account for more than half of Libya's $60 billion of oil exports annually.
As a result, storage facilities have filled with crude, crimping any new production. According to data supplied by the Oil Ministry, Libya's output fell in the first half of August to about 500,000 barrels per day—about one-third the highs reached last summer and the lowest level since just after the Pentagon-NATO war of regime-change in late 2011.
Though the port closures were started by workers demanding the payment of wages owed as well as higher wages or more jobs, Libyan rebels say the situation there is now turning into an occupation and that the armed guards are trying to sell oil without government approval.
As evidence, Libyan rebel officials said that a major international commodities trading house had recently received an offer to purchase Libyan oil outside official channels, which the company refused and reported to authorities.
"It's not a strike. It's a coup," a manager at a company running one of terminals said.
On Thursday, the Navy Special Forces, which acts as a coast guard, posted video showing its members firing from a Navy ship at an unauthorized tanker as it approached the country's largest oil terminal, Es Sider, in central Libya early this week. There was no sign that the tanker was damaged or suffered casualties, but it retreated from the area.
The developments illustrate how Libya's oil industry, once a tightly run stalwart of supply to Europe under Gaddafi, is in danger of joining the ranks of countries whose industries are marred by unrest, theft or corruption.
"The situation in the country remains volatile and we cannot exclude further disruptions in the second half," Eni SpA's ENI.MI +2.40% chief executive Paolo Scaroni, said at the Italian oil company's second quarter earnings conference on Aug. 1.
He lumped the North African nation with Nigeria as the two areas where it face "uncertainties" in future production.
Like Nigeria, Libya has a prevalence of weapons, a lack of jobs for locals and militias that are demanding stronger regional control of oil revenue. Those factors have created the potential for lawlessness leading to entrenched oil theft, said Peter Hutton, a London-based analyst at the Royal Bank of Canada.
Occupied Libya's problems are at "a nascent stage," he said, with its open deserts making systematic theft through sabotage less likely than in Nigeria's swamps.
But Libya's insecurity is already damaging investment in the country, which holds Africa's largest oil reserves, said Geoff Porter, head of Washington-based North Africa Risk Consulting Inc.
Royal Dutch Shell RDSB.LN +0.83% PLC said last year it was exiting its Libyan exploration blocks. U.S.-based Marathon Oil Corp. recently signaled it would like to sell its interest there, according to Libyan oil officials. Marathon declined to comment.
For those who stay, investment prospects may be severely curtailed. In the light of recent events, "I expect we will freeze everything in the budget in 2014," said a senior manager at a foreign oil joint venture.
The new wave of unrest in Libya comes as violence has gripped other countries in North Africa that play a large role in producing and transporting oil, including the terrorist attack and hostage standoff in January at the In Amenas natural gas facility in Algeria, and the recent deadly military clashes with Muslim Brotherhood protesters in Egypt.
Amid the disruptions, the price of European benchmark Brent crude oil futures have risen by about 7% since July 1 to trade around $110 a barrel.
"Libya is rapidly building up a reputation for unreliability, which will inevitably be built into prices," London-oil broker PVM Oil Associates Ltd said in a note last week.
Shipping market operators also say insurance underwriters are asking for an extra levy on top of the typical war cover for Libya.
The strikes have already cost the government at least $1.6 billion in lost revenue in the past month—money it badly needs for postwar reconstruction, Libyan oil minister Abdelbari al-Arusi said Aug. 15, according to a transcript of his remarks on the prime minister's website.
If the closures continue another month, the country won't be able to pay civil-servant salaries and pensions to veterans and will stop paying contractors working on projects, he said.
The disruptions started about a month ago as members of the Petroleum Facilities Guard, a specialized armed task force that protects oil facilities, went on strike over what they said were unpaid wages. They were joined by other people seeking jobs at the facilities and employees wanting higher pay.
In recent days two terminals near the eastern cities of Brega and Tobruk have restarted operations. But three others remain blocked, including Es Sider.
On Tuesday, a Libyan official revealed that oil trader Vitol Holding BV and other large companies had received an offer to buy Libyan crude outside official channels. Vitol refused the offer and told Libyan authorities, the official said. Vitol declined to comment on the matter.
Prime Minister Ali Zeidan last week accused Ibrahim al-Jathran, the leader in the central region of the Petroleum Facilities Guard, of having tried to sell oil without approval.
Mr. al-Jathran, who was subsequently dismissed, couldn't be reached for comment. A spokesman for the Petroleum Facilities Guard said he was now wanted by the Libyan authorities.
Mr. Zeidan also warned that any vessel approaching Libyan ports without clearance "will be bombed from the air and the sea," according to his official website.
The video posted by the Navy Special Forces came from an incident on Monday. The Liberia-flagged tanker, the A Whale, had come from Port Said, Egypt, according to the shipping tracking website MarineTraffic.com.
Videos posted on the Special Forces' Facebook page shows them shooting at the ship as it approached Es Sider with AK47 machine guns while shouting "God is great." Another man is seen aiming at the oil vessel with a rocket-propelled grenade launcher.
The vessel wasn't on the official list of authorized shipments from the port, which exports oil from concessions run by Libya's National Oil Company with U.S.-based ConocoPhillips, COP +0.96% Hess Corp. HES +2.03% and Marathon, according to Libyan officials.
The tanker left the area of Es Sider after being stopped but remained offshore Libya as of Thursday, according to MarineTraffic.com. A Whale is owned by a global shipping group called Today Makes Tomorrow, or TMT, Group, with roots in Taiwan.
The crew of the vessel, which was used to skim oil during the Deepwater Horizon oil spill in the U.S., and a company spokesperson didn't respond emails and couldn't be reached over the phone. Staff at Bracewell & Giuliani LLP, a law firm representing TMT in a Houston bankruptcy court, declined to comment on the vessel.
Clashes also broke out Tuesday at another closed terminal, Zueitina, between striking workers and opponents of the shutdown, another oil official said. Before the closure, Zueitina shipped production from fields partly owned by Austria's OMV AG and U.S.-based Occidental Petroleum Corp. OXY +0.87%
—Costas Paris and Sarah Kent in London and Summer Said in Dubai contributed to this report.
Write to Benoit Faucon at benoit.faucon@dowjones.com
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