Libya set to return to crude market

With the Libyan rebels on the verge of ousting the Gaddafi regime, bringing a key crude supplier back into the global market place, Business RT spoke with Christine Tiscareno, Crude oil and natural gas equity analyst from Standard and Poor's.

­RT:  What's going to be the Libya effect on oil prices?

Christine Tiscareno:  Well the immediate effect is particularly with Brent because it is more sensitive to what is happening in the region for it to come down.  But you have to remember that the things in Libya have not actually been resolved.  Gaddafi forces could still place a counter offensive.  So things have not been resolved but if things do get resolved and settled, then we will see the price of Brent coming down.  But we must not forget, though, that the price of oil is also something that investors and other people use as a hedge against inflation.  Thus we have seen the price come down with news of Libya, but then rise as the dollar fell. So it is going to have mixed effect but we think Brent, in the situation in Libya where it doesn’t fall apart will probably trade down to $100/bbl, maybe slightly below.

RT: How long do you think it will be before Libya is back on tap?

CT: I think it will take about a full year before production is at its peak.  Libya is currently producing around less than 100 thousand barrels which is about 9% of the previous capacity.  Now we understand from ENI, which is the largest producer in the country, that so far as they know, no installations have been hurt.  But still, you cannot just turn it on.  You have to build up the pressure and start gradually.  So it will be probably a full 12 months before they reach a peak.

RT: Long term, with Libya back producing, how do you think this will affect prices?

CT: I think you will see the differential between Brent and WTI narrowing.  It is about $26 and I think that should come down to maybe $15 or $10.  In general the price of oil should come down once the situation in Libya is resolved.  Now once the situation is resolved there are still a lot to be done in Libya.  They have a lot of different factions, but as long as, and I am sure the one thing they will agree, is that they need the revenue from oil production.  Therefore I think that one of the first things that will go forward regardless of whether they will install an actual government, is that production will be started.  Now companies will be reluctant to go full steam ahead, until they know what the situation is on the ground, in terms to having a recognized government.

RT: Which energy companies are best placed for future operations in Libya?

CT: Well ENI is the largest producer, it gets around 15% of its production.  Repsol is a smaller player but it gets about 16-17% of its total production. So the impact will be the biggest in those two companies, and then we have Total, which has about 2.5% of its total production, and Gazprom has about 2 blocks in the area.  So those companies will probably benefit the most and you have seen it in intra day trading – ENI has been up by almost 4% today.

RT: We talk a lot about Libyan oil. What about the gas there? Will we see an increase in exploitation by say Italian companies like ENI?

CT: Well ENI, and Italy in general depend for winter, on natural gas and natural gas is much easier to turn on than oil.  So we could see, if the situation is speedily agreed on, on the ground, probably some exports from winter even this winter.  What the companies do not want is to start operations before there is a recognized government, in case there is a backlash.  But natural gas is much easier to turn on.  It could take just a couple of months.