Libya appears to have taken another step towards nationalising its oil and gas industry by setting up the Supreme Council of Energy Affairs. On paper, the organ does not look terribly different to the Supreme Council of Oil and Gas Affairs. But in practice the new body is likely to wield a much different sort of influence. It will oversee production and development targets, contract negotiations and the development of alternative energy and will have regulatory as well as executive functions. But what will set it apart most of all, is the power-brokers behind it.
The previous body did not meet regularly and largely left the running of Libya’s hydrocarbons sector to the country’s national oil company under the stewardship of Shokri Ghanem, the reform-minded energy minister. This new group will chaired by Al-Baghdadi al-Mahmoudi, the not-so-reform-minded prime minister, and has a seat reserved for the National Security Council, which is chaired by Mu’atassim al-Qadhafi, the conservative son of the leader.
Mr Ghanem, who retired recently after voicing frustration at Libya’s creeping nationalism within the oil industry, was a protoge of Seif al-Islam, the leader’s reform minded son, and often stood at odds with Mr al-Mahmoudi, the prime minister. Me al-Mahmoudi is credited among some circles for having expedited Mr Ghanem’s departure.
Here is how IHS Global Insight summarised the relevance of this latest chapter in Libya’s roll-back of its energy reforms.
The increased official influence of the government and Mu’atassim al-Qadhafi signals that the days of the reformers are over, and that Libya will purse a more statist economic policy in the years ahead. For new investors and smaller companies this news is not good, with the recent fate of Canadian independent Verenex serving as a discouraging example. For some of Libya’s largest IOC partners, however, changes might still not be as bad. Although the negotiating climate is likely to be harsher, a greater clarity in the lines of authority might speed up projects and lower the risk of contract-term backtracking when negotiations are over-although current contracts might face some pressure for renegotiations. The launch of massive EOR projects throughout the mature producing fields will, however, require foreign companies’ technological help and investment, given the lack of Libyan skills and know-how. Margins will be low, but access to very large volumes is likely to be at stake.