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Europe rethinks dependence on Libyan oil

Italy and Spain depend on Libya for as much as 22 percent and 13 percent of total crude consumption, respectively, a supply not easily replaced on short notice.

By Correspondent / February 23, 2011

This handout picture taken on April 28, 2008 shows production facilities of the German oil firm Wintershall near the Oasis of Jakhira in the Libyan desert.

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Madrid

Unrest in Libya continues to wreak havoc on world oil markets, with prices soaring and European nations weighing how to offset disruptions in gas and crude imports from the North African country.

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As much as a quarter of Libya's oil production is now offline, along with all gas exports, according to reports. Most analysts expect interruptions to increase, especially with Muammar Qaddafi’s threat to blow up energy pipelines.

While analysts agree that global oil and gas supplies are hardly at risk, as Libya accounts for only 2 percent of world oil output, countries like Italy, France, and Spain relied on Libya in 2010 for as much as 22 percent, 16 percent, and 13 percent of total crude consumption, respectively – a supply not easily replaced on short notice. Europe receives over 85 percent of Libya's crude exports.

And that's causing energy planners to reassess the wisdom of counting on North Africa, where southern European governments have invested significantly to decrease dependence on supplies from Russia and Iran, even if Libya’s civil unrest ends with a peaceful resignation of Qadaffi.

“Europe has to choose between becoming more dependent on Russia or the Middle East, or both,” says Herman Franssen, senior associate at the Center for Strategic and International Studies and former chief economist of the International Energy Agency.

Manouchehr Takin, senior petroleum analyst at the London-based Center for Global Energy Studies, suggests yet another way forward. "Security of supply will be enforced with greater urgency," he says. "They will find sources other than North Africa and the Middle East, like Norway and the Arctic.”

Italy, Spain invested big in North Africa

Italy and Spain have bet big on Libya, which holds Africa’s biggest proven reserves, even if its production is the continent’s third-biggest due to years of neglect. Their national energy giants, ENI and Repsol, stayed behind to keep their foot in the door even as US and British companies fled when sanctions were imposed on Libya following the 1988 bombing of a Pan Am jet over Lockerbie, Scotland.

As a result, both Italy and Spain were rewarded when Qaddafi signed his peace with the West after surrendering his nuclear weapons program in 2003. Both countries grew increasingly dependent on Libyan oil and investment there soared. Together, ENI and Repsol account for about a third of the oil output and most of the gas.

Italy, Libya’s former colonial power, is the most exposed by far. Aside from its disproportional dependence on Libyan oil imports, 13 percent of its gas also came from its Mediterranean neighbor in the first 10 months of 2010, according to the International Energy Agency (pdf).

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