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By Robert Rapier on Aug 25, 2011 with 33 responses

The Battle for Libya’s Post-Gadhaffi Soul (and Oil)

As hostilities in Libya wind down, one thing is clear: A number of nations will jockey for access to Libya’s oil. It happened in Iraq, where ironically the U.S. was shut out as Russia, China, and France won bids to develop Iraq’s fields. The new government in Iraq demanded terms very much in Iraq’s favor — and got them. U.S. companies simply weren’t willing to pay what China paid for access to Iraq’s oil.

I would expect Libya to have taken notes from what companies were willing to concede in Iraq and demand similar terms. And regardless of who ends up there, one of the countries will certainly be China (they also had a big presence in the old regime).

For a more in-depth analysis, see the following guest post from OilPrice.com.

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Muammar Gadhaffi’s 42 year-old regime is in its death rattle – maybe today, maybe tomorrow, his administration that has ruled Libya with a quixotic and brutal hand is about to pass, in Trotsky’s piquant phrase, “into the dustbin of history,” prompting the question “what next?”

The glittering prize is Libya’s 1.6 million barrels per day output of high quality crude, which accounted for about 2 percent of global oil output drawn from Africa’s largest oil reserves, whose exports have been stymied since the NATO-led campaign began six months ago. Projecting into the future, analysts believe that has reserves to sustain its previous level of production for 80 years.

Who will eventually control this asset, with oil prices currently at roughly $84 a barrel, generating an income of more than $12.6 million per day?

Italy’s ENI?

France’s Total?

Britain’s BP?

U.S. companies?

Or, will China add Libyan future production to its string of acquisitions, as it is already China’s eleventh largest source of imports?

The crystal ball is murky indeed, but when the uprising against Gadhaffi began six months ago, according to the Chinese media, about 36,000 Chinese were in Libya working on 50 projects.

Cautiously accepting the new reality, Chinese Foreign Ministry spokesman Ma Zhaoxu said in a statement posted Monday on the ministry’s website, “The Chinese side respects the choice of the Libyan people. The Chinese side is willing to work with the international community to play a positive role in the reconstruction process of Libya in the future.”

The key word here is “reconstruction,” a noun conspicuously absent from any statements by the NATO coalition members.

When the uprising against Gadhaffi began 75 Chinese companies had already invested billions of dollars in Libya in infrastructure projects, including oil, railway and telecoms projects. After the insurrection erupted in February China began a substantial land, sea and air evacuation operation of its nationals.

Benghazi-based Libyan rebel oil firm Arabian Gulf Oil Co. (AGOCO) information manager Abdeljalil Mayouf cautioned however that China’s “softly, softly” approach to the uprising may initially cost it influence in the new Libyan reality, saying, We don’t have a problem with Western countries like the Italians, French and UK companies. But we may have some political issues with Russia, China and Brazil.”

While many analysts believe that Italy’s ENI and France’s Total could be successful in post-insurrection Libya because of their countries’ heavy support for the rebels, it may all devolve down to a question of funding, and given Beijing’s pockets, despite its caution in its foreign policy, that may well give China the edge.

Few promoting the prospects of Italian and French energy firms now remember that just a couple of months ago the Libyan dissidents were literally begging for financial assistance.

Furthermore, particularly in African endeavors, Chinese investment has extended far beyond mere resource acquisition to providing infrastructure essentials such as roads, schools and health clinics, all of which will be in short supply in post-Gadhaffi Libya.

Finally, certainly last but not least, China has no history of colonialism in North Africa, unlike Libya (occupied by Italy, 1911-1947), Tunisia (France, 1883-1956), Algeria (France, 1830-1962), Morocco (France, 1906-1956) and Egypt (Britain, 1882-1922.) While such issues are not fiscally tangible, they may well influence the post-Gadhaffi negotiations.

Waiting in the wings are U.S. and Canadian companies such as Marathon, ConocoPhillips, Hess, Occidental and Suncor, which withdrew Libya at the onset of insurrection, as well as Russian companies, including oil firms Gazprom Neft and Tatneft, which had projects worth billions of dollars in Libya alongside Brazil’s Petrobras. BP, which did not have production in Libya before the war, said it was planning to return for exploration efforts.

In the coming weeks Libya’s National Transitional Council will doubtless be inundated with offers from various companies promoting their advantages. Total and ENI have the inside geographical edge, being across the Mediterranean, while American and British companies have cutting edge technology to refurbish Libya’s decrepit energy infrastructure.

But it is too early to count China out from the race – they do not come burdened by history, and they come with deeper pockets than all their competitors. The NTC, if it indeed represents the Libyan people, will not be unswayed by such concerns, as the European rivals have yet to utter the one of the words most dreaded on Wall Street in considering profits, “reconstruction.” Whatever the shortcomings of Beijing’s views of events in Africa’s largest oil producer, they do extend beyond mere corporate profits to include rebuilding, which is likely to ensure them a place at the table.

Source: http://oilprice.com/Energy/Crude-Oil/Libyas-Post-Gadhaffi-Future-Who-gets-the-Oil.html

By. John C.K. Daly of OilPrice.com

  1. By draiman on August 25, 2011 at 9:46 am

     

    All military intervention is tied to economic benefits

     

    U.S. imperialism in the Middle East has always been naked and brutal. It is primarily responsible for upholding backward, dictatorial regimes that, without its help, would have been overthrown long ago. Middle East specialist spelled it out: “It is much simpler to manipulate a few ruling families (and to secure fat orders for arms and ensure that oil prices remain low) and other natural resources, than a wide variety of personalities and policies bound to be thrown up by a democratic system. But such brutality always provokes a reaction–as the new uprising shows. “If history is any guide,”  “hegemony by the United States or any other party in the Middle East tends to produce resistance.” That resistance is back–not just in the Arab countries and third world countries, but in the large sympathy demonstrations throughout the region. The struggle against U.S. imperialism in the Middle East is intimately tied up with the aspirations of the mass of Arab workers and peasants in that region, not only against the American “colossus,” and other foreign interests but against their own ruling classes and dictators with repressive governments.

     

    YJ Draiman for Mayor of Los Angeles

     

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  2. By Tim Weiman on August 25, 2011 at 10:17 am

    Draiman,
    Sticking with the topic of Libya, can you share your assessment of American involvement or “imperialism” in this particular county?
    I also wonder if you might share our thoughts on American involvement in Iraq. Whatever one thinks of the invasion and U.S. led regime change, the result was not favorable access to Iraq’s petroleum reserves for U.S. oil companies. Instead, the new government in Iraq aggressively negotiated service deals and selected other firms for this business. The U.S. spent a considerable sum in blood and treasure and did not get any special access to Iraqi oil.

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  3. By Freude Bud on August 25, 2011 at 1:56 pm

    China’s much worried-about Africa Policy got some serious bad press recently … see The Economist China International Fund: The Queensway syndicate and the Africa trade, http://www.economist.com/node/21525847 … apparently many promised infrastructure projects promised in a quid pro quo for oil contracts, even control of a large part of the national export book, failed to ever get done. (Not that the elites seem to mind much as long as they can safely park their gains offshore.)

    In any case, the IOCs (and Western NOCs) are flush with cash, know the value of linking infrastructure development to projects, and will likely be backed, willy nilly, by the various international development banks and foreign aid programs. That China will play a role is undoubtably true, but I think the worry about them dominating the post-Ghaddafi landscape are overblown. After all, in Iraq the US became unpopular soon after kicking out Saddam, but the West, by virtue of restraint and discretion, has a good chance of retaining a positive image in the Libyan consciousness for a good while, assuming the country doesn’t fall into a prolonged civil war. Relationships will matter.

    But, in the end, from the US national interest perspective, it really doesn’t matter who pumps the oil just as long as it gets pumped.

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  4. By perry1961 on August 25, 2011 at 3:24 pm

    It is ironic that Russia, France, and China locked up most of Iraq’s oil deals, since each of them worked so hard to keep Saddam in power. But, from what I’ve read, Russia, Brazil, and China were warned six months ago that their continued support for Qaddafi would cost them in the end.

    Libyans, unlike Iraqi’s, are very pro-American. The only countries more popular right now are Qatar and France.

    http://articles.latimes.com/20…..s-20110805

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  5. By Freude Bud on August 25, 2011 at 4:22 pm
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  6. By rrapier on August 25, 2011 at 4:30 pm

    Freude Bud said:

    http://www.reuters.com/article…..mp;rpc=401


     

    That will be a big relief for China. But they are also obviously sending the message that Libya will be a stable place to do business.

    RR

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  7. By perry1961 on August 25, 2011 at 4:54 pm

    Speaking to Dow Jones over the phone, a spokesman for the Arabian Gulf Oil Co. said “for countries that took hostile positions toward the TNC [rebel Transitional National Council], it will be difficult in the future to get new concessions,” citing India, China and Russia. The spokesman said the TNC “will honor existing contracts.”

    http://online.wsj.com/article/…..14270.html

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  8. By carbonbridge on August 25, 2011 at 5:10 pm

    While not being an expert at Middle Eastern oil politics – neither can I avoid the networks which televise the Tripoli events of the past several days.  RR:  I found your guest article above to be very interesting.  It covered angles which are NOT being discussed at all on television.  Thank you for sharing it.  I also reviewed two more articles forwarded to me today on this subject.  Both articles were educational to say the least – so decided to share with others here.  I’ve copied a few paragraphs from one article and pasted in the URLs for both stories. 

    Libyan oil while lighter, desirable crude – still floats on this planet’s water bodies, it doesn’t biodegrade, some citizens are dying for it – and this same fossil resource also is desperately sought-after by many nations as we are learning. 

    Good day and good luck to one and all.

    -Mark

    Libya After Gadhafi: Transitioning from Rebellion to Rule

    By Scott Stewart    August 24, 2011

    With the end of the Gadhafi regime seemingly in sight, it is an opportune time to step back and revisit one of the themes we discussed at the beginning of the crisis: What comes after the Gadhafi regime?

    Following the discovery of oil in Libya in 1959, British, American and Italian oil companies were very involved in developing the Libyan oil industry. In response to this involvement, anti-Western sentiment emerged as a significant part of Gadhafi’s Nasserite ideology and rhetoric, and there has been near-constant friction between Gadhafi and the West. Due to this friction, Gadhafi has long enjoyed a close relationship with the Soviet Union and later Russia, which has supplied him with the bulk of his weaponry. It is believed that Russia, which seemed to place its bet on Gadhafi’s survival and has not recognized the NTC, will be among the big losers of influence in Libya once the rebels assume power. However, it must be remembered that the Russians are quite adept at human intelligence and they maintain varying degrees of contact with some of the former Gadhafi officials who have defected to the rebel side. Hence, the Russians cannot be completely dismissed.

    China also has long been interested in the resources of Africa and North Africa, and Gadhafi has resisted what he considers Chinese economic imperialism in the region. That said, China has a lot of cash to throw around, and while it has no substantial stake in Libya’s oil fields, it reportedly has invested some $20 billion in Libya’s energy sector, and large Chinese engineering firms have been involved in construction and oil infrastructure projects in the country. China remains heavily dependent on foreign oil, most of which comes from the Middle East, so it has an interest in seeing the political stability in Libya that will allow the oil to flow. Chinese cash could also look very appealing to a rebel government seeking to rebuild — especially during a period of economic austerity in Europe and the United States, and the Chinese have already made inroads with the NTC by providing monetary aid to Benghazi.

    Between the seizure of former Gadhafi arms depots and the arms provided to the rebels by outside powers, Libya is awash with weapons. If the NTC fractures like past rebel coalitions, it could set the stage for a long and bloody civil war — and provide an excellent opportunity to jihadist elements. At present, however, it is too soon to forecast exactly what will happen once the rebels assume power. The key thing to watch for now is pressure along the fault lines where Libya’s future will likely be decided.

    Full Article at URL below

    http://www.stratfor.com/weekly…..bf0a3e6335

    Will Libya Again Become the Arsenal of Terrorism?  (Full Article at URL below)

    http://www.stratfor.com/weekly…..-terrorism

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  9. By Benny BND Cole on August 25, 2011 at 5:27 pm

    Oil is largely fungible, Ergo we will benefit from increases in production, where ever they happen.

    I suspect if Libya becomes a sensible place to do business, we will see huge ramps up in reserves. Places like Iran, Iraq and Libya haven’t been re-appraised in ages, and when they are it seems inevitable people say they have double to 10 times what we thought. Especially at $80 a barrel.

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  10. By Freude Bud on August 25, 2011 at 9:29 pm

    That will be a big relief for China. But they are also obviously sending the message that Libya will be a stable place to do business.

    RR

    It also apparently comes after the rebels had threatened to cancel the Chinese contracts, see http://www.spiegel.de/internat…..#ref=nlint

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  11. By Freude Bud on August 26, 2011 at 3:32 pm

    Ed Morse, usually a pretty reliable guide, thinks production will return quicker than the market thinks. http://www.sfgate.com/cgi-bin/…..TAH66I.DTL

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  12. By takchess on August 26, 2011 at 9:08 pm

    off topic but i think you would like it.
    Interesting parts about NIH funding vs HHMI.

    http://www.guardian.co.uk/book…..im-harford

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  13. By Wendell Mercantile on August 27, 2011 at 12:00 am

    Between the seizure of former Gadhafi arms depots and the arms provided to the rebels by outside powers, Libya is awash with weapons.

    The scary thing is the disappearance of thousands of Gadhafi’s man-portable, air-defense systems (MANPADs) i.e. shoulder-fired surface-to-air missiles.

    If terrorists get their hands on them, it’s only a matter of time until they shoot at an airliner taking off from Paris-Charles de Gaulle Airport, or London Heathrow Airport. A MANPADs may have too small a warhead to actually knock a large airliner out of the sky, but they don’t to shoot one down to have a tremendous adverse effect on the civilian airline industry.

    Just the idea of people off the end of the runway with shoulder-fired SAMs would have a tremendous psychological effect.

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  14. By Rufus on August 27, 2011 at 12:33 pm

    I’m a bit “late to the party” with this one. Apologies for going off topic, but I just ran across this one, and thought it was interesting.

    http://www.ethanolproducer.com…..c-facility

    A way to get an extra 8.3% more ethanol from the Kernel w/o going the expensive “gathering, and treating biomass” route. Also, at a very affordable $2.60 per annual gallon.

    You, also, still end up with a high-value animal feed, and corn oil. It’s an interesting concept if it works. We should know in a little over a year it seems.

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  15. By rrapier on August 27, 2011 at 12:56 pm

    Rufus said:

    I’m a bit “late to the party” with this one. Apologies for going off topic, but I just ran across this one, and thought it was interesting.

    http://www.ethanolproducer.com…..c-facility

    A way to get an extra 8.3% more ethanol from the Kernel w/o going the expensive “gathering, and treating biomass” route. Also, at a very affordable $2.60 per annual gallon.

    You, also, still end up with a high-value animal feed, and corn oil. It’s an interesting concept if it works. We should know in a little over a year it seems.


     

    I suggested this very concept to someone in London in 2008. We were talking about how to approach cellulosic ethanol production, and I said “You already have some cellulose at an ethanol plant that isn’t being utilized in the corn kernels. It may be possible to throw some enzymes into a traditional fermentation and get at some of it.”

    It looks like what these guys are doing is different in that they are using the leftover DDGS, whereas I was suggesting to do it simultaneously with a traditional fermentation. I had no idea if my approach would work, but we both have the same general concept in mind: Utilize the cellulose in the kernel that isn’t being utilized.

    RR

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  16. By rrapier on August 27, 2011 at 12:59 pm

    By the way, Rufus, did you see that the corn guys declared war on the cellulose guys?

    http://biofuelsdigest.com/bdig…..cellulose/

    To be honest, it is fairly obvious that the corn guys will be an obstacle for the cellulose guys — at least in some cases. They see the promise of cellulose as an obstacle for raising the allowable amount of corn ethanol. They usually keep that opinion squelched, but this time it leaked out.

    RR

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  17. By Wendell Mercantile on August 27, 2011 at 2:45 pm

    …the corn guys declared war on the cellulose guys?

    That’s been brewing for a long time. Making corn ethanol has never been about making fuel, it’s always been about increasing the commodity market for corn. Another source of making ethanol that doesn’t use corn as a feedstock is an existential threat for Big Corn.

    That’s also one reason methanol hasn’t gotten any traction from the alternative fuels crowd — it doesn’t need Big Ag.

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  18. By Rufus on August 27, 2011 at 3:26 pm

    There’s probably a bit more deviousness than that going on. If the “Poet/Blackhawk” approach does catch on it will lead to more corn being planted, and, ultimately, a lower price for corn.

    I’m becoming pretty pessimistic about any immediate future for corn from corn stover. I can’t see Jeff Broin taking a chance on an investment that could sink the whole ship with the political landscape lying as it does now.

    And, with the ultra-empowerment of the tea partiers, I can not imagine any way that it will get better (for Several election cycles, anyway.)

    The only hope is, probably, Dupont, and they’ve lain awfully quiet, lately. It just doesn’t look good.

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  19. By Rufus on August 27, 2011 at 3:26 pm

    There’s probably a bit more deviousness than that going on. If the “Poet/Blackhawk” approach does catch on it will lead to more corn being planted, and, ultimately, a lower price for corn.

    I’m becoming pretty pessimistic about any immediate future for corn from corn stover. I can’t see Jeff Broin taking a chance on an investment that could sink the whole ship with the political landscape lying as it does now.

    And, with the ultra-empowerment of the tea partiers, I can not imagine any way that it will get better (for Several election cycles, anyway.)

    The only hope is, probably, Dupont, and they’ve lain awfully quiet, lately. It just doesn’t look good.

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  20. By Rufus on August 27, 2011 at 3:37 pm

    Of course, times are going to start getting “interesting,” again, in a hurry. We’re probably 5/6 of the way through our 30 Million Barrel Drawdown from the SPR, and, one would assume, Europe is probably at about the same stage.

    That’s Two Million Barrels/Day of Oil, and Products, coming off the market within a week, or two. This ride could get so Wild that, really, it would take a Crazy Man to make too many “Definitive Statements” about the future.

    ( And, yes, I’ve been known to be “crazy,” but this is really pushing the envelope.) :)

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  21. By Wendell Mercantile on August 28, 2011 at 11:23 am

    And, with the ultra-empowerment of the tea partiers, I can not imagine any way that it will get better…

    Rufus~

    What exactly does the tea-party movement have to do with the technology of making ethanol from cellulose? You lost me there.

    If the technology is viable and makes economic sense, politics mean nothing. Politics would only come into play if it needs either a mandate to “succeed,” or continual injections of taxpayer money to be “profitable.”

    Any business could be profitable to those who run it with the right mandates, but that’s not the same as making good business sense.

    Ralph Waldo Emerson once said, “Build a better mousetrap, and the world will beat a path to your door.” If Jeff Broin isn’t ready to take a chance without government stimulus, that means he must realize he hasn’t yet built the “better mousetrap.”

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  22. By carbonbridge on August 28, 2011 at 11:29 am

    Wendell Mercantile said:

    Ralph Waldo Emerson once said, “Build a better mousetrap, and the world will beat a path to your door.” If Jeff Broin isn’t ready to take a chance without government stimulus, that means he must realize he hasn’t yet built the “better mousetrap.”


     

    BRAVO WENDELL:  I think you’ve hit the nail squarely upon its head!

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  23. By Rufus on August 28, 2011 at 11:33 am

    Ralph Waldo Emerson? Really?

    I can’t reply to such childish naivete, Wendell. I just can’t.

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  24. By Wendell Mercantile on August 28, 2011 at 11:54 am

    I can’t reply to such childish naivete, Wendell. I just can’t.

    Rufus~

    What it means is you can’t handle the truth. Emerson’s “better mousetrap” quote is certainly an old and overused cliché, but that doesn’t mean it’s not true.

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  25. By Rufus on August 28, 2011 at 4:47 pm

    Wendell, we’re dealing with an industry, that if a country, would be the 4th largest economy on earth. We’re dealing with powerful political crosscurrents of an often-times unruly democracy on the way into a double-dip recession. Powerful, Populist flames being stoked by massive amounts of money, and self-interested politicians.

    Not only is the VEETC expiring, and the Cellulosic Producers Credit expiring next year, before it can be of any help, but there is a possibility that the RFS, itself, might be in jeopardy.

    An, unproved at scale, technology that, even if successful, could sink a successful 25 yr enterprise, by a hard-working, and visionary family.

    If it was me, I’d have to wait. Mousetraps be damned.

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  26. By Wendell Mercantile on August 28, 2011 at 4:52 pm

    An, unproved at scale, technology that, even if successful, could sink a successful 25 yr enterprise, by a hard-working, and visionary family.

    Rufus~

    Thank you for making my point: They don’t yet have a better mousetrap, and want government to accept the risk.

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  27. By Rufus on August 28, 2011 at 5:24 pm

    Lord, it would be nice to see the world through those “innocent’s eyes.”

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  28. By Wendell Mercantile on August 29, 2011 at 11:46 am

    Lord, it would be nice to see the world through those “innocent’s eyes.”

    Rufus~

    I can only guess that’s why you haven’t made any progress on those Chinese tallow tree plantations in Tunica County and getting all those casinos to install getting solar panels and wind turbines, right?

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  29. By Tom on August 29, 2011 at 8:48 pm

    Interesting site now on my top energy reads. Just a few mistakes/omissions from the article:

    1/ You mentioned Russia, China, and France winning bids in Iraq. the UK (through BP) also won a large contract by partnering with a Chinese company to develop the Rumaila field in the south.

    2/ Libya had already opened their oil & gas fields about 5 years ago and leased plots to various international companies, including BP. Will be interesting to see whether these agreements remain intact.

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  30. By Freude Bud on August 31, 2011 at 1:34 pm

    Eni targets mid-Oct restart of Libyan Greenstream gas line

    http://www.platts.com/RSSFeedD…..src=Eloqua

     

    Re: 2 mb/d going offline with end of SPR release — the end of the SPR release more or less designed to coincide with end of driving season it seems to me, and all the indicators, far as I can tell, is that demand is down from 2009 levels, the lowest seen since early 90s, so the market should be “in balance” w/ fair amount of extra supply (given Saudi production increase) … but the futures market sure does appear to ignore basic supply and demand, don’t it?

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  31. By Freude Bud on September 6, 2011 at 1:04 pm

    Indonesia’s Medco to resume exploration activity in Libya’s Area 47

    http://www.platts.com/RSSFeedD…..src=Eloqua

     

    Libyan tanker unit GNMTC in talks with NTC to get sanctions lifted

    http://www.platts.com/RSSFeedD…..src=Eloqua

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  32. By Freude Bud on September 9, 2011 at 1:23 pm

    Libya’s AGOCO aiming to export Mellitah crude next week: traders

    http://www.platts.com/RSSFeedD…..src=Eloqua

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  33. By Freude Bud on September 15, 2011 at 10:55 am

    Libya’s Sirte Oil Restarted Natural Gas Fields -Oil Official

    http://www.foxbusiness.com/ind…..-official/

    Libyan oil production expected to ramp up faster
    http://hosted.ap.org/dynamic/s…..TE=DEFAULT

    Yesterday’s EIA’s This Week In Petroleum also gave a good roundup of the Libyan oil and gas situation.

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