Libyan oil refineries could take a year to restore production

Libya’s new government would honour all oil contracts granted during the Gaddafi era, Ahmed Jehani, a senior rebel representative for reconstruction told Reuters in an interview.

"The contracts in the oil fields are absolutely sacrosanct," Jehani told Reuters Insider TV on Tuesday night.

"All lawful contracts will be honored whether they are in the oil and gas complex or in the contracting... We have contracts that were negotiated ... they were auctioned openly ... There's no question of revoking any contract."

Chinese and Russian companies had expressed concern that they would be frozen out of a post-Gaddafi Libya by the western powers and the rebel government, who they failed to support.

Restoring production in the oil fields is seen as critical to the post-conflict restoration effort, as without the oil dollars the new government will be unable to finance the massive rebuilding programmes that are required.

The government has been realistic about the restoration of oil production as apparently there is only light damage to refinery installations, but there will be significant problems relating to the fields being stagnant for all these months due to the incremental build-up of sludge and the loss of pressure. The rebel government believe that production will not be fully restored for 9 months to a year.

Markets had seen oil prices pushed down slightly due to optimism about the conflict reaching a conclusion, in the long term there should be a more sustained price decrease but in the short-term supply will likely still be constricted until production is fully restored.

Published on 24/08/2011

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