The New Prize
Scottish Justice Secretary Kenny MacAskill and Abdel Baset al-Megrahi - the so-called Lockerbie bomber - must feel at this stage that they are pawn pieces on a large chess board in which they have little or no control.
They both garnered their moment in the spotlight, whether they wanted it or not. The story of Megrahi’s release kept on getting waves of momentum on both sides of the Atlantic from leaks of British government memos, the families of the victims and heads of state in Washington, London and Tripoli.
It is fair to say there might have been some disagreement over the fine print of diplomacy, because there were plenty of glitches. A hero’s welcome in Tripoli poured fuel on the fire of discord especially in the U.S.
No doubt the debate will pass and news organizations will eventually move on without the closure that many of those closely involved were seeking. What will remain a constant with regards to Libya is the desire by western governments and their oil and gas producers for a share of the spoils below ground.
The events over the past ten days had me thinking of Daniel Yergin’s seminal book on the energy industry called “The Prize”. It is not light reading, but the Pulitzer Prize winner does put all the pieces of the puzzle together.
Libya is Africa’s largest holder of proven oil reserves according to OPEC’s official estimates at 43 billion barrels. It is producing less than two million barrels per day and only uses about 10 percent of that for domestic purposes. Equally as promising for Libya is its natural gas potential. The country is already sending exports to Europe via Italy through the Melita gas pipeline.
This is where politics and economics converge. After then Prime Minister Tony Blair’s meeting with Colonel Muammar Gaddafi in 2004, sanctions were lifted and a whole boatload of energy companies (56 by Libya’s count) lined up to get involved in what remains one of the most promising, yet under explored energy nations.
BP has a two billion dollar natural gas exploration project in the works. One might even call it a race to catch up with Italian energy company ENI – which has had operations in Libya going back a half century. They now have agreements stretching out to 2042 and 2047 for oil and natural gas development.
Mr. Gaddafi’s visit to the G8 meeting in Italy by host Silvio Berlusconi was smart politics, even if the Libyan leader took the liberty to pitch his tent near the grounds of the meeting. That is a luxury not afforded others at the summit. We should not forget that a year ago the Italian Prime Minister’s gesture to pay five billion dollars to Libya to make up for misgivings during their colonial rule. A footnote included in the deal says that Italy will spread out the payments for a quarter century for major infrastructure projects. Mr. Berlusconi was candid in saying that he expected Italian construction companies to benefit as well from those investments.
Meanwhile, Britain continued its own diplomacy track on Tony Blair’s subsequent visit in May 2007 which led to what was called a “natural gas cooperation accord”. Under that agreement BP will retain just over 19 percent of the income from discoveries, with the Libyan government and its sovereign fund keeping the other 81 percent, according to state oil officials.
The harsh reality is that energy demand continues to grow in Europe and, for that matter, the entire world. The challenge for Europe is that supplies need to be found elsewhere. North Sea fields are depleting at a rapid rate. The major oil giants at this juncture still hold a technological advantage over their emerging market counterparts, but how long will that last, another decade or two?
That question cannot be answered just yet, but the reality is those who own the oil and gas want to keep a larger share of the revenues. Examples of that abound in Russia, Kazakhstan, throughout the Gulf and, yes, in Libya. As their economies and energy fields are opened up to the forces of globalization, they have rightfully hardened their position to capture as much revenue as possible.
But it would appear the prize in Libya is a big one, because the level of engagement for the last five years has been nothing short of exceptional.
ABOUT THIS BLOGJohn Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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