Sunday, September 25, 2011
Gaddafi and Libyan oil
Gaddafi was no friend to the people of Libya because he never invested into the infrastructure of the oil industry. Libya actually produced approximately 3 million barrels a day and was just under Saudi production. Since Gaddafi took control, oil production as steadily decreased to under 2 million even during high price periods. The oil was not developed and current production is just a fraction of what it should or could be under a different government. Natural gas has not been developed at all in Libya when compared to Algeria who is a major exporter.
Oil will not come back on line because there was so much looting of the infrastructure. We expect that Libya could be a very important producer but the time frame is in years. Iraq took years to develop after the fall of Saddam and is still in its infancy. In fact, Iraq may be easier to deal with than the current situation in Libya.
This political risk is one of the key dynamics of commodity markets. The issue is not always supply constraints but government constraints on the ability to invest to develop resources. Take away the political constraints and there will be supply.