Gazprom and Shell Land Massive Energy Deal in Libya

Best known for his flamboyant all-female bodyguard corps and newly discovered sense of regret over the Lockerbie Pan Am bombing, now General Muammar al-Gadhafi can add “global energy player” to his resume. This weekend it was announced that the Libyan government has granted major exploration licenses to Gazprom, Royal Dutch Shell, Sonatrach, and PGNiG. According to Vedomosti, the Russians were given the sweetest slice, with an estimated 20 million tonnes of oil in blocks 1, 2 and 3 in contract area 64 in the Ghadames Basin, and significant natural gas reserves. While Gadhafi spent yesterday basking in warmth of French diplomacy during a Paris visit (which can be purchased for $14.7 billion in contracts for armaments and nuclear deals), others have noted that Libya’s bid to become an energy superpower and its continuing human rights record makes for a troubling combination. The new presence of Gazprom and Sonatrach in this important new, under-explored market has also raised eyebrows, yet for the moment, Moscow’s political leverage looks somewhat weak.

Bill Farren-Price, energy director at Medley Global Advisors in London, told Bloomberg that “Russia will not have the sort of political control we see them exerting with their pipeline supplies into Europe,” while Gazprom’s local rep in Tripoli, Victor Gogitidze, said “Its pure business, nobody needs to worry.“From a “pure business” perspective, Gazprom is likely looking to maximize its presence in Libya to have the greatest degree of influence possible over the country’s future oil and gas exports. However these early deals, the first of their kind in nearly 30 years in the North African country, are hardly ideal for the Kremlin to lock in competing suppliers and coordinate distribution. The analysts at Stratfor have noted that Gazprom will have to give up 90% of its output to Tripoli as part of the deal, which will make it difficult to break even on the $100 million investment they plan to make in the country.Stratfor writes “Despite the significance of the Dec. 9 contracts, the agreements themselves essentially represent teasers. Libya so far has demonstrated that it can obtain steep terms for limited access to its essentially untapped energy supplies. Tripoli might only achieve this a few times, however, before the energy majors demand that the big prizes come up for negotiation, and the majors are not likely to bid knowing they will take a loss.“Clearly Gazprom, Royal Dutch Shell, and others decided that it’s preferable to take a loss today in Libya in order to be first in line for the next round tomorrow. Although the inimitable Gadhafi is probably an unlikely leader to become a Kremlin proxy in the region, if it came down to a choice between an energy deal with Russia or with a European company, the good general might remember how he was booed by human rights demonstrators in Paris. Would such a thing ever happen during a state visit to Russia?