Calgary entrepreneur Troy Lupul was due to return to Libya last week
to expand his business in enhanced oil recovery projects. Instead, he
cancelled his trip and pulled his three Canadian employees out of the
country. "Obviously there is demand for our skill set," said Mr.
Lupul, president of FilterBoxx Water & Environmental Corp., a
company that specializes in water treatment for the oil-and-gas
industry. "But not under current conditions. Anyone that has any
ability to do work, they want to make sure it's safe for employees and
for themselves." Like FilterBoxx, foreign oil companies that are
helping Libya produce about 1.8 million barrels a day evacuated their
staff in the past few days, locking up offices, rigs and living
quarters rather than exposing them to violence on the job or on the
road. They include Suncor Energy Inc., the major Canadian oil company
with operations in Libya. Ruled with an iron fist by Colonel
Muammar Gaddafi for four decades, Libya paid close attention to the
revolutions that toppled its neighbours, Egypt and Tunisia. But
as late as Saturday, risk of contagion was seen as low and
demonstrations were expected to subside. A relatively small population
-- six million people -- enjoyed at least some of the spoils of the
country's oil wealth, like heavily subsidized gasoline, cheap bread and
government jobs. A construction boom was underway, introducing
new hotels, housing projects, an airport expansion and new highways, as
oil investment returned after the lifting of sanctions by the United
States and UN in 2003 and 2004. Libya is the first major oil
producer whose regime is at risk from the uprisings sweeping the Middle
East and North Africa. If Libya falls, anyone of the major oil
producers could be next. Already, there has been unrest in Yemen and
Bahrain, where civic protests continued Tuesday, and calls for change
in Saudi Arabia, Kuwait and Oman. The risk of supply disruption
is heightened as foreign oil companies and service providers move out
of the way until they know with whom they are dealing and on what
terms. Foreign oil interests typically interact with state oil
companies that are extensions of those in power. In Libya, exports of
hydrocarbons accounted for an estimated 80% of government revenue in
2008. "The world could deal with the loss of Libyan barrels, but
the worry is that it won't stop at Libya," Bill O'Grady, chief market
strategist at Confluence Investment Management in St. Louis, told
Bloomberg News. "We don't know where this is going to end." The
concerns pushed the price of oil to the highest level in more than two
years Tuesday. Crude for March delivery gained US$7.37, to US$93.57 a
barrel in New York, the highest settlement since Oct. 3, 2008. "It's
all about Libya," Tom Bentz, a broker with BNP Paribas Commodity
Futures in New York, told Reuters. "Companies are starting to evacuate essential staff. There are concerns we will lose the country's exports, but so far that hasn't been the case." In
addition to Suncor, those that evacuated their staff include Spain's
Repsol YPF SAZ, oil majors BP PLC, Royal Dutch Shell PLC and Total SA,
Italy's ENI, Austria's OMV AG. Some said they suspended production. Libya
holds the largest proven oil reserves in Africa, followed by Nigeria
and Algeria, and is a member of the Organization of Petroleum Exporting
Countries. After sanctions were lifted, foreign oil companies
returned. Suncor, the oil-sands producer, acquired its holdings in
Libya as part of its merger with Petro-Canada. The country's
National Oil Co. wanted to restore production to three million barrels a
day, a peak last reached in 1960s, according to the U.S. Energy
Information Administration. Over the short term, production increases
were expected to come from enhanced oil recovery processes, which
involve optimizing production from old fields. The protests are a
wake-up call to leaders in countries not affected so far to change
policies that have failed to provide jobs and prosperity and reflected
the downside of poorly designed liberalization and privatization
programs, restrictive economic policies and export-led growth, the
United Nations Conference on Trade and Development (UNCTAD) said
Tuesday. "More often than not, liberalization has not been able
to prevent income concentration and the emergence of legions of
educated, unemployed urban youth whose job prospects are dim," UNCTAD
said. But if oil prices continue to rise, it may well be the prosperity in the rest of the world that is threatened. Already,
the executive director of the International Energy Agency, Nobuo
Tanaka, is warning: "If US$100 continues through 2011, we call it the
oil burden, this will create the same level of crisis as in 2008."
" U.S. pocketbooks feeling the 'pinch' .."..
" the key is that is still a credit constrained environment marked by trivial job and income growth " .....
Derek Holt,
vice-president at Scotia Economics says U.S. consumers — the great
drivers of global growth — are starting to feel the pinch from rising
food and oil prices. “Much of the commentary on the impact of
higher oil prices on U.S. consumers focuses on the fact that the shock
is less severe than it was in 2008,” Mr. Holt said in his morning note
on Wednesday. “True, at US$96 a WTI barrel, oil prices may not yet be as
elevated as they were at their peak in mid-2008 when WTI crossed the
US$143 mark (though Brent’s US$107 is closer to its US$146 mid-2008
peak), but one must simultaneously account for the fact that food prices
are at an all-time peak when evaluating the impact of a twin commodity
shock upon U.S. household incomes.” He points out: * What American consumers are spending on food and energy as a share of their incomes is not far off 2008 levels. * Americans are now spending an extra US$225 billion on food and energy now versus after prices had collapsed by late 2008. *
Food and energy spending had peaked at US$1.497 trillion in 2008Q2 and
now sits just US$36 billion below that level as at the end of 2010 and
is likely higher now. * As a share of incomes, food and energy spending now sits at 12.6% versus the 13.5% peak in mid-2008. *
The back drop against which this is occurring is not as severe as it
was in 2008-09 when deleveraging was commencing and jobs were being
destroyed. “The key is that this is still a credit
constrained environment marked by trivial job and income growth.
Without income growth or credit to back into, a commodity shock still
crowds out discretionary spending and in our opinion is disinflationary
for much of the rest of the consumer basket – a key argument we advanced
in 2008,” Mr. Holt said.
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