A burning incentive – would any PM have done any different?

By Tracey Cheetham

In 2007, BP in conjunction with it’s ‘Libyan partner’ the Libyan Investment Corporation, signed an agreement with the National Oil Company of Libya. According to their Chief Executive Tony Hayward, it was BP’s “single biggest exploration commitment“. Mr Hayward and NOC Chairman Shokri Ghanem, sealed the deal in the presence of British Prime Minister Tony Blair.

Details of the agreement were explained by BP in a press release:

“BP and the LIC will explore around 54,000 square kilometres of the onshore Ghadames and offshore frontier Sirt basins, equivalent to more than ten of BP’s operated deepwater blocks in Angola. During this exploration and appraisal phase, BP will acquire 5,500km of 2D seismic and 30,000km2 of 3D seismic and will drill 17 exploration wells.”

A big commitment – BP had been absent from the Libyan Oil Industry for over 30 years. There had been much negotiation and promises of BP spending 50 million dollars on education and training projects for Libyan professionals during exploration and appraisal and a further 50 million dolars when production began.

It is fair to assume that there was fierce competition, as Libya was not only opening the doors of its lucrative oil industry to BP, but to other international oil companies, having seen international relations warming since sanctions were lifted in 2004.

However, since the deals were forged, there have been numerous logistical and bureaucratic problems preventing BP from bringing in the necessary equipment to fulfil the contracts; Libya has delayed permits and prevented completion of the required official paperwork.

In July, Gordon Brown held talks with Colonel Gaddafi during the G8 conference. They discussed the fate of the convicted Lockerbie bomber Abdel Basset Ali al-Megrahi and Gaddafi ‘urged’ Brown to allow his sentence to be served out in Libya, due to his terminal illness. Brown called Libya a “critical partner” due to its role as an oil producer and the leaders agreed on the need for better consumer and producer dialogue over oil.

It has been suggested that the release of al-Megrahi would demonstrate the UK’s commitment to Libya and help to eliminate the red-tape being used to delay the current BP deal. The deal is worth around 900 million dollars and has the potential for knock-on effects across the energy industry in the UK and Europe, so the motivation to comply with Gaddafi’s request is clear.

More so, when it is considered that in recent months, Tripoli has been holding negotiations for not only oil and gas but also arms deals and not only with the UK but also with Russia. (Given the history, it is surprising to discover that Libya is not on the list of countries that British Arms Companies are banned from exporting to.)

Then consider that Libya holds the largest stock of oil reserves in Africa, at 42 billion barrels and has enormous potential for gas. With the current position regarding Russian gas exports and the reliance on imports for 40% of the UK’s needs, an alternative source would prove very useful and add vital security to the UK energy market.

In 2008, Vladimir Putin travelled to Tripoli. He is keen to obtain access to Libyan resources and further compound his country’s position as the world’s largest producer of gas. He also wishes to forge long-term arms deals and site a Russian Naval base on Libyan soil. This is concerning for Europe, given the additional leverage this would give Russia over gas supplies across the continent. The US would also be unhappy should such a partnership be achieved.

So, despite the initial denials, is it really a surprise that al-Megrahi was released, when the competition between Libya’s courtiers is considered.

It would be naive to believe that with Blair being present for the birth of the BP/NOC deal, that Brown would not be playing a God-fatherly role and doing what he could to preserve and protect it. So while the Tories and the anti-Brown/Labour bandwagon fire up their outrage at the release, I have to say that I doubt any Prime Minister in this position would do any different.

This post was first published at Tracey’s blog, My Two Penneth.