One Country's $109 Profit on $110 Oil
In February, $85 to $90 sounded like an agreeable oil price to Shokri Ghanem. Then, in early March the head of Libya's National Oil Company declared that his country had "no complaint" with $100 per barrel. Now, we're pushing $110, and Libya's big-mouth momentum is building with each dollar.
That's because official estimates say Libya can produce oil for one dollar a barrel. At $110 on the world market, the simple math gives Libya a $109 profit margin.
Dr. Ghanem is a man of the world. He was born in the Libyan capital of Tripoli, received his graduate degrees in Boston, and usually makes his press announcements from Vienna, where OPEC is headquartered.
His country, on the other hand, has spent most of the past two decades isolated from the international community, marked as a state sponsor of terror and restricted from trading its oil freely on the global market.
In the mid 80s, Libyan leader Col. Muammar Qaddafi was usually seen sporting drab military fatigues and sunglasses. Libyan agents under his command were linked to the bombing of Pan Am Flight 103 over Lockerbie, Scotland in 1988, and other terror attacks as well.
Libyans were even the bad guys in the 1985 classic "Back to the Future"--they were the reason why Marty McFly ended up speeding off in the time-traveling DeLorean!
Now Libya has apologized officially for its involvement in the Lockerbie bombing of Pan Am Flight 103 in 1988 and other attacks, and Col. Qaddafi, the hardcase of old, sports a shiny shawl in public.
After the U.S.-led invasion of Iraq in 2003, Libya renounced its early-stage program to develop weapons of mass destruction, putting a smile on many Pentagon faces and helping to bring Libya in from the diplomatic cold.
That move also made it possible for U.S. oil firms, always thirsty for new supply to position themselves for a fossil fuel frenzy.
Libya's Producing Oil for $1 a Barrel
Having sat dormant since Reagan slammed the doors on Libyan oil in 1986, Libya looked like a fossil fuel time capsule. On the other side of the Sahara from Libya and across the Red Sea, Persian Gulf fields are dwindling, with supergiants like Saudi Arabia's Ghawar in irreversible decline and needing a 30% to 55% water cut for extraction.
Down in sub-Saharan Africa, Nigeria in recent years has become one of the most hostile environments for doing business in the oil-producing world--and that's saying a lot.
Lucky thing for us, then, that Libya--not Nigeria--has Africa's largest oil reserves, with a proven 41 billion barrels underground. And word is, much of that is the lightest, sweetest and easiest-to-extract black gold left on earth.
That's right, Tripoli tea.
None other than the U.S. Department of Energy confirms the bonanza:
Overall, Libya is considered a highly attractive oil province due to its low cost of oil recovery (as low as $1 per barrel at some fields), the high quality of its oil, and its proximity to European markets [emphasis mine].
"A Time for Watching?" Hardly!
"It is not a good time for action, it is a time for watching," Shokri Ghanem said to Reuters early in March, just before the monthly OPEC meeting.
He predicted no output increase in February or March, and he was right. But Dr. Ghanem is one of very few national oil company heads who can actually expect major export capacity increases from near-surface wells in the coming years.
Despite Ghanem's stoic approach to OPEC output, he has to be grinning on the inside. After all, his country is planning for a brighter future with the knowledge that they will be selling fresh oil into a triple-digit crude market.
In December 2007, Qaddafi announced plans to start a national sovereign-wealth fund to invest Libyan oil revenues, with over $155 billion to be spread around various industries.
That same month, France's Nicolas Sarkozy became the first western head of state after the diplomatic thaw began in 2003 to host Qaddafi. In Paris, they agreed to nearly $15 billion in deals for airplanes and other big-ticket items. It's the kind of money France knows Libya has, and France also knows Libya has the oil to make France secure about its domestic supply.
While the entire world watches oil tick up, up, and past another ten-dollar plateau, OPEC officials have every incentive to keep talking prices skyward.
But now is not a time for watching, it's a time for investing.
We're in the middle of a monumental energy and commodity bull market, as other assets wobble on credit concerns and raw materials seem to give us the only real and true equity left in the world.
Global Growth Stocks subscribers have already reaped triple-digit gains on my Libyan oil play, a small Canadian company that beat the majors to revive sleeping drill holes. We're seeing more profits in international energy every day at Energy and Capital, and we're keeping you up to date with every development in markets and the mouths that move them.