Libya oil chief: Production down 50 percent

A Libyan oil worker, works at a refinery inside the Brega oil complex, in Brega east of Libya, on Saturday Feb. 26, 2011. Production at Brega has dropped by almost 90 percent amid the country's crisis because many employees have fled and few ships are coming to offload the product. AP Photo/Hussein Malla

Updated 2:33 p.m. ET

CAIRO - Libya's oil chief said Monday that production had been cut by around 50 percent, and argued it was "safe" for foreign oil workers to return after a mass exodus sparked by Moammar Qaddafi's increasingly violent campaign to retain control of the country.

The assurances by Shukri Ghanem, the head of the state-run National Oil Co. and Libya's de facto oil minister, came as uncertainty swirled about the state of the OPEC member's production and who was actually in control of the brunt of the nation's oil. Libya sits atop Africa's largest proven reserves.

The country is the only member of the Organization of the Petroleum Exporting Countries so far seriously affected by the protests roiling the Arab world, and unrest there has sent shudders through global oil markets.

Ghanem claimed that the government in Tripoli remained firmly in control of the country's oil installations -- from fields to refineries and pipelines. He rejected an assessment put forward by EU Energy Commissioner Guenther Oettinger on Monday that Qaddafi had lost control of the country's main oil and gas fields.

"He does not control the oil," Ghanem said, referring to Oettinger. "You can believe who you want, but I am the chairman of the National Oil Company and I know what we produce," he told The Associated Press in a telephone interview.

Ghanem conceded, however, that production at some fields, including in the Hamada area, had been halted, but attributed the disruption to the departure of foreign workers.

"Of course there is a drastic cut" in production, he said. "The main reason for the oil production to come down is the panic of foreign laborers, who felt they had to leave. I think all laborers will be safe if they return."

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Reporting from Tripoli, CBS News correspondent Kelly Cobiella said a Libyan government spokesman is accusing both the West and al Qaeda of trying to create violence in Libya for one reason:

"Here it is again, the magic word - I'm sure as journalists you've heard it many times before and you've seen it in action before: Oil," said Information Ministry spokesman Moussa Ibrahim.

He predicted the West would bomb Libyan cities and that hundreds of thousands would die. "The risk to the lives of hundreds of thousands of people is real, and imminent," Ibrahim said.

Ghanem's comments Monday came hours after officials in Libya's east, which has thrown off Qaddafi's rule, said that the Tobruk port had reopened and one China-bound tanker was being loaded with 1 million barrels of crude. Another tanker, destined for Italy, was waiting to pick up its cargo of 600,000 barrels of Libya's light sweet crude -- a refiner's favorite.

"The terminal (at Tobruk) is working at 100 percent," Rajab Sahnoun, an official with the Arabian Gulf Oil Co., which is based in the eastern city of Benghazi, told the AP.

Sahnoun also said that at least two of the major eastern fields, Sarir and Misla, were still producing, though at slightly reduced capacity. He was not able to say how much production was down at those fields, but noted that the 34-inch pipeline to the terminal was operating normally. The terminal can store 4 million barrels of crude, he said.

Another Agoco official, Ali Faraj, who works in the emergency operations room at the facility, said the company's production of roughly 220,000 barrels per day was largely unaffected.

"A drop of 5,000 or 6,000 barrels per day, in our experience, is not a drop, really," Faraj said.

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Libya produces about 1.6 million barrels per day of crude oil, and about 85 percent of its exports are Europe-bound.

Aside from uncertainty about a drop in Libya's exports, oil markets are also panicked that the unrest in the Arab world could spread to other, bigger, OPEC members such as Saudi Arabia or Kuwait, prompting a price rally that could undermine global recovery efforts.

The head of Saudi Arabia's state-run oil giant, Saudi Aramco, said his company had already stepped in to offset the drop in Libyan exports. Khalid Al Falih, however, declined to specify how much additional oil the company had supplied.

Ensuring market stability has long been a source of pride for Saudi Arabia, the de facto leader of the 12-nation bloc that supplies about 35 percent of the world's crude. The country's information minister said Monday that the Cabinet had reaffirmed Saudi Arabia's role in the market and that it was continuing consultations with OPEC members to ensure stability of supply.

Iran, however, which holds OPEC's revolving presidency, cautioned Riyadh against "hasty" steps by injecting new volumes into the market, the official IRNA news agency reported.

Oil markets have rallied over the past couple of weeks because of the broader unrest in the Arab world, and spiked late last week because of Libya. Saudi Arabia's comments Monday helped cool the futures market slightly, with the U.S. crude futures benchmark holding at around $98 per barrel while its London counterpart, Brent, clung to a precariously high level of $113 per barrel.

The spread between the two contracts reflected the fears about Libya. Crude from that country is of roughly the same quality as Brent, and questions about how much control Qaddafi had over his key export unnerved global markets.

EU Energy Commissioner Oettinger said during a meeting of EU energy ministers Monday that control over much of the oil and gas fields is in the hands of regional families or provisional regional leaders that have emerged from the revolt and chaos. But he also spoke out against a proposal put forward by Germany's foreign minister that the EU should consider a total ban on payments to Libya including for oil deliveries.

Oettinger argued that since Qaddafi already lost much of the control over the oil and gas fields, imposing a ban on oil imports would be bad.

"We'd be punishing the wrong people potentially and we would be discarding the regional aspects if we just stopped imports altogether," he said. "We might actually be punishing people who have changed their ways, who are acting better."

The sanctions issue also raises questions about who would be paid for the Libyan crude given the uncertainty in the country and the efforts to isolate Qaddafi's regime.

A Libyan oil official in the east said that February loading cargoes had already been paid for, but that those for March had not. The official, speaking on condition of anonymity because of the sensitivity of the matter, said that if and when Qaddafi falls, the money would go to the new government. Barring that possibility at present, the payment could be channeled to the regional government in Benghazi, he said.

But experts questioned whether that option would be agreeable to international oil companies who would have no real assurances that they were paying the proper authorities. In addition, if a new government was to be set up, it may request the money that was already paid, for example, to the regional government.

A third option would be for the sale proceeds to be put into some sort of escrow account until some clarity emerges in the country.

Ghanem, Libya's de facto oil minister, said that tankers were loading at the various Libyan ports -- indicating that all were operational though that could not be immediately independently confirmed.

"I cannot say its business as usual, or production as usual," Ghanem said. But he stressed that the NOC was firmly in control and coordinating the production, refining and transportation of crude oil in the country.

Ghanem said that for production to return to normal, the foreign workers needed to return.

But international companies, if they haven't done so already, are still trying to pull their expatriate workers from the embattled nation.

Pro-Qaddafi militias and mercenaries have made travel in the country unsafe, and few foreigners appear inclined to stay in the country to see how the political situation will play out given that Qaddafi has vowed a fight to the death.

Italy's Eni SpA, which before the crisis produced 244,000 barrels of gas and oil equivalent a day in Libya, about a quarter of the country's exports, said it was continuing to evacuate its employees.

The company last week announced that supplies of natural gas from Libya, through the Greenstream pipeline, had been suspended. But Eni said it was able to meet its customers' demand for gas. Up until the crisis, Libya supplied around 10 percent of Italy's gas.

Oil workers for Britain's OPS International oil field services company made it across the Egyptian border in a convoy of buses across the desert late Sunday night, and another bus full of oil workers reached the Libyan port of Ras Lanuf Monday and boarded a ship bound for Malta, said company chairman Gavin de Salis.

Meanwhile, France's Total SA said it evacuated all expatriate oil workers in the country, and their families, said spokeswoman Phenelope Semavoine. She said the company "continues to reduce some of our production" of Libya oil but declined to provide more detail.

Repsol spokesman Kristian Rix said Monday that the company is now "declining to give production figures because the situation is unclear and communications are difficult." He said the company was able to get the rest of its employees and contractors out of remote Libyan desert production areas over the weekend. In all, about 200 employees have been evacuated since the crisis began.

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