Predicting what Libyan crude production will be in a few months’ time can be even trickier than forecasting the oil price itself. And the risks it faces could multiply as the country – which holds the largest oil and gas reserves in Africa – moves towards critical elections in December. Libya’s recent rise in production has confounded even the most pessimistic of analysts. In mid-September, Libyan oil production surged to more than five-year highs of 1.28 million b/d, according to Mustafa Sanalla, chairman of the state-owned National Oil Corporation. Most independent observers would see that as on the high side, but estimates show production late summer reached just above the 1 million b/d mark. Libya’s oil output hit 1.05 million b/d in September, its highest level since June 2013,
Eklavya Gupte considers the following as important: gas, Geopolitics, Libya, North Africa, oil, upstream
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Predicting what Libyan crude production will be in a few months’ time can be even trickier than forecasting the oil price itself. And the risks it faces could multiply as the country – which holds the largest oil and gas reserves in Africa – moves towards critical elections in December.
Libya’s recent rise in production has confounded even the most pessimistic of analysts. In mid-September, Libyan oil production surged to more than five-year highs of 1.28 million b/d, according to Mustafa Sanalla, chairman of the state-owned National Oil Corporation.
Most independent observers would see that as on the high side, but estimates show production late summer reached just above the 1 million b/d mark. Libya’s oil output hit 1.05 million b/d in September, its highest level since June 2013, according to the latest S&P Global Platts OPEC production survey.
Libya’s oil sector has been unfortunately synonymous with turmoil since the toppling of leader Muammar Gaddafi in 2011. Since then, production sank to around one-third of a total capacity of 1.6 million b/d, until the recovery began to show signs of promise in early 2016.
Despite the slight progress, uncertainty over Libya’s political future and a worrying security situation continue to cast a shadow over prospects for its oil industry. With the ever-present threat of attacks by rival militias and the Islamic State group, it is tough to forecast the country’s mercurial production swings.
Security in focus
The progress in crude output can be attributed to the efforts of NOC, ably led by Sanalla, a relentless, hardworking man who runs the 1 million b/d oil corporation on a shoestring budget.
All the good work could be undone if the core issues – a lack of security and money – do not improve. As the de facto head of the country’s beleaguered oil industry, Sanalla is doing all he can, but one man and one company is never enough. This is why the elections planned in December will test the country’s unity and be crucial to the outlook for its oil industry.
The past few months have been a painful reminder that rivalry between different factions and militias continue to threaten the stability of the country and its beleaguered oil sector.
Tensions reignited in Tripoli in September, which also saw an attack at the NOC headquarters by IS militants, but production was left unaffected. In June, crude output halved as the key eastern ports of Es Sider and Ras Lanuf were shut-in due to violence followed by blockades.
In an interview with S&P Global Platts in late September, Sanalla admitted security concerns and a lack of foreign investment would continue to weigh on attempts to increase output. He added there had been progress with some international oil companies on increasing production, staffing and investment across the country.
Almost two weeks after that interview, BP and Eni announced their intention to resume exploration activities in the war-torn country alongside NOC. Russia’s Tatneft also said it was working on restarting operations in Libya. This bodes well for the North African producer, but history tells us the road could be a bumpy one.
Libya’s critical oil infrastructure is protected by a complex patchwork of security agreements between NOC and local militias, leaving production vulnerable to sudden disruptions. One such event happened in June, when the self-styled Libyan National Army, controlled by General Khalifa Haftar, took control of the eastern ports and prevented any crude from being loaded.
Most analysts believe almost 500,000 b/d−700,000 b/d of Libyan output remains at risk during the next few months. But they expect these outages to last only days to weeks, as stable oil output will be essential to any political solution in Libya.
Libyan crude oil output is expected to have dipped slightly this week due to the deteriorating security situation around its largest oil field Sharara. Sources said an increase in local militia activity had led to some oil workers evacuating fields. Sanalla’s own life has come under threat and he was forced to flee NOC’s headquarters in Tripoli last month after the building came under attack from gunmen.
It is still not known whether the December election will occur on time. The UN-backed Government of National Accord is gradually losing its clout and remains under pressure due to the lack of security and economic reforms. Disunity in the country has created space for the rise of the LNA under General Haftar. Some of Libya’s key oil terminals and infrastructure are controlled by Haftar’s LNA, and his role ahead of the elections, along with the result of those polls, will define the future of Libya.
Haftar’s recent moves in the country resemble those of a chess grandmaster. With elections around the corner, Haftar will be thinking of his next move. Since he called off his surprise blockade at the ports of Es Sider and Ras Lanuf, he targeted the removal of the central bank governor.
Most analysts expect oil infrastructure to be used as leverage as the December elections loom. If elections results go Haftar’s way, exports could remain stable. If not, his influence at key oil ports could push output down.
Meanwhile, Russia is quietly building a presence in the North African country and this alliance is worrying the West. France and Italy are also competing for influence.
The rise of IS is a huge worry for the country, and for the wider world too. Haftar’s LNA has been facing off rival militant groups, especially IS, as it tries to stymie opponents in the east of the country.
In addition, Libya has emerged as a hub for people smugglers, serving as a portal into Europe for migrants from Africa and the Middle East.
This is why the future of Libya is of deeper, global significance. The recent oil output recovery is just the catalyst Libya and the West needs. As the country faces a political litmus test in the form of its December elections, the recovery needs to be maintained – otherwise Libya will be going nowhere.
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