Libyan crude output unlikely to flood markets, analysts say

North African country produced 1.2 million bpd in 2018 and 2019 but is not expected to repeat that feat in the near future

Workers perform maintenance on oil pipelines at the Sirte Oil Company refinery in Brega. Libya produced 1.2 million bpd in 2018 and 2019. Reuters
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Crude supply from Opec producer Libya is unlikely to materialise any time soon despite renewed hopes of a ceasefire raising expectations of a resumption in exports from the North African country.

Power cuts and water shortages, which resulted in protests in the capital Tripoli last week, mean that even if reliable production could be maintained, domestic demand would need to be met before substantial exports begin.

Mohammad Darwazah, director of geopolitics and energy at Medley Global Advisers, said Libya faced conflicting challenges that range from the demonstrations against power cuts to pressure from Washington to reopen its oil terminals.

“These factors, however, are not a tipping point yet. It is important to note that any resumption of oil production and exports absent a real agreement between warring parties will not be sustainable,” he said.

Opec+ exempted the North African producer from participating in a historic output restriction deal it unveiled to shore up prices after demand dropped due to the coronavirus pandemic.

Laury Haytayan, Mena director at the Natural Resource Governance Institute, told a webinar organised by Gulf Intelligence last Tuesday that she did not expect crude exports to resume any time soon as there were still protests in Tripoli.

“I know that Libya is not in the [current] Opec agreement. They are exempt from it, but I do not think anything will come out of Libya soon. It’s very complex, let us wait and see,” she said.

Libya tentatively lifted a six-month long force majeure in July to resume oil exports.

A force majeure refers to an unforeseen set of circumstances that prevents a party from fulfilling a contract.

However, the ports were closed a day later after forces allied to Field Marshal Khalifa Haftar called for an equitable distribution of oil revenue across the country.

Gen Haftar, who controls the east of the country and is head of the Libyan National Army, allowed port operations to resume earlier this month.

In a televised address, he said the resumption of production would help mitigate electricity shortages by directing more fuel to power plants.

Blockades have resulted in lost Libyan oil production worth $6.5 billion (Dh23.87bn) since the start of the year and led to an increase in the cost of rebuilding infrastructure, according to the Libyan National Oil Corporation. Mr Darwazah said that if Libya restarts production, its output could rise by a few hundred thousand barrels per day within weeks.

However, incremental output increases will become more challenging due to chronic levels of underinvestment, a lack of maintenance and the absence of foreign expertise in the country, he said.

Much of Libya’s oil production was affected by the civil war that erupted after the downfall of Muammar Qaddafi in 2011.

Production, which stood at about 1.75 million bpd before the conflict, fell by 850,000 bpd in the years that followed as protests and blockades prevented crude exports from leaving the country’s ports.

Libya produced 1.2 million bpd in 2018 and 2019 but is "unlikely to repeat" that number in the near future, Mr Darwazah said.

“Guidance from the National Oil Corporation, for example, suggests that the 340,000 bpd-plus Sharara field – the country’s largest – would take 90 days to ramp up. In the past, that process was completed in a matter of weeks,” he said.

Mercedes McKay, an oil analyst at Facts Global Energy, said the lifting of the blockade in Libya was intended to ensure that crude and condensate in storage would flow to power plants to help ease power cuts.

She does not expect Libyan exports to return to the market this year.

“Even if [production] came back up again, we may see more skirmishes take it quickly back offline again, especially since the ceasefire agreements haven’t been successful recently,” she said.

A stalemate will probably continue, with production expected only from Libya’s offshore oilfields, Ms McKay said.