Oil production still unstable in Libya

Post-war Libya is likely to struggle to maintain oil production levels and boost pumping capacity, as funding constraints and security concerns could prevent the country's oil company and foreign oil firms from making necessary investments.

Constraints on investments in existing facilities and exploration activity, as well as security concerns, could hamper the work of the country's National Oil Corporation (NOC) and foreign operators.

While the NOC is held back by sluggish political decision making, international oil companies (IOCs) are hesitant to send their equipment and workers unprotected into remote locations, and they are bound by unfavourable contracts from the Muammar Qaddafi era.

"I am not as enthusiastic about Libya as when Qaddafi went away," said Nabil Alalawi, the chief executive of the oil field services provider AlMansoori Specialized Engineering, an Abu Dhabi company.

"It is a fantastic market, but they don't have money."

Libya's 1.6 million barrels per day (bdp) of exports were halted as civil war broke out in February last year.

After Qaddafi was killed in October, production was restarted and quickly increased. Output has reached about 1.4 million bpd. Experts say full production of 1.8 million bpd could be achieved by August.

But the provisional government, the National Transitional Council (NTC), has not yet provided funding to the NOC or renegotiated contracts with foreign oil companies.

The council is preoccupied with establishing government institutions untainted by the former regime and is reluctant to make decisions before a general election.

"As the NTC is a transitional ruling body, we've left all the long-term decisions and commitments to the future elected government," Muhammad Al Muntasir, who has responsibility for oil and gas affairs at the NTC, said last week.

Superficial repairs have enabled a quick resumption of production, but stable crude flows depend on regular maintenance.

"What they are doing now is repairing a few wells. That is short term.

"To create sustainable production, you have to have continuous maintenance," said Mr Alalawi.

Wintershall,a German oil company that operates in nine fields in Libya, has not been able to return to full production as the pipeline connecting it to export facilities is still damaged.

"We want to stabilise our production capacity … To do this, however, the export infrastructure also needs to be in place," Rainer Seele, the chairman of Wintershall, said last month.

Libya aims eventually to boost production to 2 million bpd.

At present, international oil companies are refusing to commit to the necessary exploration work, citing safety concerns in areas often controlled by tribal militias.

The contractual terms under which IOCs operate in Libya are a further impediment to investment in exploration and production-enhancing measures at existing oil fields.