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Last year, Libyan crude oil production averaged around 50,000
barrels per day (b/d) lower than the 1 Mn b/d target earlier set by
the state. This wasn't achieved despite the steps taken towards
recovery which, however, have allowed output to sharply increase
for the past two years. But there is still concern, which is
primarily driven by the risk of conflict, since the country is
effectively split in two parts. Rebel groups have taken under their
control areas of the country, in many cases targeting oil
facilities which enable them to quickly bargain both monetary and
political power.
The country's two major oilfields, Sharara and El Feel, are in
the southwestern part of the country, where future outages won't be
of a surprise since chronic fuel shortages and security problems
can quickly cause the production levels to drop sharply. Sharara is
still shut-in for the last two months, after armed groups occupied
the site in December.
Almost a decade ago, production stood at 1.6 Mn b/d, almost 75%
higher than current levels. However, the future still looks bright
for the North African producer. Its state oil company, National Oil
Corporation (NOC) has already made its intent clear, planning to
increase the country's production to 2 Mn b/d by 2020. For this
year, the target is set at 1.6 Mn b/d, which would match the record
high levels last seen in 2010, before the civil war started in
2011.
But the country will first have to overcome several severe
challenges, both technical and security related ones. Apart from
the rebel groups, NOC chairman Mustafa Sanalla has been complaining
that only part of the capital spending allocation from Tripoli has
reached his company during the last couple of years. The company
recently referred to its plan to invest more than US $50 billion in
infrastructure. But due to the situation domestically, the company
considers foreign investments as well. For this reason, its
officials will visit China in the first quarter of 2019 to attract
foreign investment into Libya's oil production. China, the world's
major importer of crude oil, absorbed around 13% of the country's
exports last year.
With around two thirds of last year's production exported on
Aframax and Suezmax tankers, the big question for shipping is
whether we'll experience the return of VLCCs to the Libyan loading
activity in near term, assuming recovery lasts. This would allow
more volumes to be exported to the Far East, which would increase
the average distance significantly. A big step towards this
scenario would be El Sharara returning to operation, after being
offline since December. This oilfield can produce up to 350,000
b/d. But the situation in the country could remain tense for the
long-term.
This might discourage any foreign investment. Among
infrastructure projects, of great interest is the construction of a
port suitable for VLCCs to berth. This has been impossible at least
for the past five years, due to a build-up in silt at the Es Sider
terminal. After a recent agreement between the Libyan Seaport
Authority with the US based Guidry Group foundation, US $1.5
billion will be invested for the construction of the port in Susah,
in the eastern side of the country. With a natural depth of 18
meters, the port will only need to deepen by a few metres to be
able to accommodate a fully loaded VLCC. This port could be
utilised by neighbouring countries Sudan and Chad, which have
already responded positively, as this project could support flows
through the Suez Canal.
Any additions to Libya's output could easily translate into more
volumes exported to countries like China and/or India, while there
are still gaps to be filled across the European market, which for
now seem to be satisfied by the increasing volumes coming from the
US. But meanwhile, the drop in Iranian cargo coming into Europe
(excluding Turkey) provides space for hope that flows on Aframaxes
could pick up again any time soon.
Posted by Fotios Katsoulas, Maritime & Trade
Principal Analyst
Posted 11 February 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit