Libyan crude output unlikely to flood markets, analysts say

Hind Al Soulia - Riyadh - Crude supply from Opec producer Libya is unlikely to materialise anytime soon even though renewed hopes of a ceasefire have raised expectations that exports could resume from the North African country.

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

Libya faces conflicting pressures from internal demonstrations against chronic power outages as well as from Washington to reopen its oil terminals, said Mohammad Darwazah, director of geopolitics and energy at Medley Global Advisors.

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

Opec+ has exempted the North African producer from participating in a historic output restriction deal it implemented to stave off a slump in prices as demand dropped due to the coronavirus pandemic.

“People are on the streets of Tripoli protesting so I don't see any time soon any production coming back [for export],” Laury Haytayan, Middle East and North Africa director at the Natural Resource Governance Institute told a webinar organised by Gulf Intelligence on Tuesday.

"I know that Libya is not in the [current] Opec agreement. They are exempt from it, but I don't think anything will come out of Libya soon. It's very complex, let's wait and see,” she added.

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 preventing a party from fulfilling a contract.

However, the ports closed again a day later as forces allied to Field Marshal General Khalifa Haftar set down demands for an equitable distribution of oil revenue across the country.

General Haftar, who controls the east of the country, allowed ports to resume operations earlier this month.

In a televised address, the head of the Libyan National Army, said the resumption of production would help in mitigating electricity outages by directing more fuel to power plants.

Blockades have cost Libya $6.5 billion (Dh23.87bn) in lost production since the beginning of the year as well as additional costs required to rebuild infrastructure, according to the Libyan National Oil Corporation.

Should Libya restart production, its output is likely to ramp up by a few hundred thousand barrels per day within weeks, said Mr Darwazah.

However, production of incremental barrels will become more challenging due to chronic underinvestment, lack of maintenance and the absence of foreign expertise in the country, he added.

Much of Libya's production has remained offline during the civil war that erupted after the downfall of Muammar Qaddafi in 2011.

Production, which stood at about 1.75 million barrels per day before the conflict, fell by 850,000 bpd in the years that followed as protests and blockades prevented the export of crude oil through the country’s key ports.

Libya achieved 1.2m bpd of output between 2018 and 2019, but is "unlikely to repeat" that number in the near future, Mr Darwazah said.

"Guidance from the NOC, 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 added.

Lifting the blockade in Libya was mainly to ensure that crude and condensate in storage will flow to power plants to mitigate electricity outages, said Mercedes McKay, oil analyst at Facts Global Energy. She does not anticipate Libyan exports returning to the markets 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 is likely to continue, with production expected only from Libya’s offshore oil fields, Ms Mckay said.