LONDON -- Wood Mackenzie's latest study on Libya's oil production shows the country's output has doubled from 300,000 bopd in early September to close to 600,000 bopd today, adding to the global oil supply glut.
Although an OPEC member, Libya's output has fallen so drastically it won't be bound by any production restrictions. The country will seek to recover its lost market share, notably in southern Europe where refineries prize its light, sweet blends.
"Libya's oil production increases have occurred despite the absence of a political agreement between competing administrations, and an ongoing security vacuum," said Martijn Murphy, research manager at Wood Mackenzie.
Murphy said there are signs recent production gains could be sustained. These include the demise of the widely disliked Petroleum Facilities Guard (PFG) in the east, military success against IS in Sirte and western incentives to reverse Libya's parlous state. Much will depend on the success of Libya's state oil company, the National Oil Corporation, in depoliticizing the country's oil.
"Longer term, Libya will take significant time and investment to get back to pre-war levels of 1.6 MMbopd. Upstream facilities in the east have suffered much damage over the last two years, as have ageing midstream pipelines. Storage tanks will have to be rebuilt at Libya's largest oil port, As Sidra (Es Sider), following rocket attacks there," said Murphy.
"Before committing new capital investment to Libya, independent oil companies (IOCs) will want to see a durable political agreement, functioning government institutions and the restoration of security – all currently a long way off. Libya's national oil company will also have to secure funding for its 50% stake that it has in most projects, or fund its share with crude in kind," adds Murphy.
Much uncertainty remains, but for the moment, Libya's production recovery offers much-needed revenues for the state and at least the hope a corner has been turned. Despite UN-sponsored efforts to bring about a political agreement and unity government, Libya remains a divided country.
Wood Mackenzie's analysis considers recent geo-political factors that led to the increase in Libya's oil production.
On Sept. 11, General Haftar, affiliated to the eastern House of Representatives administration, took the ports from the PFG and handed them over to the National Oil Corporation. The state oil company, applauded for its neutrality throughout the civil conflict , quickly lifted force majeure on the ports and increased production from many of its fields in the Sirte basin. In addition, fields with participation from IOCs including ConocoPhillips, Marathon, Hess and Wintershall have also restarted production for the first time in almost two years. This has led to today's production levels approaching 600,000 bpd.
However, without the reopening of the country's western export pipeline, Libya may be approaching the upper limit of its near-term production capacity. Reopening the western pipeline to Zawiyah could add an extra 200,000 to 300,000 bpd near term, ramping up to full capacity of 470,000 bpd within two years. Western infrastructure is newer and unlike As Sidra and Ras Lanuf in the east, Zawiyah hasn't suffered any damage.
Achieving the National Oil Corporation's target of 900,000 bpd by the end of the year will depend on ending the blockade of the western pipeline. It remains unclear whether the tribes of Zintan's demands can be met in the absence of a national political agreement.