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Libya defies forecasts and quickly ramps up oil production

The swift recovery of oil production defies outsiders’ expectations

WITH little respect for the forecasts of foreign analysts, Libya’s oil industry is kicking into gear again, bringing production back on stream far more quickly than expected. Just two months ago, oil-industry experts claimed war had severely damaged infrastructure and even some oil wells. A report from the Reuters news agency on 5 October even claimed the Elephant oilfield, one of the country’s largest, "lay in ruins".

 

That report, which baffled industry insiders and those with knowledge of the field, was a high-water mark of gloomy news about Libya’s oil sector. Even before Tripoli fell to the National Transitional Council (NTC) in late August, analysts had bad news for the oil market about Libya’s recovery. Experts, from Wood Mackenzie to IHS Global Insight, suggested pre-war output wouldn’t be reached for up to three years.

 

Now the prevailing story is about how production is growing – and quickly. On 20 October, sources close to National Oil Corporation (NOC) said output had already passed 430,000 barrels a day (b/d), a startling achievement in a country that has yet to decide on a new government. The interim authority also forecast output would hit 1 million b/d, or just 600,000 b/d short of pre-war levels, within a year.

 

 

Even that prediction may be too conservative. By contrast, an internal NOC document leaked to Petroleum Economist said 1 million b/d would be within reach by the end of this year. And Nuri Berruien, chairman of NOC, told Petroleum Economist in Tripoli that full pre-war output would be achieved within "14 months", meaning the end of 2012. The last 600,000 b/d, agree many in Libya’s oil sector, will be the most difficult to bring back on stream. But the doubters are growing less vocal.

 

The death of Muammar Qadhafi and liberation of Sirte on 20 October will also boost NOC’s efforts to speed the production recovery. Sirte’s fall means Libya is united by road again, making servicing of oilfields in the centre of the country easier. Qadhafi’s death should end worries about an insurgency in far-flung oil regions, giving foreign investors more confidence to send their employees back.

 

Meanwhile, the surge in output will bring more of the war-torn country’s light, sweet crude to the international market – leaving Opec with a decision about whether to rein in group production to account for Libya’s swifter-than-expected return. Word from inside Opec is that Libya will be left without a quota during the recovery, as Iraq was.

 

In early October, Berruien told Petroleum Economist that exports would hit 400,000 b/d "within two weeks". Much of the oil will be bartered back to Vitol and Qatar Petroleum, which shipped gasoline and other products to anti-Qadhafi forces during the war. The bill for those supplies, according to Ali Tarhouni, the NTC’s oil and finance minister, amounted to about $1.6 billion. Almost $900 million is still outstanding. The suppliers are being paid in cash and in crude.

 

Settling the debts will come more quickly than expected, too, because each day brings more news of another production restart. The latest field to be nearing output again is the 400,000 b/d Sharara field, in Libya’s southwest. A source told Petroleum Economist on 21 October that the field was now starting up. It supplied the 120,000 b/d Zawiyah refinery, west of Tripoli, which is also now back on line, processing Sarir crude shipped from Marsa el Hariga port, next to Tobruk, in the east.

 

 

But Sharara, which is operated by Akakus, a joint venture between NOC and Spain’s Repsol, will also lift Libya’s exports from Zawiyah port. According to officials, Sharara’s gas-operating facilities were trashed during the war. But the field is fine. The best guess is that it will near its capacity in the next six weeks.

 

Until it begins receiving Sharara crude, Zawiyah will continue processing feedstock from other Libyan fields, with shipments continuing from Tobruk, as well as supplies coming from Total’s nearby offshore Al Jurf field. So Sharara’s return to production will be a signal to international buyers to expect oil being diverted to Zawiyah to be available for refineries in Europe. So far, just a few cargoes have been shipped internationally.

 

Sharara’s return was expected to lift total Libyan output to 750,000 b/d by the end of October, according to the leaked NOC document, which gave the most detailed and authoritative assessment of Libya’s oil sector since fighting erupted in the country in February.

 

But other fields are chipping in. Germany’s Wintershall said on 18 October that it had brought on stream about 20,000 b/d from its C96 and C97 concessions, which lie in the desert, 1,000 km south of Tripoli. Before production was shut in during the war, which Wintershall said did not damage the firm’s assets, the field produced 100,000 b/d.

 

Production from Sarir and Misla, two oilfields operated by NOC unit Arabian Gulf Oil (Agoco) in Libya’s east, has reached 220,000 b/d, said the report, or about 130,000 b/d less than pre-war capacity.

 

 

Agoco planned to restart production at the Sirte-basin oilfields of Nafura and Bayda, both south of Brega, by November, said the report’s authors – two Libyan oil executives who are preparing weekly updates on the country’s oil output. Since it started producing again, Agoco has shipped about 4 million barrels of crude from Tobruk, according to a report from Dow Jones news agency.

 

Production from Mellitah Oil and Gas’s (MOG) Abu Attifel field is now at more than 65,650 b/d from 25 wells, the report said. MOG is a joint venture between NOC and Italy’s Eni. The venture is also producing around 2.5 million cubic metres a day of natural gas from its Wafa fields, in the southwest. The gas is now feeding the Greenstream pipeline to Italy, which began testing gas flows on 13 October. Full exports are imminent, although liquids production has not yet resumed at Wafa.

 

Although MOG’s Elephant oilfield has not returned to production, the report’s authors said it could be on stream by the beginning of November. "Logistical problems" – damage to an airstrip near the field and some surface facilities – have so far prevented its restart, but the wells have not been damaged, and the field is by no means in ruins, as Reuters claimed. Indeed, Berruien told Petroleum Economist that there had been no damage to Libya’s wells and 90% of oil installations were now secure.

 

Meanwhile, Zueitina Oil, a partnership between NOC and Austria’s OMV, is now producing about 30,000 b/d from its Zala and Intisar fields, south of Ajdabiya, said the leaked report’s authors.

 

Mabrouk Oil Operation (MOO) a joint venture between NOC and France’s Total, is producing 35,000 b/d, or about half pre-war capacity, from Al Jurf. MOO’s Mabrouk oilfield has not yet started output for "logistical reasons", said the report. The field lies just 40 km south of Sirte, where the new government’s forces continue to fight for control of Qadhafi’s last remaining stronghold.

 

The Amal oilfield, southeast of Ajdabiya, is also back on stream, producing 10,000 b/d. Foreign workers are reported to be returning to the project, which is operated by Harouge Oil Operations, a joint venture between NOC and Canada’s Suncor.

 

Production from the Waha complex of fields, in the Sirte basin, has not resumed. Waha groups US firms ConocoPhillips, Hess and Marathon Oil in a joint venture with NOC. The fields had pre-war capacity of 400,000 b/d. The report said repair work was under way in the Jalu and Dahra fields and damage assessment was "in progress" at the Waha and Samah fields.

 

"The main problem in Waha Oil is the extensive damage to their terminal, Sidra," said the report. Work in the terminal was under way, "especially in the metering area and the tanks farm". There are also management problems at Waha, the authors said. "Employees are preventing the management team from accessing to the company head quarters, and [are] demanding a change of management." That may hinder efforts to repair the damaged facilities, the report added.

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