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Libya reaches 1.6 million b/d output milestone, promises more to come

Libya’s oil production has reached 1.6 million barrels a day (b/d), confirming the country’s output recovery just over a year after civil war shut in its output

But Nuri Berruien, chairman of state-run National Oil Company (NOC), said the country was now seeking to expand output capacity, with targets to produce 2m b/d of crude and 5 billion cubic feet (cf) of natural gas “in the short term”. He did not give an exact time frame.

New investment and the activity in the upstream could also add some 20% to the country’s oil existing reserves of 47bn barrels.

“Immediately after liberation a great effort was made to restore oil and gas production, oil terminals and refineries,” he said at a conference in Vienna. “We succeeded despite many difficulties and technical and financial hardships.” Exceeding all expectations, he said, output was now at the pre-war level of 1.6m b/d and refineries and petrochemical plants were operating “near full capacity”.

Libya’s high quality oil is critical to global oil markets, particularly the pricing of other light, sweet crudes. Its export refinery, Ras Lanuf, resumed operations in August after some delays, but is now thought to be processing close to its pre-war capacity of 220,000 b/d.

When civil war shut in production last year, International Energy Agency countries tapped their strategic reserves to replace Libya’s lost output – helping to prevent a price spike.

The swifter-than-expected recovery in the country’s oil production began in September 2011, after the toppling of Libya’s dictator, Muammar Qadhafi. Production reached 1.4m b/d in May 2012 – years ahead of some pessimistic forecasts.

Security, however, has remained dicey, prompting some producers, such as BP, which signed large Qadhafi-era deals to explore Libya’s upstream, to hold back.

Even that picture may be changing. BP said at the beginning of November that it would commit to a new 17-well drilling programme in Libya, targeting both onshore and offshore deposits. It would be the company’s first activity since the war.

“We've had some hiccups, which are normal,” said Berruien. “In our new Libya we are looking forward to building a new oil and gas industry built on trust.” NOC’s primary objectives are now to develop and maintain hydrocarbon reserves and deploy new enhanced recovery techniques in the upstream. The country would also upgrade its refining and petrochemical industries, he said,

Analysts say despite the rapid recovery in Libya’s oil output, it may struggle to maintain production levels unless services firms and foreign investors begin exploring again and upgrading producing wells. NOC’s short-term targets depend on major new investment to upgrade facilities and deploy techniques such as reinjection to stimulate older producing fields, admits NOC.

Libya is still suffering an oil-production capacity shortfall of 120,000-150,000 b/d because of reservoir control issues and a lack of facilities for water handling, gas compression and power generation. Some infrastructure was damaged during the civil war.

Berruien said that enhanced oil recovery at declining wells could contribute another 7m to 10m barrels of oil to Libya's proved reserves of 47bn barrels.

Libya’s natural gas industry would see a “new era of development” as the country expanded gas use for domestic and industrial power generation and opened up new export markets.

Domestic gas use had been limited in Libya in the past, only partially meeting local and industrial demand, said Berruien, but that would change. “More attention will be given to exploring for gas, including unconventional gas. We would be developing existing gas reserves, onshore and offshore to meet current and future industrial export commitments, hoping to become a major producer in the region. Our proximity to the European market enhances our opportunities.”

Libya already exports gas to Italy through the Green Stream pipeline stretching beneath the Mediterranean from Mellitah, west of Tripoli, to Sicily. The line, with capacity of 11bn cubic metres a year, was shut in during the war, but came back on stream last year. A small liquefied natural gas plant in Brega was damaged during the conflict. Before the war, Shell was contracted to upgrade that facility.

Libya is also planning major upgrades to its downstream sector, hoping to boost refining capacity.

Although Libya processes more than 350,000 b/ d of crude through five refineries, the country still imports more than 75% of its gasoline. The NOC plans to increase gasoline and diesel output for domestic use.

Berruien said Libya was “considering and evaluating” different investment options across the sector. The country was determined to make its industry attractive to investors.

“The emerging political scene is our road to a brighter future for all. In that context many positive changes are proceeding, such as fair competition, transparency and treatment of all companies on equal grounds and a clear commercial basis,” Berruien said. “In our new Libya we are looking forward to a modernised oil industry of the highest international standards to develop trust, transparency and strong partnerships.”

Libya has yet to approve a new post-Qadhafi political system and sporadic fighting continues to threaten areas of the country such as Bani Walid, once a stronghold for the dictator. Last week, the country’s parliament, the General National Congress (GNC), approved a new government led by prime minister Ali Zidan. A previous government, led by Mustafa Abushagur, was opposed by the GNC.

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