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June 06, 2014

Libya’s Oil Output Drops Further

by Joe DeCapua

Libya has much of the world’s highest quality crude oil. But since the fall of long-time leader Moammar Gadhafi in 2011, production has been sporadic and on the decline.
 
After assessing Libya’s political instability, violence and armed groups battling for control, John Kingston summed up prospects for the country’s oil industry this way:
 
“There’s essentially no good news there.”
 
Kingston is director of news for Platts, which provides information on the global energy, petrochemical, metals and agriculture industries. He said during Gadhafi’s rule, Libya produced about 1.6 million barrels a day.
 
Listen to De Capua report on Libya and South Sudan oil

“Their quality of crude is extremely high. So, for production of transportation  fuels, like gasoline and diesel, if you lose a barrel out of Libya, you have to produce more than a barrel of heavier crude somewhere else to make up for it. Not all barrels are alike. And a Libyan barrel is more equal than others,” he said.
 
But not much is getting to market these days.
 
“Less and less,” he said, “That’s the problem. In fact it seems that exports out of a port called Marsa El Hariga, which was a very important port, appear to have stopped. And as a result of that the Libyans are returning to crudes that they were exporting to serve their own needs. So that’s lesser exports there.”
 
The port closed after just reopening last month. But even when Marsa El Hariga was open, April exports averaged just 167,000 barrels a day. With the port closed, exports should drop further.
 
“It can’t get much worse in terms of supply. I mean if you’re down to under 200,000 barrels a day, which is what it looks like right now, you could easily go to zero,” he said.
 
Asked whether Platts knows who’s in charge of Libya’s oil sector, Kingston said,” No, we don’t and nobody is really in charge of the oil fields. And it’s not just a question of the fields, really, it’s a question of the ports. The fields are located miles away from any kind of population centers. So, the issue here is the logistical system that’s needed to export this oil. That is what is in turmoil as a result of there [being] no central government and various rebel groups are in charge of some of the port facilities. So, that’s the problem.”
 
In March, a militia group had attempted to sell some of the country’s oil. They loaded it on a tanker, which was thought to be destined for North Korea. Libya’s weak government was opposed to the sale. Its efforts to seize the tanker failed, reportedly because of rough seas and bad weather. It also had threatened to bomb the vessel. It never got the chance. President Obama ordered U.S. Navy Seals to commandeer the ship.
 
Kingston said that the militia had little chance of success, anyway, since it was not part of the international banking or shipping systems.
 
The longer-term concerns in Libya, he said, are the country’s underground oil reservoirs. These are porous or fractured rock formations that contain oil or natural gas. There’s a good chance they’re being damaged.
 
“Oil reservoirs are kind of a fragile thing, and they need tender loving care at all times. If you shut-in production it tends to damage the reservoir. So, even if democracy broke out tomorrow and everybody was peaceful in that country, it’s highly unlikely that you’re going to get back up to the level that you were pre-Gadhafi overthrow anytime soon,” said Kingston.
 
Platts is also monitoring developments in South Sudan, which has been mired in conflict since December.
 
“There is a place in South Sudan called Unity State, and production there remains shut-in that probably has taken 40 to 50,000 barrels a day off of the markets. So, every barrel matters particularly when markets are relatively tight, which they are. But South Sudan is just yet one more country in a line-up of countries that are wracked by some level of strife that has tightened the world oil supply. Libya is at the top of that list,” he said.
 
Kingston said Sudan’s oil production has not been affected by the South Sudan conflict. Production remains around 50 to 60,000 barrels a day.
 
Other countries where various problems recently affected oil production include Iran, Venezuela and Syria. The conflict there has removed about 250,000 barrels a day off the market.
 
“So when you add up all those it’s a real murderer’s row of problems. Luckily, the United States and Canada have continued to increase their production, particularly the U.S., and that has softened the blow,” he said.

Kingston said that the U.S. has been able to sharply boost oil production due to techniques that extract oil from shale deposits.