Middle East Policy has been one of the world’s most cited publications on the region since its inception in 1982, and our Breaking Analysis series makes high-quality, diverse analysis available to a broader audience.
Nathaniel Kern, Matthew M. Reed
Libya is restoring oil production faster than many analysts initially expected but probably not as fast as some Libyan officials claim. Confirmed export data to date suggest that Libya is producing at only half the rate which Libyan officials claim.
The sudden loss of Libyan oil in late February helped propel world oil prices up by about 40% earlier this year. This exacerbated the EU’s economic troubles and also raised the likelihood of a double-dip recession in the U.S. Libyan production will not be restored as quickly as it was lost. But the pace of restoration will be an important factor in world oil markets over the months ahead.
During the six-month-long conflict in Libya, various prognosticators based their recovery estimates on the experiences of other producers that had previously endured crises, including Iraq, Iran, and Venezuela. These observers assumed Libya would take two years or more to reach pre-crisis production levels of 1.6 million b/d. Within three weeks of Tripoli’s fall, however, Libyan oil officials began issuing highly optimistic statements about the industry’s recovery.
The acid test for production is confirmed exports, not claims by Libyan officials. Exports will equal actual production less the volumes of crude refined domestically and the rebuilding of stocks within Libya.
Claimed Production Capacity Libyan officials claim current production has reached 415,000 b/d from the following fields by the following regional oil companies:
• AGOCO says it is now producing 250,000 b/d from Sarir and Messla;
• Mellitah Oil & Gas says it is now producing 70,000 b/d at the Bu Attifel complex;
• Mabruk Oil says it is now producing 45,000 b/d from the Al Jurf offshore oil field;
• Zueitina Oil claims it is now producing 30,000 b/d; and
• El Harouge and Canada’s Suncor say their joint venture is producing 20,000 b/d
Total Production Claimed: 415,000 b/d
Refining Activity Officials claim Libya’s refineries are now processing 90,000 b/d of crude:
• Zawiya Refinery is processing 60,000 b/d (half of its nameplate capacity);
• Tobruk refinery may be processing 20,000 b/d; and
• Sarir Refinery—a simple topping plant in the desert—is supposedly producing 10,000 b/d
Total Refining Runs: 90,000 b/d
Confirmed Exports Since production restarted on September 11, 3.531 million barrels of crude exports have sailed from Libya, not including one cargo of condensate, which was produced during the war:
• September 25: the Hellas Warrior lifted a 381,000 barrel cargo of crude for ConocoPhillips and sailed to France;
• October 7: the Seaborn lifted a 600,000 barrel cargo of crude for Austrian OMV and Swiss refiner Petroplus; it later arrived in Italy;
• October 7: the Wilmina lifted a 950,000 barrel cargo for Swiss-registered trader Gunvor, reportedly for shipment through the Suez Canal to Asia;
• October 11: the NS Creation lifted a 600,000 barrel cargo for Glencore—destination to be determined; and
• October 18: the Valtamed lifted a 1 million barrel cargo for Austrian OMV for delivery to Italy
Total crude exports as of October 18: 3.531 million b/d
Wire services and industry publications are tracking Libyan crude oil exports like hawks and have the resources to track the tankers lifting the oil, the export volumes, and the final users of lifted oil. They will likely continue tracking Libyan exports until sales become routine. It can be expected that confirmed exports will continue to rise but lag behind production claims for now. Libyan crude oil exports for the first four cargoes from September 25-October 11 reached a rate of 158,188 b/d during those 16 days. The export of the additional cargo on October 18 might reflect an additional week of production at a rate of 143,000 b/d. These rates are far short of: (1) claimed production during the period (415,000 b/d); less (2) claimed refinery runs (90,000 b/d), which otherwise would be expected to yield an export rate of 325,000 b/d. However, it is worth noting that Libya will export two more cargoes before the end of October, according to wire reports that suggest China’s Unipec booked two cargoes for October 24 and 31. The volumes of these two cargoes are each one million barrels—meaning the rate through October will stand at 158,188 b/d.
Explaining the Gap Between Production and Exports Any increase in domestic refining runs will also reduce the amount of crude available for export. In addition, the Libyans will want to rebuild operational crude stocks, both at refineries and at export terminals. It is possible, but not probable, that Libya also has been required to refill pipelines. Unless a pipeline has been drained by gravity, it would still be full of oil after a shutdown.
The Big Picture Conflicting reports may confuse observers but shipping data and official statements from the National Oil Company (NOC) suggest production is gaining momentum after being shut down from March until September. In an October 3 interview, NOC Chairman Nouri Berouin stated that Libya’s “current production” was 350,000 b/d and that operations at the Zawiya Refinery, with a stated capacity of 120,000 b/d, had begun on October 2 at a rate of 60,000 b/d. Other reports indicate the 20,000 b/d refinery at Tobruk has been operational for weeks. Berouin said that the larger, 220,000 b/d refinery at Ras Lanuf would not restart until output had reached 500,000 b/d, which Berouin estimated would be in “about two months.” He then estimated production would reach 700,000 b/d by the end of the year.
Only a week later, in an interview with Dow Jones on October 10, Berouin refined his estimates and said Libya was now producing 400,000 barrels a day—meaning it had achieved one-quarter of its pre-war output. But he also scaled back end-of-the-year estimates from 700,000 b/d down to 600,000 b/d. Berouin’s short-term estimate was revised after state-owned AGOCO and a joint-venture with Italy’s ENI proved able to expand production faster than expected. Producing 700,000 b/d by the end of 2011 seems unlikely although Berouin believes Libyan output will top one million b/d early next year, according to an interview with the Associated Press on October 9.
600,000 b/d appears within reach if the 200,000 b/d Sharara field restarts later this month. ENI’s Elephant field has yet to be restored but, once active, it will push Libya’s total production toward the one million b/d mark. The NOC chairman remains convinced that pre-war output of 1.6 million b/d is achievable within “14 to 15 months” as major fields return and minor fields contribute tens of thousands of barrels daily.
Regional Rivalries and Exceptional Claims Officials from two of NOC’s operating subsidiaries—regional rivals Mellitah and AGOCO—have made separate claims which would put current Libyan production at a total of 453,500 b/d. (These claims include: 200,000 b/d at Sarir; 60,000 b/d at Messla; 130,000 b/d at the Nafoora-Hamada-Beida complex; and 63,500 b/d at Bu Attifel. Not counted in this total from the two operating companies are other claims about fields in the process of starting up.)
Besides normal regional and inter-company rivalries, Benghazi-based operating companies like AGOCO do not want to surrender full authority to the Tripoli-based National Oil Company. The concentration of power and wealth in Tripoli was a feature of Qaddafi’s rule, the Benghazi officials complain, while the revolution was spearheaded from the east. The majority of oil production and reserves are in the east, they say. And because NOC was sanctioned, but not AGOCO, AGOCO officials have had a taste of autonomy that they do not wish to relinquish. However, in the interim, the multitude of separate voices speaking to the press about oil operations does lead to conflicting claims and damages the Libyan industry’s credibility.
Embarrassing episodes punctuate Libya’s recovery. In early October, a Mellitah Oil & Gas official claimed that one of Libya’s largest fields, Elephant, was “in ruins.” Reuters ran the headline “Brent above $102; Libyan oilfield may be in ruins.” But shortly thereafter, energy reporting service Platts quoted another Mellitah manager, Mohammed Jamaleddin, who said the story was wrong. “This is an incorrect statement by Reuters. We received phone calls from ENI [Mellitah’s Italian counterpart] for clarification on this issue, and we told them that we sent an initial survey team to the field, and all they found was logistical problems,” said Jamaleddin. “The residential complex for workers was looted, but overall there is no damage to the oil wells or the petroleum infrastructure. We are sending a second team for an in-depth survey. So far there are no problems with the area and there are no battles there.”
Foreign companies are speaking less than their Libyan counterparts, possibly because their presence on the ground is limited after thousands of foreign workers and engineers left during the uprising. In late September, after Libya began production but before exports were up, Hess Chief Executive John Hess told Dow Jones that “we need to temper some of the enthusiasm that we see about Libya.”
Foreign Reports is a Washington, D.C.-based consulting firm that writes and distributes timely intelligence reports on political developments in the Middle East relevant to oil markets. Oil companies, governments, and financial institutions rely on Foreign Reports for their insight and analysis on key issues affecting the world generally and the Middle East specifically. The firm was founded in 1956 and the current President is Nathaniel Kern.
Middle East Policy has been one of the world’s most cited publications on the region since its inception in 1982, and our Breaking Analysis series makes high-quality, diverse analysis available to a broader audience.
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Nathaniel Kern, Matthew M. Reed
Libya is restoring oil production faster than many analysts initially expected but probably not as fast as some Libyan officials claim. Confirmed export data to date suggest that Libya is producing at only half the rate which Libyan officials claim.
The sudden loss of Libyan oil in late February helped propel world oil prices up by about 40% earlier this year. This exacerbated the EU’s economic troubles and also raised the likelihood of a double-dip recession in the U.S. Libyan production will not be restored as quickly as it was lost. But the pace of restoration will be an important factor in world oil markets over the months ahead.
During the six-month-long conflict in Libya, various prognosticators based their recovery estimates on the experiences of other producers that had previously endured crises, including Iraq, Iran, and Venezuela. These observers assumed Libya would take two years or more to reach pre-crisis production levels of 1.6 million b/d. Within three weeks of Tripoli’s fall, however, Libyan oil officials began issuing highly optimistic statements about the industry’s recovery.
The acid test for production is confirmed exports, not claims by Libyan officials. Exports will equal actual production less the volumes of crude refined domestically and the rebuilding of stocks within Libya.
Claimed Production Capacity
Libyan officials claim current production has reached 415,000 b/d from the following fields by the following regional oil companies:
Total Production Claimed: 415,000 b/d
Refining Activity
Officials claim Libya’s refineries are now processing 90,000 b/d of crude:
Total Refining Runs: 90,000 b/d
Confirmed Exports
Since production restarted on September 11, 3.531 million barrels of crude exports have sailed from Libya, not including one cargo of condensate, which was produced during the war:
Total crude exports as of October 18: 3.531 million b/d
Wire services and industry publications are tracking Libyan crude oil exports like hawks and have the resources to track the tankers lifting the oil, the export volumes, and the final users of lifted oil. They will likely continue tracking Libyan exports until sales become routine. It can be expected that confirmed exports will continue to rise but lag behind production claims for now. Libyan crude oil exports for the first four cargoes from September 25-October 11 reached a rate of 158,188 b/d during those 16 days. The export of the additional cargo on October 18 might reflect an additional week of production at a rate of 143,000 b/d. These rates are far short of: (1) claimed production during the period (415,000 b/d); less (2) claimed refinery runs (90,000 b/d), which otherwise would be expected to yield an export rate of 325,000 b/d. However, it is worth noting that Libya will export two more cargoes before the end of October, according to wire reports that suggest China’s Unipec booked two cargoes for October 24 and 31. The volumes of these two cargoes are each one million barrels—meaning the rate through October will stand at 158,188 b/d.
Explaining the Gap Between Production and Exports
Any increase in domestic refining runs will also reduce the amount of crude available for export. In addition, the Libyans will want to rebuild operational crude stocks, both at refineries and at export terminals. It is possible, but not probable, that Libya also has been required to refill pipelines. Unless a pipeline has been drained by gravity, it would still be full of oil after a shutdown.
The Big Picture
Conflicting reports may confuse observers but shipping data and official statements from the National Oil Company (NOC) suggest production is gaining momentum after being shut down from March until September. In an October 3 interview, NOC Chairman Nouri Berouin stated that Libya’s “current production” was 350,000 b/d and that operations at the Zawiya Refinery, with a stated capacity of 120,000 b/d, had begun on October 2 at a rate of 60,000 b/d. Other reports indicate the 20,000 b/d refinery at Tobruk has been operational for weeks. Berouin said that the larger, 220,000 b/d refinery at Ras Lanuf would not restart until output had reached 500,000 b/d, which Berouin estimated would be in “about two months.” He then estimated production would reach 700,000 b/d by the end of the year.
Only a week later, in an interview with Dow Jones on October 10, Berouin refined his estimates and said Libya was now producing 400,000 barrels a day—meaning it had achieved one-quarter of its pre-war output. But he also scaled back end-of-the-year estimates from 700,000 b/d down to 600,000 b/d. Berouin’s short-term estimate was revised after state-owned AGOCO and a joint-venture with Italy’s ENI proved able to expand production faster than expected. Producing 700,000 b/d by the end of 2011 seems unlikely although Berouin believes Libyan output will top one million b/d early next year, according to an interview with the Associated Press on October 9.
600,000 b/d appears within reach if the 200,000 b/d Sharara field restarts later this month. ENI’s Elephant field has yet to be restored but, once active, it will push Libya’s total production toward the one million b/d mark. The NOC chairman remains convinced that pre-war output of 1.6 million b/d is achievable within “14 to 15 months” as major fields return and minor fields contribute tens of thousands of barrels daily.
Regional Rivalries and Exceptional Claims
Officials from two of NOC’s operating subsidiaries—regional rivals Mellitah and AGOCO—have made separate claims which would put current Libyan production at a total of 453,500 b/d. (These claims include: 200,000 b/d at Sarir; 60,000 b/d at Messla; 130,000 b/d at the Nafoora-Hamada-Beida complex; and 63,500 b/d at Bu Attifel. Not counted in this total from the two operating companies are other claims about fields in the process of starting up.)
Besides normal regional and inter-company rivalries, Benghazi-based operating companies like AGOCO do not want to surrender full authority to the Tripoli-based National Oil Company. The concentration of power and wealth in Tripoli was a feature of Qaddafi’s rule, the Benghazi officials complain, while the revolution was spearheaded from the east. The majority of oil production and reserves are in the east, they say. And because NOC was sanctioned, but not AGOCO, AGOCO officials have had a taste of autonomy that they do not wish to relinquish. However, in the interim, the multitude of separate voices speaking to the press about oil operations does lead to conflicting claims and damages the Libyan industry’s credibility.
Embarrassing episodes punctuate Libya’s recovery. In early October, a Mellitah Oil & Gas official claimed that one of Libya’s largest fields, Elephant, was “in ruins.” Reuters ran the headline “Brent above $102; Libyan oilfield may be in ruins.” But shortly thereafter, energy reporting service Platts quoted another Mellitah manager, Mohammed Jamaleddin, who said the story was wrong. “This is an incorrect statement by Reuters. We received phone calls from ENI [Mellitah’s Italian counterpart] for clarification on this issue, and we told them that we sent an initial survey team to the field, and all they found was logistical problems,” said Jamaleddin. “The residential complex for workers was looted, but overall there is no damage to the oil wells or the petroleum infrastructure. We are sending a second team for an in-depth survey. So far there are no problems with the area and there are no battles there.”
Foreign companies are speaking less than their Libyan counterparts, possibly because their presence on the ground is limited after thousands of foreign workers and engineers left during the uprising. In late September, after Libya began production but before exports were up, Hess Chief Executive John Hess told Dow Jones that “we need to temper some of the enthusiasm that we see about Libya.”
Foreign Reports is a Washington, D.C.-based consulting firm that writes and distributes timely intelligence reports on political developments in the Middle East relevant to oil markets. Oil companies, governments, and financial institutions rely on Foreign Reports for their insight and analysis on key issues affecting the world generally and the Middle East specifically. The firm was founded in 1956 and the current President is Nathaniel Kern.