Surprise from Libyan oil production puts pressure on prices

Given the current imbalance between global oil supply and demand following the great waves of Covid-19 that hit the world last year, reports that Libya is now targeting 1.45 million barrels per day of oil production by the end of this year, 1.6 million bpd within two years and 2.1 million bpd within three to four years will exacerbate negative price sentiment on oil prices for many traders. Although the most optimistic forecasts – mainly those from oil companies and public producers talking about their own books – look for demand to catch up with supply by the very end of this year, more independent authorities are taking a lesser view. optimistic. The International Energy Agency, for example, said last month in its “ Oil analysis and forecast 2021 until 2026 ” that: “Global demand for oil, still reeling from the effects of the pandemic, is unlikely to catch up with its pre-Covid trajectory …[and although] Global oil markets are rebalancing after the Covid-19 crisis caused an unprecedented collapse in demand in 2020, they may never return to ‘normal’. “With an even greater supply in short-term markets from countries not bound by the current ceilings mandated by OPEC, notably Iran, and in the longer term from deep-water offshore projects, particularly in the Gulf of Mexico, increasing Libyan production will only worsen the outlook for oil prices.

On September 18 last year, an agreement was signed between Khalifa Haftar, the commander of the rebel Libyan National Army (LNA) and elements of the Government of National Accord (GNA) in Tripoli recognized by the UN for Lifting the widespread blockade of Libyan energy infrastructure, the pact remained a tenuous proposition. At this point, with Libyan oil production of around 70,000 bpd on average, the deal between the two sides engaged in a three-year civil war had to be reconsidered after just one month, as Haftar pointed out. He also made it clear at this point that unless a new agreement spells out precisely how oil revenues are to be divided in the future, in a way that suits him, then no extension of the agreement to maintain the blockade. lifted would not be granted. This was addressed to some extent with a corollary agreement in principle from the GNA – in particular backed by its Deputy Prime Minister, Ahmed Maiteeq – to consider the creation of a commission to determine the distribution of oil revenues in Libya and also to consider the implementation of a number of measures aimed at stabilizing the country’s perilous financial situation. There was a real push to do both, not only to reactivate the flow of Libyan oil export revenue in U.S. dollars, but also because the blockade that took place from Jan. 18 to Sept. 18 had cost the country at minus US $ 9.8 billion in lost oil revenues.

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Key to the spirit of this agreement, at least in part, was the personal political posture as “ common people ” of the two main protagonists of the agreement: Haftar and Maiteeq, and this remains one of the main reasons why it is very possible that Libya could indeed meet its new production targets. Specifically, the opportunity cost effect of nearly US $ 10 billion in lost oil export revenues in less than nine months for a country that relies more than 90% of such revenues has triggered and sustained widespread demonstrations as the signing approaches. of the September 18 agreement. These entered Benghazi, one of Haftar’s strongholds, resulting in an arson attack on the eastern government seat in the city, an attack on a police station in Al-Marj, and the death of ‘at least one protester and the injury of many more, according to local reports. The same pattern of popular discontent has also manifested itself in other towns in areas controlled by Haftar’s forces in eastern Libya, particularly over issues such as power cuts and gasoline shortages. and money.

Haftar indirectly cited these protests as the signing of the September 18 accord approached when he said he had “put aside all military and political considerations …[to deal with the]… Deterioration of living conditions [in Libya]. Statements like this and the signing of the September 18 accord not only benefited Haftar’s popularity by being seen as putting “the people” above their perceived personal interests, but also the reputation of the Maiteeq. of the GNA. Maiteeq was seen as the main architect of the September 18 accord and the spearhead of the committee responsible for extending the deal, and he achieved both of these things as GNA Prime Minister Fayez al-Sarraj, obviously hadn’t been able to do either. It’s no secret that Maiteeq, who briefly served as Libya’s elected prime minister himself in 2014 until the Justice Ministry ruled his election invalid, is still seeking the top post. . Related: Many European Refiners May Not Survive COVID

Libya certainly has the natural resources to achieve these new goals. It remains the holder of Africa’s largest proven crude oil reserves, at 48 billion barrels, and before civil unrest began in earnest in 2011 after the ouster of longtime leader Muammar Gaddafi, it was producing around 1 , 65 million b / d of quality light and sweet crude oil (in particular the export crudes Es Sider and Sharara which are particularly in demand in the Mediterranean and in north-western Europe for their yields in gasoline and middle distillates). This had been on an increasing production trajectory, dropping from around 1.4 million b / d in 2000, although well below peak levels of over 3 million b / d reached in the late 1960s. That said, plans by the National Oil Corporation (NOC) were in place before 2011 to deploy enhanced oil recovery (EOR) techniques to increase crude oil production in maturing and oil fields. NOC forecast that it would be able to increase capacity by around 775,000 bpd through EOR. the existing oil fields seemed well founded. About 80% of all recoverable reserves currently discovered in Libya are in the Sirte basin, which also accounts for most of the oil reserves of the country’s oil production capacity, according to the Energy Information Administration.

To add to the optimism, at a meeting last week between NOC President Mustafa Sanalla and CEO of oil and gas giant Total, Patrick Pouyanne, the French firm agreed to continue its efforts to increase production. of oil from the giant. The Waha, Sharara, Mabruk and Al Jurf oil fields of at least 175,000 bpd and to make development of the Waha-concession North Gialo and NC-98 oil fields a priority, according to the NOC. The Waha concessions – in which Total took a minority stake in 2019 – have the capacity to together produce at least 350,000 bpd, according to the NOC. The NOC added that Total “will also help maintain decaying equipment and crude oil transmission lines that need to be replaced.”

By Simon Watkins for OilUSD

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