By Apicorp Energy Research

Libyan oil, long a major component of the world’s supply of high- quality crude, has shown its importance in recent months.

PART TWO

Rapid oil-output growth

The third phase has set up the fourth by already delivering some notable positive developments for Libya’s oil sector in the past year. Some oilfield service activity has resumed, including the return of Schlumberger to work with Sirte Oil and Gas, a unit of NOC.

Wintershall and Gazprom have restarted production from the As-Sarah field, in the Sirte Basin. Drilling activity in the country has increased. More rigs are now operating than at any time since 2014.

Offshore, ENI has brought new wells online at its Bahr Essalam development. Some international oil companies are pledging onshore investment, including exploration.

Earlier this year, Total announced its plan to buy Marathon’s stake in Waha, operating in the Sirte Basin – a demonstration of the French firm’s commitment to the country.

BP and ENI announced plans to begin exploration in the Ghadames Basin, in Libya’s west, as part of a transaction that transfers some of BP’s interest in the concession to ENI.

AGOCO, the largest producing company in NOC’s stable, has issued tenders for surface work.

NOC exudes optimism – chairman Sanalla has become a tireless advocate for both Libya’s upstream and the state company’s political independence and reliability.

The next step requires a conducive environment for these announcements to materialise into projects under execution. To date a handful of oil and gas projects are commissioned, namely on the gas side, totalling $3bn with a further $350m in the planning phase.

This is compared with the $4.5bn worth of projects that were due for completion between 2011 and 2017 that have been cancelled. More significantly, $16bn worth of projects awarded since 2008 have been put on hold, amongst them, the $3bn renovation of the Marsa LNG project, the $5bn Zuwarah refinery and the $2.5bn Wafa field development.

NOC faces some challenges ahead. Insecurity has left some infrastructure damaged, which will force NOC to undertake remedial and repair work. New storage tanks are needed at Es-Sider and Ras Lanuf in order to facilitate higher loading rates for tankers. Higher production, if sustained, should however create a virtuous circle, allowing for more funding of the oil sector to repair facilities and therefore expand capacity.

Prospects for lasting peace

In a statement to the UN security council earlier this month, Mr Ghassan Salame – the UN envoy to Libya – highlighted that the Libyan conflict is in large part “a conflict over resources”, and that stability is conditional on its resolution.

In the first half of 2018, oil revenues reached $13bn, in turn due to higher oil production and a recovery in prices. But it is also true that the citizens are not seeing these revenues translated efficiently into public services or benefits.

Recent reforms have been launched, aimed at improving living conditions and reducing opportunities for militias. For instance, the introduction of fees on foreign currency transactions reduced the black market rate by 25% and helped close the gap between the black market and the official rate.

Whilst further reforms on phasing out fuel subsidies, should also curb the arbitrage that has stimulated cross- border smuggling. The country is beginning to see a surplus, reducing the liquidity crisis.

The conference in Palermo held earlier this month could provide an opportunity to gain the support needed to establish a system for redistribution of national wealth for the whole population.

Mr Salame praised a “much higher level of conviviality among Libyan stakeholders” and considered the conference a success and a “first step in the right direction”. However, at the end of the conference, there has been no written agreement and no clear timetable as to when to hold the national conference or the election process.

Stability in the country is conditional on security, a healthy economy, and a functioning political environment. This is critical to NOC’s efforts to increase oil production and secure the necessary inward investment in the upstream.

After years of under-investment, several fields, including AGOCO’s Sarir, need improvements to electricity supply and replacement of some infrastructure.

Providing a stable environment in which this kind of work – as well as well-workovers, pigging operations, in-fill drilling, enhanced recovery, and so on – can be carried out unhindered, will be a key part of NOC’s plan to lift oil output to 2mb/d by 2022.

If achieved, this too, will create another virtuous circle, allowing greater oil income not only to sustain NOC’s expansion plans, but to support much-needed investment in the non-oil economy and improvements to social infrastructure.

Conclusion

Libya’s current output of 1.25mb/d is a testament to the resilience of NOC and its oil sector. NOC’s leadership and cadre of engineers and geologists deserve credit. Libyan oil, long a major component of the world’s supply of high-quality crude, has shown its importance in recent months too.

The output recovery from June to October 2018 – almost a doubling of production – arrived at a critical juncture for the global market.

Libya’s output rise came at a useful moment for OPEC too, as it sought to keep control of spiralling prices in recent months. Libya has resumed its participation in the group and its efforts to stabilise the global market.

Libyan oil can continue to provide this kind of stabilising effect for global balances. Its proximity to key markets and huge upstream potential mean a geologically prolific oil province awaits investors.

The promise of Libya’s upstream must also be matched by political progress too. Recent discussions between groups in the country offer the chance for momentum to build towards a lasting settlement in the country.

The summit in Sicily should bring commitments of support from Libya’s friends in the international community. Libya remains one of the crucial global suppliers, with a significance to the world’s oil market far beyond its Mediterranean shores.

A better investment climate, is however, needed for the country to fulfil its substantial upstream promise.

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