Libya Oil Production Reaches Multi-Year Highs, But Should It Hold Off On the Fireworks? 2

Libya has already produced crude oil in excess of the target for this year. With over 800,000 barrels of crude oil already produced per day, the country looks set on ramping up production even further.

In the previous article, we had looked at the production targets the country has estimated going forward. We also saw National Oil Corporation (NOC) chairman Mustafa Sanalla was quite optimistic about reaching those targets and disagreed with industry commentators who believed it would be difficult for Libya to ramp up production.

Buy Libya should not be celebrating just yet, as there are several factors which can be hurtful to hopes of an increase in crude output.

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Constant threats to production

Crude oil production in Libya has been marred by consistent interruptions due to conflict and closure of fields. This is the reason why a country which was producing 1.6 million barrels of oil per day before the Arab Spring in 2011 is now one of the smallest producers among Organization of Petroleum Exporting Countries (OPEC). The distribution in the graph above was made available in the OPEC Monthly Oil Market Report (MOMR) for April.

In early March this year, the Es Sider terminal – Libya’s biggest oil port – was seized by the Benghazi Defense Brigades from military commander Khalifa Haftar. The NOC had to declare force majeure on exports from Zawiya on March 28 after a production halt at the Sharara field which supplies to the terminal.

Another factor which is holding back production is disagreement with German producer Wintershall AG. Sanallah told The Wall Street Journal that the German company owed liabilities to the NOC going as far back as 2008.

The dispute had slashed production by 160,000 barrels a day. If this disruption would not have happened, Libya would have already been producing nearly 1 million barrels a day, according to Sanallah.

Budget delays

Apart from armed conflict, low budgetary allocation has also impacted production. In the 2017 budget, the Government of National Accord allocated $1.2bn to the NOC. This was markedly lower than the $2.5 billion asked for by Sanalla in November 2016.

Without an increased budget allocation, Libya, which has the largest crude oil reserves in Africa, will be unable to increase or sustain high levels of output.

The government will find this difficult to do because of its already high budget deficit. However, it will be interesting to see whether it is inclined to increase budget allocations to the NOC given the importance of crude oil exports to Libya’s economy.

Until then, the country should hold back the fireworks.

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