Analysis provided by IHS Senior Middle East Energy analyst Samuel Ciszuk
IOCs and state-owned production companies are increasingly clear on most of Libya’s production being shut down. Storage is being filled in the few remaining oil terminals not seeing fighting, while shipping largely is suspended and banks are refusing to deal with Libyan oil and products trade.
Sanctions Bite
International banks are reported to be refusing US dollar payments to and from Libya, particularly shunning export financing deals, making continued payments for oil and refined product trading almost impossible, according to trading sources. “Banks don’t want to finance the system in Libya, so for the moment no one is getting money for oil. There are big problems for payments”, a senior oil trading source was quoted by Reuters as saying.
Confused Industry
Meanwhile, IOCs and state-owned Libyan oil entities, some of which have come under rebel control in the east of the country, are conceding that upstream production has plummeted to near zero levels. Production from the Sirte Oil Company (SOC) is reported to have fallen by about 90% from just under 100,000 b/d to about 9,500 b/d, according to an Associated Press (AP) interview with Ahmed Jerski, a senior SOC official.
Production under the auspices of the state-owned Arabian Gulf Oil Co. (AGOCO) venture, which operates some of Libya’s easternmost oilfields and the Marsa El-Harigh export terminal close to the Egyptian border, was, however, still about 120,000 b/d, or about a third of capacity, a claim which sounds increasingly dubious, given that shipping sources say little to no loading is taking place at Marsa El-Harigh, although there could naturally still be some room in the port’s storage facilities.
Speaking to the Financial Times (FT), Eni chief executive Paolo Scaroni said that production from Eni’s fields is likely to be still standing at 100,000 boe/d with half of that, however, being natural gas from the western Wafa field, which was fed to domestic power stations. Scaroni told the newspaper that Eni was ready to stop production if told to do so by the international community, adding that the oil and gas fields in the desert seemed right now to be “under nobody’s control”.
John Hess, the chairman and chief executive of midsize oil company Hess, meanwhile said that “it’s very difficult to get precise information about what is going on there regarding oil production or more importantly, security”, during the ongoing CERAWeek conference, according to Platts. Hess holds an 8% stake in Libya’s single largest oil concession, Waha Oil, the assets of which are located in the east-central Sirte Basin on the fault line between opposition and government-held territory.
A Waha Oil source in Libya said that production was down to almost 25%, or about 100,000 b/d from its Waha, Dahra, Samah, and Gialo oilfields, Reuters reports. Government-loyal forces are holding the Es Sider main export point for Waha, however “the ships can’t come here because of the danger. For a week now we haven’t been able to export. A lot of people have come and damaged everything”, according to the source.
It is not known how much crude Waha held in its 19 storage tanks, four of which have a 500,000-barrel-capacity, while the rest have a 350,000-barrel-capacity, but it is likely that the storage is rapidly filling up with whatever crude production is coming through. The Waha facilities in Es Sider only have about 25 employees in place according to the Reuters source, down from around 600, as offices and some facilities have been plundered and vandalised.
Canada’s Suncor has confirmed to Canadian daily the Globe and Mail that operations on all its operated oilfields in Libya have been completely shut down, while it had no “reliable” information about oilfields in which it had minority stakes.
Outlook and Implications
Sanctions and physical shipping security, as well as insurance costs right now seem to be the main obstacles for Libyan oil sales, while the little oil production still able to continue is likely to tally off as storage tanks in the few oil export terminals currently not seeing any fighting—effectively only the central Es Sider and Marsa El-Harigh—are filling up.
In the long run, Libya’s government, or its opposition forces, should be able to get around the problem of banks shunning dollar payments out of US sanction fears, like Iran is doing, however, this is a time-consuming enterprise which is a moot point as long as the control over the oil facilities and safe passage for tankers is not established.
Should a solution be found, with stability and normality returning to Libya quickly, this might ironically defer Libya’s rapid return to the global markets, as international as well as unilateral US sanctions, historically can take some considerable time to repeal.
Still, with fighting intensifying even further and some of the key opposition-held oil terminals and facilities, especially western Zawiyah, looking close to falling back under government control, the main worry is that damage done to export infrastructure and refining assets will mean at best many months of repairs before Libyan crude returns on a large scale to world markets.
The fluid control situation around many of the oilfields inland testified to by several sources, also raises the spectre of damage and fighting hitting quickly, should the situation or the focus of fighting change somewhat. With the logistical supply chains unlikely to work anymore, even the few remaining skilled Libyan workers at some of the oilfields are unlikely to stay for long if no organised backing from either the government or opposition side exists.
