In an already devastating year for the oil market, Libya delivered a supply shock in October by not only lifting a nearly 8-month oil blockade but also ramping up oil production at breakneck velocity. A Rystad Energy analysis of Libyan infrastructure and needed maintenance finds that the country’s crude oil output is set to average around 750,000 barrels per day (bpd) in November and only climb to 1 million bpd in early February 2021.
The forecast, our current base-case scenario for the country, reveals a remarkably swift build-up for Libya’s oil output, which we estimate stood at about 375,000 bpd on average during October. With each day, there are reports that production keeps climbing, but we believe these estimates have been exaggerated and represent oil production capacity coming online rather than ‘real’ production numbers.
On 23 October 2020, Libya’s National Oil Company (NOC) announced it was lifting force majeure on all oil export terminals and infrastructure after the latest round of peace treaty meetings in Geneva proceeded positively. After force majeure was lifted, Libya’s ports - including the biggest export hub Es Sider - resumed cargoes, prompting oil production to reach an estimated 620,000 bpd to 650,000 bpd.
On 26 October 2020, NOC also lifted the force majeure from one of the biggest oil fields in western Libya, the 70,000-75,000 bpd capacity El Feel field, which is operated by Mellitah Oil & Gas. The field is reportedly gradually ramping-up to its pre-shut-in capacity. The El Feel oil field depends on the Akakus Oil-operated El Sharara oil field for electricity supply for its operations.
El Sharara is also gradually ramping-up after force majeure was lifted on 11 October 2020, and we estimate crude production from the field has reached 130,000-140,000 bpd and will continue to ramp-up gradually throughout 2020 as long as force majeure isn’t re-imposed or other forces, market-driven or political, curb production.
“The ramp-up from the El Sharara field is estimated to be slower due to lack of maintenance during the prolonged shutdown. Currently, we see Libya reaching 1 million bpd only by early February 2021, as maintenance and work-over needs to be sufficiently conducted across all the fields and oil transport pipelines,” says Nishant Bhushan, oil market analyst at Rystad Energy.
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While maintenance logic points to our base-case scenario, there is an unlikely possibility that El Sharara could ramp up more rapidly to 200,000-230,000 bpd capacity by mid-November and other fields of major operators like AGOCO and Waha Oil could ratchet up production at a faster pace than currently demonstrated. Only in such a scenario, a high-case one, do we see the possibility of Libya exiting 2020 with production already surpassing 1 million bpd. This hinges upon a very successful ramp-up with very few hiccups in the coming weeks at all fields that have been able to resume activity, a difficult task.
In any case, Libya’s great comeback story is a thorn in the side of the OPEC+ group, which is already struggling to keep oil prices afloat amid non-compliance among members and a deteriorating demand backdrop. Libya adding another 300,000-400,000 bpd of oil to an already oversupplied market would further skew the supply-demand imbalance and put another layer of downside risk on oil prices.
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