Pessimism grips Libyan oil sector again

Pessimism is gripping Libya’s oil sector once again, after fierce fighting around the Es Sider and Ras Lanuf oil terminals led Libya’s National Oil Corporation (NOC) to shut down the two ports and place force majeure on loadings as of 14 June 2018.

According to market analyst ICIS, initial production losses were initially confirmed at 240,000 b/d, but the figure has since risen to 400,000 b/d, slashing the country’s entire output of just under 1mn b/d. A number of storage tanks had been set alight as forces loyal to the militia commander Ibrahim Jadhran ousted General Haftar’s troops that have controlled the strategic area since 2016. The damage was reported to be most severe on storage tanks 2 and 12 at the Ras Lanuf oil terminal, with storage capacity down by 400,000 barrels from 950,000 barrels.

Commenting on the news, Sophie Udubasceanu, Global Crude Oil Editor at ICIS – who authored a review of the Libyan oil trading sector in Petroleum Review’s July 2018 issue – says: ‘The latest hit on Libya’s oil sector could set back the country’s recent recovery with a sharp drop in oil production, storage capacity at a key port almost halved and force majeure on oil loading from two key oil terminals. Oil futures have been rising as a result, but the gains are being tempered by a key OPEC meeting on 22 June, where a looser supply agreement is expected to be agreed. Meanwhile, bullishness has also fed into prices for physical oil in the Mediterranean, where regional oversupply has eased.’

She continues: ‘Perhaps the most important question is how long the situation will last. Libya’s NOC has already said rebuilding the storage tanks might take years, and this paves way for concern that the attack could have a lasting effect. Should Libyan output struggle to recover once again, oil prices are likely to see support.’

Echoing these comments, Paul Hickin, Associate Director at S&P Global Platts, says: ‘Two tanks have been destroyed and this will significantly limit the size of cargos that can be lifted or the rate they can be loaded. It also adds further supply side risk just as OPEC and its allies try to work out whether more barrels need to be added back into the market. Libya's National Oil Corporation (NOC) hopes to divert some of its stranded crude supplies to other oil export terminals, but this will take some time.’

According to S&P Global Platts figures, Libya had been exporting at just over 800,000 b/d in May 2018, with around 200,000 b/d from Es Sider and 150,000 b/d from Ras Lanuf. Brega and Zueitina accounted for around 100,000 b/d combined.