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Libya is producing 885,000 barrels of crude oil daily after last week it reached an agreement with German Wintershall that will see the latter restart production at fields with a combined output of 160,000 bpd, a source from the country’s oil industry told Reuters. Since the announcement of the agreement, total Libyan output has jumped by 50,000 bpd.
The North African country, which has been exempted from the OPEC production cut deal, now aims to raise production to 1 million bpd by the end of next month. This plan, and the fact that it is not as far-fetched as it may have seemed a few months ago amid clashes between armed groups at some of the main oil export points in the Oil Crescent, is bound to weigh on oil prices. Last month, it was Libya whose increase in oil production drove an overall rise in OPEC output, which deepened the gloom among oil bulls and pressured prices further down below US$50 a barrel.
The conflict with Wintershall that took off 160,000 bpd from Libya’s total production stemmed from a dispute over crude oil owed by the German operator of two oil production concessions in Libya, with the dues dating back to 2010, the chairman of the NOC told the FT last month. The NOC, according to the FT, wanted to change the terms of its contract with Wintershall from a concession to a production-sharing agreement, but the German company, which is a unit of BASF, apparently resisted. Now the dispute has been settled and Libya is well on its way to reaching its production target for mid-2017.
At the same time, tensions between the rival government in the East and the West, and additional tension between the NOC and the West-based government, which is backed by the UN, are still intense. The NOC was particularly vocal about the Beghazi government’s recent decree that aimed to transfer some of the oil trading powers of NOC to the cabinet.
NOC said last month that it has a plan for three development phases to lift Libya’s oil production. The first stage plans for increasing output to 1.32 million bpd by the end of this year, at a cost of US$550 million. The second phase entails raising output gradually to 1.5 million bpd by the end of next year, for another US$1.8 billion worth of investment, plus additional US$1.2 billion in tank and pipeline replacement and maintenance. In the third development stage, Libya plans its production to increase to 2.2 million bpd by 2023, which would require around US$18 billion in investments.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.