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Irina Slav

Irina Slav

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.

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Is Libya's Latest Oil Production Target Too Ambitious?

Libya is one of the most unreliable oil producers in OPEC and outside it. Production outages are a frequent occurrence as various armed groups vie for power over the country’s oil riches. Yet despite continued political instability and a deep economic crisis, Libya’s National Oil Corporation has ambitious goals: by the end of 2019, its chairman Mustafa Sanalla told Bloomberg recently, NOC plans to pump 1.6 million bpd of crude, the level of production from the times before the 2011 civil war.

And that’s not all. Further down the road, Sanalla has said earlier, plans are to boost production to 2 million bpd by 2022 and even more later. As doubtful as this may seem at first glance, NOC may have good reason to make these plans.

Earlier this year some of Libya’s largest fields suffered outages resulting from militant attacks, pipeline blockades, and even excessive heat in late May. These outages caused the expected slumps in daily production to some 660,000 by the summer, but since July, the rate reached at the end of last year (around 1 million bpd) has been restored.

The latest sign yet that things in Libya may be on the mend was the announcement by BP and Eni that they will start drilling at a field they share in early 2019. BP won two exploration licenses in Libya back in 2007, but the 2011 civil war interrupted its plans for the country. Eni agreed to buy a 42.5-percent interest in BP’s exploration and production sharing agreement with NOC earlier this month, and they are now ready to start drilling in the offshore block.

Of course, challenges—and pretty serious ones—remain, turning Libya into an important swing producer as far as global supply is concerned. Parliamentary elections are scheduled for December, but the situation remains so tense that the UN envoy to Libya, Ghassan Salame, said earlier this month that the vote might not take place.

Related: China’s Oil Addiction Is Its Main Weakness As A Superpower

What this comment amounts to is a warning that Libya is still a powder keg ready to explode at any moment. Yet it seems there is now some insulation around this keg. Despite their squabbles, all the political and military factions in the Northern African state that has the largest oil reserves on the continent seem to realize jeopardizing oil revenues is counterproductive for everyone.

This was demonstrated most clearly earlier this year after a prolonged fight for the Oil Crescent terminals between the LNA, which has controlled them since 2016, and militant groups eager to challenge the LNA’s dominant position. Once again the LNA won, but this time, unlike last, it handed control to the terminals to the non-recognized NOC, affiliated with the eastern government, equally unrecognized by the UN. This surprising move pushed prices up immediately, but soon after, the LNA and the official NOC settled their differences; after all, held-up cargos for export yield no revenues.

So, it looks like the National Oil Corporation is getting better at dealing with production outages and challenges to its control of the country’s oil industry. While December could bring more price volatility if those in charge of the elections decide to go through with them, possibly sparking more conflicts, this might be short-lived as all those benefiting from oil exports get used to the fact that they all need these exports.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on October 28 2018 said:
    Despite continued political instability and a deep economic crisis, Libya is aiming to raise its oil production to 1.6 million barrels a day (mbd) by the end of 2019, the level of production from the times before the 2011 civil war. Whilst many experts and analysts might find Libya’s oil production target too ambitious, there are some underlying factors which could help Libya achieve it.

    One major factor is that despite the squabbles, all the political and military factions in Libya which has the largest proven oil reserves in Africa estimated at 48.4 billion barrels (bb) seem to realize that jeopardizing oil revenues is counterproductive for everyone. If the strife continues, the oil wealth of the country will be squandered by outages and corruption with none of them benefiting from it.

    The second factor is that Libya’s importance to the stability of the global oi market will only increase with outages in Venezuela and elsewhere and also with the approach of the US sanctions on Iran’s oil exports. Libya’s rising production could stave off some unexpected production declines and could also keep oil under the $100 mark.

    The third factor is the announcement by Western oil giants BP and ENI that they will start drilling at a field they share in early 2019. BP won two exploration licenses in Libya back in 2007, but the 2011 civil war interrupted its plans for the country. ENI agreed to buy a 42.5%-interest in BP’s exploration and production sharing agreement with Libya’s National Oil Company (NOC) earlier this month and they are now ready to start drilling in the offshore block.

    A fourth factor is that after years of acting as a bystander with Libya increasingly spiralling out of control, the European powers particularly France and Italy are finally wading into the debate over how to put an end to the civil war they started which has wracked the country for the better part of a decade.

    Why is this sudden volte-face? It doesn’t take a cynic to see commercial motives as the driving force behind the newfound impetus to fix Libya. France would love to install a diplomatic ally in North Africa, while oil titan ENI — 30% owned by the Italian state —hopes to resume oil and gas exploration in Libya. Regardless of their motivations, Western attempts to begin repairing the damage they caused in Libya are a welcome change to the status quo of interminable instability.

    In October this year Libya’s production has risen to 1.278 mbd from 1 mbd in September. Libya’s NOC hopes that BP and ENI could help to expand production to 1.6 mbd by the end of next year. And that’s not all. The NOC has plans to boost production to 2 mbd by 2022. As doubtful as this may seem at first glance, NOC may have good reason to make these plans.

    At 48 bb, Libya has the 9th-largest proven oil reserves in the world and the largest reserves in Africa.

    Libya is considered a highly attractive oil area due to its low cost of oil production (as low as $1 per barrel at some fields), and proximity to European markets. Libya's challenge is maintaining production at mature fields, while finding and developing new oil fields. Most of Libya remains unexplored as a result of past sanctions and disagreements with foreign oil companies.

    Although the majority of the grades are light-sweet and rich in gasoline, the country also has some very light crude such as Mellitah, which not only has a high gasoline and naphtha yield, but is also useful for blending with heavier crudes which cannot be refined on their own.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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