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Prospects Grim for Libyan Oil Recovery

Libyan oil production failed to make the grade for much of the year and there are few signs of improvement on the horizon. High on the market radar, post-revolution Libya ranks low in terms of prospects for medium-term recovery.

Libya's National Oil Corp. said it expected "good news" from the eastern Hariga port by Monday though the facility remains shuttered nearly five months after protestors closed it down. Two fields south of the port, Sarir and Messla, were open but output was curtailed because Hariga wasn't able to rotate its daily 110,000 barrel inventory.

Before civil war erupted in 2011, Libya was producing more than 1.65 million barrels of oil per day. November production of 210,000 bpd was its lowest level since the rebellion and exports are a meager 110,000 bpd from the few terminals still under the government's control.

Tribes pressing for more autonomy in eastern Libya are seeking a return to an administrative system established in the 1950s, which divided the country into three states -- Cyrenaica, Fezzan and Tripolitania. Last month, the self-declared government of Cyrenaica said it established its own oil company ready to put crude oil on the international market. Libyan Prime Minister Ali Zeidan, for his part, expressed optimism over developments at oil ports, but little progress has been made by either side.

In March, the International Monetary Fund in March said 2012 was an excellent year for Libya, where economic growth exceeded 100 percent. That year, the Organization of Petroleum Exporting Countries said member state Libya was producing more than 1.4 million bpd. The IMF added that growth in the non-hydrocarbon sector is expected to average 15 percent through 2018. The Libyan economy, however, still relies on oil for about 80 percent of its state revenue.

Ibrahim al-Jedran, leader of the eastern Libyan rebel movement, said he wants a share of that revenue and disputes with a weakened central government in Tripoli has left oil production idled as a result. Oil production in November was off more than 80 percent of the peak for the year.

There have been few signs either side is winning the internal fight for control over Libya's oil. Prospects for a breakthrough in bilateral talks could develop as early as first quarter 2014, analysts said, though it's unlikely the post-revolutionary seams will be stitched well enough for a return to pre-2011 production levels.

International oil companies with a stomach for turmoil remain committed to Libya. Paolo Scaroni, chief executive officer at Italian energy company Eni, said it was wrong to discard a country that wallowed under more than 40 years of the brutal dictatorship of Moammar Gadhafi.  British energy company BP, accused of shady dealings with the Gadhafi regime, said last month it had enough, however, and backed away from a major part of a $20 billion program in Libya.

A volatile post-Gadhafi Libya has left investors expecting an eventual return to the 1.6 million bpd glory. Algerian diplomat Lakhdar Brahimi said post-conflict reconstruction takes a long time and an even longer commitment. With few of the countries caught up in the Arab Spring showing signs of progress, Libya's prospects remain grim.

By. Daniel J. Graeber of Oilprice.com


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