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Bottleneck in Libyan oil exports

Oilfield Technology,

According to Business Monitor International (BMI), Libyan production growth will slow, or even fall into decline in the next two or three months, unless export volumes are significantly increased.

Libyan crude oil exports fell in October, according to tanker tracking data compiled by Bloomberg. The data logs 17.4 million bbls of crude and products exports, of which 13.8 million bbls were crude. This averages 445 160 bpd, down from 476 700 bpd in September.

The decline is relatively small, but significant given the concurrent ramp up in domestic production. Production, which stood at 780 000 bpd in September, rose 850 000 bpd in October, according to OPEC data. In the absence of a substantial increase in exports over the coming two or three months, limited domestic refining capacity and rising storage inventories threaten to bottleneck further production growth.

The constraint on export growth could stem from several factors. After sharply lowering the official selling prices (OSPs) for Libyan crude from July to September, the government has begun to raise prices again, which may have undermined their competitiveness.

However, despite broader weakness in the light sweet market, demand for Mediterranean sweets has remained relatively strong, due to their proximity to key European refiners and their typically strong middle distillate yields. It is also worth noting that the Libyan price hikes have been significantly smaller than those made by many of its key competitors, such as Azerbaijan.

If Libyan cargoes have struggled to clear the market, it is more probable that the issue stems from further deterioration of the political and security risk environment. Violence in the east and around Benghazi has escalated in recent weeks, as pro-government forces attempt to retake the city. There is mounting concern over control of the eastern ports, including the major Es Sider and Ras Lanuf facilities, as the rebel factions refocus attention on the oil and gas sector.

The Islamist-backed rival government in Tripoli has taken control of the country’s oil ministry and both governments are in dispute over export revenue sharing. The elected government in Tobruk claims that revenues will be paid to an account in Beida, over which they retain control. However, statements from National Oil Corporation (NOC) suggest that money continues to flow to the account in Tripoli. Ambiguity as to who has control of both the ministry and resources poses a key threat to securing sales with international buyers.

A final interpretation of the situation would be that reported production levels are being over inflated. Some reported have suggested this, but these reports remain unsubstantiated.

Assuming that production has increased as stated, in the absence of a significant ramp up in exports, BMI expects a slowdown or reversal in growth over the next two to three months. With limitations on exports stemming from political dynamics as opposed to market dynamics, Business Monitor argues that this ramp up will be difficult to achieve.

Adapted from a report by Emma McAleavey.

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