Libyan oil sector: Between the Hammer and the Nail

Jul 31, 2013 12:00 AM

Libya holds the largest oil reserves in Africa with 47.1 billion barrels, according to BP plc statistical review, and 1.5 trillion cubic meter of natural gas. Around 80 percent of Libya’s proven oil reserves are located in the eastern Sirte basin, which also accounts for most of the country’s oil output. Libyan oil is generally light (high API gravity) and sweet (low sulfur content).

Currently, Libya produces 1.6 million  barrels per day of mostly high-quality light, sweet crude oil, following the decrease of production because of the unrest in February 2011, which led to the deposition of Col. Muammar Gaddafi’s regime in October 2011. During the unrest, Libyan oil and natural gas exports suffered a near-total disruption in the months of intense fighting to follow, as the minimal and sporadic oil production that did occur was mostly consumed domestically.

Libyan National Oil Company (NOC Libya) used to be in charge of the oil and gas sector in the country. It was also responsible of the Exploration and Production Sharing Agreements (EPSA) with international oil companies (IOC). But, after the revolution, the National Transitional Council (NTC) created an oil and gas ministry, this rise questions about who will retain the ultimate authority over industry, NOC or the newly established ministry? Also, what will be the relation between the two, and between NOC and its subsidiaries?

Local media revealed that the NOC is to be split into two companies, one in charge of exploration and production, based in Tripoli, the other running refining and downstream operations, based in Benghazi.

Deputy Oil and Gas Minister Omar Shakmak told the Libya Herald that what was meant was that there would be a split and that the refining company, to be known as the Libyan Corporation for Refining and Downstream Operations would go to Benghazi but that the new Libyan Corporation for Oil Exploration and Production would be in Tripoli. Each would have representative offices in the other city, he said.

Facing the Looting and Sabotage

Since the overthrow of Gaddafi in 2011, Libya’s oil industry has become the target of violent attacks and civil protests. The latest challenge is a lack of electricity.

Production dropped 16 percent to 1.13 million barrels a day last month, the lowest since January, according to data compiled by Bloomberg. The decline is partly because power shortages are disrupting the pumps that lift oil from beneath the ground, said Abdel Jalil Mayuf, a spokesman for state-run Arabian Gulf Oil Co., which pumps crude in eastern Libya.

The Libyan government is trying to address the problems facing oil producers, quadrupling the size of a special guard to protect the industry from attacks to 12,000 people this year.

To ensure electricity supply, Libya signed a deal with London-based contractor APR Energy Plc (APR) to provide 450 megawatts of power through mobile generators, the largest ever single contract for temporary power supply.

In addition to power shortage, civil protests at oil fields, where demonstrators have demanded jobs and changes in the way oil revenue is distributed, have cost Libya about 250,000 barrels a day in lost output, Oil Minister Abdulbari Al-Arusi said last month. Production is now 30 percent below the post-revolution peak of 1.6 million barrels a day reached last July.

Demonstrations have been held at terminals in Tobruk and Zueitina – shut down at least four times since November – and at the Al-Fil oil field in the south, Al-Arusi said. Eni S.p.A. was forced to halt gas exports to Europe through its Greenstream pipeline for a week this year.
New Strategy

As NOC managed to resume its pre-crises level, the company now aims to boost oil output to 1.72 barrels per day, but warned of the risk that strikes could interrupt production.
"We had some drops in production. Welcome to democracy and freedom of expression. We had strikes and we expect more of that, but it is a healthy thing," NOC chairman Nuri Berruien said at the North Africa Oil and Gas Summit held in Vienna, Austria in early November.

Berruien said future rises in oil production would mostly come from existing fields. Libya will aim to boost production to 2.2 million barrels of oil per day within five years, he said.
"We strongly believe a large amount of our future oil can be in already targeted mature fields," he said, adding that high oil prices and technological advances created a favorable environment.

The company has set a short and a long term strategies to achieve its objectives.

“Our short term plan is also set to increase our gas production capacity to reach 3.5 billion cubic feet per day, with improved operational conditions, more drilling of development and infill wells, improvement of oil field production and injection facilities, development of many small fields, optimizing artificial lift systems and conducting comprehensive well work over programs,” Berruien said. “Serious efforts will be made to eliminate gas flaring, constructing new gas processing facilities and increasing compression capacity,” he added.

As regards to the long term strategy, NOC Libya plans to increase its proven reserve and production capacity.

“This can be reached by embarking on extensive exploration activities. 730,000 square kilometers, or about 40 percent are open areas, as exploration experts believe that these areas have a great potential and holding substantial oil and gas reserves. This will require highly qualified human resources and expertise, modern seismic and drilling equipment and technologies,” Berruien said.

The company also aims to develop its mature oil fields through the implementation of IOR and economically applicable EOR projects.

“Extensive studies have identified IOR including EOR potential in many of the large fields where production has declined for one reason or another. We foresee that such IOR and EOR programs and projects may contribute additional recoverable reserves of at least 7 to 10 billion barrels of oil,” he said.

Amongst Libya’s medium to long term plans is to develop its natural gas resources.

“The gas industry in Libya will witness a new era of development. Until recently and because of economical reasons the use of gas was limited to partially meeting the local demand for power generation and limited industrial uses,” he said, adding that more attention will be given to exploration for gas, including unconventional gas. “We will be developing existing gas discoveries, onshore and offshore, in order to meet current and future industrial and export commitments hoping to become a major producer in the region. Our proximity to the European market enhances our opportunities,” he said.

NOC plans to proceed next year with Libya's fourth licensing round, known as the Exploration Production and Sharing Agreement (EPSA), Berruien said without providing details.

While the opportunities are huge, decision makers in the country need to ensure that security and stability are restored in the country, as it is the only parameter that may deter company from investing in the country.

Regionalism Fears

The biggest risk for the oil and gas industry may be the worsening relations between the country’s two halves – western Libya, where the capital Tripoli is located, and the oil-producing regions in the east.

Many of the protests that disrupted oil production in the east were led by federalists seeking a greater share of oil revenue for the region, according to Arabian Oil’s Mayuf. The east is also where U.S. Ambassador Chris Stevens and three colleagues were killed in Benghazi in September.

In early June, Libyan government ordered the NOC to move to Benghazi. A cabinet notice issued instructs the Ministry of Oil and Gas to take “the necessary measures, in coordination with the relevant authorities” to facilitate the transfer.

Along with the NOC, the government has also ordered Libyan Airlines, the Libya Company for Insurance and the Internal Investment Company to go to Benghazi.

NOC staffs based at its headquarters in Tripoli are known to be deeply opposed to any move or split. Last year, after the government announced that the whole NOC would go to Benghazi, the decision was swiftly annulled following staff protests.

Meanwhile, there are now growing demands in the south of the country that a state oil operation be headquartered in the region.

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