Short-Term Outlook Deteriorates As Unrest Intensifies

BMI View : The deterioration in Libya's secu rity situation has hit the country's oil production. We have downgraded our outlook of Libya's oil production in 2013 and see a lack of political resolution as a downside risk to our longer-term production forecasts as well. Its Upstream Risk/Reward Ratings have also fallen as we take the effects of negative political developments on its upstream potential into account.

The unrest in Libya has significantly deteriorated in the past months as oil and gas assets continue to be the focal points around which protests against the current political regime are organised. The Es Sider and Ras Lanuf crude export facilities have been forced to stop operations as a result of these protests, adding on to the country's oil export woes following similar protests that led to the closure of the Zueitina terminal.

According to Libyan oil minister Abdelbari al-Arusi, oil exports have been reduced to a third of previous levels of about 1.42mn barrels per day (b/d) to 330,000 b/d at the start of August 2013. Production continues to fall from 1.3mn b/d in June 2013 to 800,000b/d in July 2013, according to data collected by Bloomberg. Unless the political situation improves to allow Libyan crude to reach its main markets overseas, output is likely to continue to fall in August 2013.

Perilous Drop In 2013
Libya Monthly Oil Production, January 2010 - July 2013 ('000b/d)

Short-Term Outlook Deteriorates As Unrest Intensifies

BMI View : The deterioration in Libya's secu rity situation has hit the country's oil production. We have downgraded our outlook of Libya's oil production in 2013 and see a lack of political resolution as a downside risk to our longer-term production forecasts as well. Its Upstream Risk/Reward Ratings have also fallen as we take the effects of negative political developments on its upstream potential into account.

The unrest in Libya has significantly deteriorated in the past months as oil and gas assets continue to be the focal points around which protests against the current political regime are organised. The Es Sider and Ras Lanuf crude export facilities have been forced to stop operations as a result of these protests, adding on to the country's oil export woes following similar protests that led to the closure of the Zueitina terminal.

According to Libyan oil minister Abdelbari al-Arusi, oil exports have been reduced to a third of previous levels of about 1.42mn barrels per day (b/d) to 330,000 b/d at the start of August 2013. Production continues to fall from 1.3mn b/d in June 2013 to 800,000b/d in July 2013, according to data collected by Bloomberg. Unless the political situation improves to allow Libyan crude to reach its main markets overseas, output is likely to continue to fall in August 2013.

No End To Domestic Political Woes

The immediate cause of the protests leading to these port stoppages appears to be bread-and-butter issues - local labour demands for higher pay and greater job creation. However, these protests should also be seen as signs of the continued inability of the central Libyan government to maintain law and order in the country in the aftermath of the 2011 civil war.

The political situation has taken a turn for the worse as the coalition government formed in November 2012 shows signs of crumbling particularly as the wave of unrest intensifies. Deputy Prime Minister Awadh al Barassi tendered his resignation on August 3, citing a 'dysfunctional' government which policies have contributed to 'a security breakdown and assassinations'. Minister of Social Affairs Kamila Khamis Al-Mazini had also announced that she would step down, though her resignation was later withdrawn following Barassi's declaration.

There is also a risk that the reinstatement of the Internal Security Agency (ISA), which Prime Minister Ali Zeidan hinted he would bring about to tackle the deteriorating situation, would intensify violence instead. The threat is particularly great, given that many of the militia groups instigating or even leading the protests still remain armed from weaponry acquired during their fight against the Muammar Gaddafi regime in 2011.

Therefore, we have downgraded our production outlook for Libya for 2013, and expect its output to fall from 1.48mn b/d in 2012 as recorded by the US Energy Information Administration (EIA) to 964,560b/d in 2013. This is based on monthly production figures compiled from Bloomberg between January and July 2013, and our assumption that disruptions - which would most likely continue as the political situation is expected to only deteriorate - would see output fall through the rest of the year.

Perilous Drop In 2013
Libya Monthly Oil Production, January 2010 - July 2013 ('000b/d)

With domestic consumption projected at a relatively low 300,000b/d, the shut-down of oil export facilities and a lack of storage capacity to accommodate volumes traditionally sold to overseas markets could see production continue to flatten at about 650,000b/d for the remaining five months of 2013. Growing violence in the country also presents much downside risk to our forecasts of Libya's longer-term production prospects.

Brief Oil Revival In 2012 Set For Fall Again In 2013
Libya Oil Production, Consumption & Net Exports ('000b/d), 2000-2017

Ratings Downgrade

We have also downgraded our Upstream Risk/Rewards Ratings for Libya following these negative developments, with Industry Rewards - a measure of the country's production potential - taking a hit in particular.

Production Potential Takes A Hit
Libya's Upstream Risk/Reward Ratings
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