Oil Output Continues To Be Hampered By Stalemate

BMI View: Mixed reports regarding the loading of an oil tanker from the rebel controlled Es Sidr port highlights the cautious approach the Libyan government is taking in dealing with opposition forces, but also their vehemence to prevent rebel controlled exports. As a result, the oil sector continues to be severely impacted by the stand-off from both sides, with over 800,000 barrels of oil per day likely to be held from international markets until a solution is found.

Libya has once again stepped up its assertive rhetoric against the east of the country, as efforts were made to load a tanker from the port of Es Sidr. A 35,500 deadweight-tonne tanker, reportedly flying the North Korean flag, docked at Es Sidr on Saturday (March 8) and loaded with US$30mn worth of cargo. Libyan officials are now claiming the tanker has been intercepted and will be sailed to a government controlled port, though rebels claim the vessel is still in port.

This is the most significant reported attempt by the rebel controlled eastern part of Libya to sell oil on the international market, a sign that perhaps the rebel contingent is struggling to finance its operations. The eastern ports of Es Sidr, Ras Lanouf and Zuweitina, are still under rebel control with oil flows blocked, preventing significant revenues from entering the country. Currently, only the northwest of the country is producing consistently, supported by sporadic output from the El Sharara field in the south. However, Eni has confirmed the El Sharara field is now back online and will produce at capacity, offering upside risk to future oil output levels.

Cut Off
Libyan Monthly Oil Production ('000b/d)

The government is reportedly angered by the attempts to export oil from the Es Sidr port, once again firing out rhetoric outlining the engagement of Special Forces to retake the eastern ports. However, the tanker in question was reportedly loaded and exited the port of Es Sidr before it was intercepted at Sea, highlighting the reluctance of the Libyan military to enter significant engagements on the ground. If, as the rebels claim, the tanker is still in port, it appears the government have also taken very little land-based action to intercept with force.

We have previously seen multiple announcements of military action against the east, as of yet culminating to nothing. It therefore it remains unclear whether Tripoli has sufficient capacity to stop the port blockades, though it is seeking to avoid excessive use of force in order to prevent a major conflict. We stand behind our February statement ( see, ' Risks Of Civil War Increasing', Feb 10), that Tripoli's move might be an attempt to increase pressure on rebel leader Jathran to come to the negotiating table, and we believe that the two sides could reach a compromise in H214. That said, instability continues to disrupt oil exports and over the short term there will unlikely be any oil from the east of the country brought back on to international markets. This is one area where the Libyan government is likely to stop shipments at all costs, as it would considerably weaken its position and give Jathran access to new finance. However, Tripoli is attempting to do this without seeing tensions escalate into civil war, which would be even more detrimental to the country.

Average oil production from February 2014 was around 350,000 barrels per day (b/d), and with the restart of the El Sharara field this should increase to around 500,000b/d in March. However, with the eastern oilfields blockaded pre-Arab Spring production of 1.6mn b/d remains a long way off. Even if a breakthrough between the east and west was made it is unlikely Libya will return to these highs rapidly, with neglect and lack of investment likely to take a toll on some production facilities.

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Related sectors of this article: Oil & Gas
Geography: Libya

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