WoodMac: Libya’s oil production might have reached near-term potential

Wood Mackenzie analysts believe that Libya’s oil production might have reached near-term limits with only gradual future growth. The possibility of longer-term political normalisation and a reduction in the nation’s political conflicts depends on Libya maintaining oil production.

Libya’s oil production increased steeply to the current level of 850,000 b/d from a low point in August 2016 of below 300,000 b/d. Production surpassed one million b/d in July.

WoodMac said export capacity remains constrained by damage to the key ports of As Sidrah and Ras Lanuf, limiting production to a maximum of 1.25 million b/d, which Libya’s National Oil Corporation has announced as its year-end target.

“Reaching this would be quite an achievement, given ongoing challenges, including international oil companies’ reluctance to recommit capital and expertise, a national oil company starved of funding – and, not least, the propensity for violence to flare up and armed groups to hinder oil output,” WoodMac said in a note on the 20^th October.

American and Canadian oil companies continue to view Libya with trepidation, and some may seek to mitigate exposure there, analysts said. But many European companies consider the risks manageable and envision a gradual re-entry into projects.

The Organisation of Petroleum Exporting Countries exempted Libya from production-cut targets, which WoodMac calls “a tacit acknowledgement of the upside limitations to the country’s production recovery. We expect that it will be well into next decade before production is restored to pre-war levels.”

WoodMac believes Libya would be successful if it maintains stable production of one million b/d, adding that incremental interim gains may help avert a deepening of the country’s conflicts.