Efforts are now being made to get oil and gas production in North Africa back on track after the conflict and uncertainty of the first nine months of this year. Apart from providing much-needed income for the governments to come of Tunisia, Egypt and Libya, hydrocarbon production is also required to meet domestic demand and ensure that power supplies are maintained in all three countries.
Given the scale and duration of the fighting, the biggest challenge undoubtedly faces Libya’s National Transitional Council (NTC) and investors in the Libyan oil and gas sector.
Despite the ongoing violent conflict, it seems unlikely that the Libyan civil war has had the same impact on that country’s oil industry as war has had on oil output in Iraq. Forecasts vary but most sources predict that it will take more than a year for Libyan production to regain the pre-war level of 1.6m b/d. By contrast, in the first half of September, national oil production averaged just 50,000 b/d.
Mustafa el-Huni, the head of the NTC’s economy, finance and oil commission, said: “Resuming Libya’s normal production of 1.6m barrels of oil per day is still far off”, while Masood Ahmed, the IMF’s director for the Middle East and Central Asia, commented that resuming normal output was “not something that’s going to be done in the next 12 months”. Libya is not a particularly big oil producer but its full potential has never really been tapped, partly because of US sanctions on the country.
Proven hydrocarbon reserves currently stand at 46bn barrels of oil, equivalent to 3.3% of the world’s untapped reserves and the largest national reserves on the African continent, ahead of Nigeria.
Libya also holds 55 trillion cu ft of national gas but much of the country has been underexplored and many companies believe that there is more oil and gas to be uncovered. As a result, it may hold a large proportion of the world’s untapped reserves, almost all of which will be available for export. Libyan oil is also prized because it is of a high quality and therefore easier to refine. The International Energy Agency believes that it will take until 2013 to repair all physical damage to the oil industry, including export terminals, pipelines, wells and oil-gathering infrastructure.
Most physical damage has been inflicted in the eastern half of the country, which holds most of the country’s oil. Coastal export terminals are believed to have been particularly badly affected and thousands of mines have been laid around the eastern oil terminal town of Brega. However, refinery production has largely been halted because of the lack of crude oil feedstock rather than because of physical damage, despite the fact that Gaddafi loyalists have specifically attacked Ras Lanuf refinery.
It is possible that Libya could produce 2.4m b/d as soon as 2015, as delayed projects are brought back on stream, although this is still some way short of the 3.1m b/d peak output recorded in the 1960s.
Despite a great deal of rhetoric to the contrary, Libyan oil output actually fell under the long presidency of Muammar Gaddafi and never regained pre-coup levels. Production in excess of 3m b/d is certainly possible in the longer term but much will depend on the NTC’s ability to end the conflict quickly.
Libya’s principal gas export route, the Green Stream pipeline under the Mediterranean to Italy, was due to come back on stream by 15 October.
Eni is currently the biggest foreign investor in the Libyan oil and gas industry, and in the country overall, after managing to maintain good relations with the Gaddafi government. It remains to be seen whether the NTC, or whichever government succeeds it, will be keen to maintain such close ties with the Italian company. However, it would be unlikely to retake or reallocate control of Eni’s assets because it needs to get oil and gas production up and running as soon as possible. Any change of ownership would slow this process down.
The NTC is obviously eager to get oil production, which generated $44bn in export earnings in 2010, back on stream to fund national reconstruction. The EU has lifted sanctions on Libya’s National Oil Corporation and Zueitina Oil Company, and further international support for the rehabilitation of the oil economy should be forthcoming.
Power plants had been forced to import billions of dollars worth of diesel during the war in order to maintain electricity production but gas supplies from the Hateiba and Assoumoud fields in eastern Libya are now being resumed. Fathi Issa, who is the chairman of NOC subsidiary Sirte Oil, said: “We have started producing and sending gas to the power plants of Benghazi and Zueitina. We even sent some power to Egypt the other day. Soon we won’t have to use diesel any more.”
Egypt cuts supplies to Israel
Further east, the Egyptian oil and gas sector is beginning to get back to normal and Apache Corporation of the US announced in September that it had made two significant oil and gas discoveries in the Western Desert.
Egypt is again exporting gas to Jordan through the Arab Gas Pipeline (AGP), which already runs north to Syria and which has been constructed to allow extensions to both Lebanon and Turkey in the longer term, if supplies allow. However, that gas exports have not been resumed via the gas pipeline from Egypt to Israel. Anti-Israeli sentiment has greatly increased in Egypt since the overthrow of Hosni Mubarak.