While members of OPEC are committed to the oil cartel’s decision to cut output by 1.2 million barrels per day (MMbbl/d) for six months to slash market supply glut, the contribution of OPEC’s members in North Africa is minimal.
Libya was exempt from the agreement, while Algeria's contribution is to cut production by 50 Mbbl/d. The country is going from October levels of 1.089 MMbbl/d to 1.039 MMbbl/d as of January, for at least six months.
Libya is currently working on resuming its pre-Arab Spring production capacity and expects to reach its objective by the end of this year, according to Mustafa Sanalla, CEO of Libya's National Oil Corp. (NOC).
The North African powerhouse succeeded in bringing the bulk of its oil production and export capacity back online in late 2016. Between September 2016 and January 2017, Libyan production climbed from 300 Mbbl/d to nearly 700 Mbbl/d, a three-year high.
“We successfully increased our production level last month to more than 700,000 bbl/d, and we expect to increase the national oil production to reach 1,200,000 bbl/d by the fourth quarter of this year.,” Sanalla said. “With an improving security situation, we look forward to partnering with foreign oil service companies to maximize the high levels of production as well as receive funding from the government.”
Prior to the Arab war that began in February 2011, Libya was exporting nearly 1.8 MMbbl/d as well as significant amounts of natural gas.
Sanalla said that security will be a key factor to resume the targeted production level, as any issue will hinder its ambitious target.
“If we manage to improve the security situation across the country, we will be able to reach our objective in terms of production,” he said. “This will allow international service companies to resume operation in the country.”
Sanalla also said that this target is linked with the company being able to receive the required fund from the government.
Recent output gains have been possible because the eastern commander of Operation Dignity, Khalifa Haftar, captured four oil ports serving the Sirte Basin. The Libyan National Army then handed the terminals, and infrastructure connecting them to the basin's fields, to NOC.
Sharara and the nearby El Feel Field, operated by an NOC-Eni joint venture, are now able to begin exporting oil to terminals west of Tripoli after militias blocking the fields agreed to their restart, according to local media reports. Sharara's output has reached about 170 Mbbl/d, or around half its 2011 capacity.
Sanalla has made it his mission to open that door, insisting he is above politics, and holding a blizzard of meetings to persuade foreign firms to return to a country most fled when civil war erupted in 2014.
“We expect to meet with service companies and discuss maintenance and upgrade projects in Libya, and we also hope to deploy new technology in our fields, refineries and petrochemical plants,” he said.
The company also plans to use the North African Petroleum Exhibition & Conference (NAPEC 2017) to promote investment opportunities in the country.
But, a new offensive by Islamist militias to capture Libya's eastern oil fields has set back the state oil company's hopes that foreign firms will return to the country's upstream—and creates new doubts about its ability to sustain an oil-output recovery.
Amid this unclear situation, oil companies are still in the wait-and-see mode, as security costs in Libya are sky-high. If oil companies can generate revenue more cheaply elsewhere, that's where they'll go.