As Libyan rebel fighters began routing government forces and advancing on the capital city of Tripoli in August, international oil and gas companies with interests in Libya (including five European and five North American hydrocarbon multinationals) began aggressively vying for the resumption or possible expansion of their roles in the country.
Italian oil firm, Eni, Libya’s most significant partner in hydrocarbons, said it expects a sub-Mediterranean gas pipeline between Libya and Italy to resume operations by mid-October. The company signed a memorandum with the National Transitional Council (NTC) — the rebels’ de facto government based in the eastern city of Benghazi — by which “Eni and NTC are committed to creating the conditions for a rapid and complete recovery of Eni’s activities in Libya and to doing all that is necessary to restart operations on the Greenstream pipeline, bringing gas from the Libyan coast to Italy”, the Italian company said in an August 29 press statement. The full restoration of oil output and exports, however, will be enormously complicated. Three factors will determine the speed of recovery of Libyan oil and gas production.
First, damages to the existing facilities will need to be examined and capacities restored. According to statements from NTC and Libyan oil officials at the end of August, direct conflict damages from the past six months to facilities have been limited and repairs have already begun. However, the restoration of facilities also includes dealing with the impacts of the shutdown process and inactivity of oil fields and pipelines.
Second, oil sector workers will have to return to their jobs, which will require a rapprochement between the National Oil Company (NOC) and the NTC, as well as the return of foreign companies and their staff, which is heavily contingent upon an improvement in the security situation. The third and most crucial precondition for resumption of Libya’s oil economy, therefore, is a return to stability and internal security in the country. Reliable security structures have to be in place before the restoration of hydrocarbon facilities and the redeployment of the workforce can be meaningfully expected.
The nitty-gritty of Libyan oil
The oil and gas industry accounts for about 25 percent of Libyan gross domestic product, 80 percent of government revenues, and approximately 95 percent of export earnings. The 2011 BP Statistical Review of World Energy ranks the country as having the 11th largest oil reserves in the world, at 46.4 billion barrels, though it had been ranked at 19th in terms of production, at 1.6 million barrels per day, before the revolution. The equivalent figures for Libya’s natural gas reserves put it at 15th largest in the world at 1.5 trillion cubic meters, with its annual production at 32nd globally, with 15.9 billion cubic meters per year (cum/yr).
The sector is dominated by the NOC, which exploits and exports the country’s hydrocarbon reserves — both onshore and offshore — via a number of wholly-owned subsidiaries and international oil companies licensed by special agreements. The company owns the country’s refining and oil and gas-processing facilities, which include refineries at Mersa El Brega, Zawiya, Ras Lanuf, Tobruk and Sarir; the Ras Lanuf petrochemical complex and gas-processing plant is the country’s largest, also producing ammonia, urea, methanol, ethylene and low and high-density polyethylene.
Before the revolution, the NOC refined close to 380,000 barrels per day of the country’s crude oil in its refineries, with approximately 60 percent of the refined product output being exported. Libya’s oil and gas is sent to Europe, the country’s biggest export market, both by sea and a 540-kilometer, 11-billion cum/yr capacity subsea pipeline, dubbed ‘Greenstream’, across the the Mediterranean to Gela in Sicily.
Within the country, Libya has a network of more than 8,700 km of onshore oil, gas and product pipelines. Following the current unrest, most of the country’s oil and gas production and refinery capacity has been shut down. While refineries can be relatively easily restarted, damage notwithstanding, the crude oil pipeline network will have problems in starting up due to the waxy nature of the high-quality and relatively ‘light’ crude oil the Libyan oilfields produce. Once flow has halted for any appreciable time, the wax separates out and gradually blocks the pipeline. This material, similar to candle-wax, then becomes difficult to remove in order to restart the system, and it is foreseen that a considerable investment in technology and effort will be required to bring the system back to full operating capacity.
Looking ahead
UK-based energy and mining consultants Wood Mackenzie said in an August 25 statement that it expects resumption of full oil production capacities in Libya to require 36 months from “from whenever the current crisis reaches a resolution.” According to the analysts, the recovery of oil production capacities is likely to take longer for the mature Sirte basin in eastern Libya but will be faster in the newer Murzuk and Pelagian Shelf basins of western Libya.
For the longer term, “Libya has the potential to produce up to 3 million barrels per day of oil and become a major gas exporter through partnering with the international industry,” Wood Mackenzie noted, with the caveat that this future remains “on hold until military operations are concluded.”
