Recovery coming for Libyan refining sector?
Thursday, Jan 11, 2018
The dramatic recovery of Libya’s oil production sector was one of 2017’s most notable developments. The years of debilitating civil conflict following the Muammar Ghadaffi era had destroyed the country’s crude oil output capability, leading to severe loss of foreign exchange earnings and questions over Libya’s future as a credible oil market player.
What a difference a year can make.

Libyan crude oil output leapt to 962,000 bpd in October 2017, up from 390,000 bpd in 2016, and is poised to surpass 1 million bpd in 2018. With crude oil prices recovering as well, the impact on Libyan finances has been equally dramatic.

The achievement is striking, and has earned Libya’s National Oil Co. (NOC) plaudits, and its mercurial chairman, Mustafa A Bulgasm Sanalla, the coveted Petroleum Economist’s CEO of the Year award for 2017.

Libya’s gas production also made great strides in 2017, with first gas from the Bouri field. Italian firm Eni’s Bahr Essalam concession is expected to follow suit and deliver first output in 2018.

Returning interest
The optimistic backdrop has started to support external operators’ confidence in Libya’s progress back to normality.

Germany’s Siemens gave a clear sign of growing investor confidence with contracts to build two gas-fired plants for power utility General Electric Company of Libya (GECOL), adding 1,300 MW of new capacity to Libya’s power generation fleet.

The success in bringing the oil and gas sectors back on to an even keel has added stability to feedstock supplies, and has had the added benefit of improving the investment climate for foreign companies, and rehabilitation work needed to repair any damaged infrastructure can now be offered to overseas contactors with some confidence.

Refining resumption
The scene seems to be set for Libya’s troubled refining sector to follow the upstream sector back to stable operations.

As well as having access to more secure crude oil supplies, the 200,000 bpd Ras Lanuf plant – Libya’s largest – is on track to resume activity later in 2018 following the resolution of a legal case that has been outstanding since 2013.

The refinery, operated by Libya Emirati Refining Co. (LERCO), which is 50% owned by NOC and 50% by Trasta, a subsidiary of Dubai-based Al Ghurair group, has effectively been out of action since the start of civil unrest.

Attempts to restart the plant have faltered, and plans to invest US$2 billion in the refinery had to be shelved, leading to disagreements over the financial management of the plant.

However, the air is now clearing, as the International Chamber of Commerce in Paris last week issued a ruling on the protracted case in NOC’s favour, and awarded the company US$116 million in costs.
NOC commented that if the ruling had been against it, and LERCO’s claims, including damages of US$812 million, had been upheld, the potential losses for NOC would have been around US$10 billion.

The company asked that all parties involved should now dedicate their efforts towards reopening the plant as soon as could reasonably be achieved, most likely by the second half of 2018. Sanalla said: “We stress the importance of LERCO restarting operations at the Ras Lanuf refinery as soon as possible”.

The 60,000 bpd Zawiya refinery had been occupied by non-government forces over the last two years, but NOC is now negotiating the restart of operations there too.

A high-level meeting was held in November aimed at overcoming breakdowns in communication and organisation, to pave the way for a return to operations and to make effective plans to upgrade.

In order for Zawiya to make a swift return to operations, foreign contractors will again be relied upon to deal with technical repairs.

Give them what they want
Sanalla saw the need for more favourable conditions back in September, commenting in OPEC’s monthly report that “Libya’s oil industry would be strongly supported through greater transparency, and hence we have to be more transparent with our plans and outlook”.

He said that efficient infrastructure was critical to the functionality of the oil industry, but that problems related to security and low investment levels had held the industry back in this area.

These observations now appear to be translating into action, and the implementation of the recovery programme at Ras Lanuf and Zawiya is clearly a priority for NOC.

Having overseen the recovery of Libyan oil production, NOC’s next step will be to spread the recovery into the downstream sector.

Inward investors like Siemens appear willing to resume commitments in Libya, and the climate is becoming more hospitable to external operators. This will be crucial to ensure the smooth and steady recovery of Libya’s oil refineries.

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