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Libya's NOC warns of irreparable damage to oil sector from blockade

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Libya's NOC warns of irreparable damage to oil sector from blockade


Production could collapse to 650,000 b/d by 2022: Sanalla

NOC faces substantial technical, budgetary constraints

Deal to restart production still to be agreed; tanker heads to Es Sider

London — Libya's state-owned National Oil Corp. warned July 7 the country's crude oil output could halve in the coming years unless the ongoing blockade on its eastern terminals is lifted soon.

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NOC chairman Mustafa Sanalla warned of the "permanent" damage to the country's oil sector from both a budgetary and technical perspective, which will have severe repercussions on its future output capacity.

Sanalla cautioned that Libya's crude production could slump to 650,000 b/d, "in the absence of an immediate restart of oil production and because of the state's failure to provide the requested budgets to address the many challenges resulting from the blockade."

Prior to the January 18 start of the blockade, NOC produced an average of 1.22 million b/d in early January, and it had previously set an ambitious target of raising output to 2.1 million b/d by 2024.

The conflict between the UN-backed Government of National Accord and the self-styled Libyan National Army has escalated in recent months, with Libya's oil and natural gas facilities caught up in the dispute.

On January 18, eastern tribes — supported by the LNA — halted crude exports from five of Libya's key oil terminals, which drastically reduced the country's crude production.

The restart of a bulk of Libya's crude output still hangs in the balance as the country remains embroiled in a civil conflict.

NOC is in talks with regional countries and the Government of National of Accord under the supervision of the UN and the US to restart its oil output, but negotiations are not progressing in the right direction, according to sources.

Libya is currently pumping around 100,000 b/d, according to S&P Global Platts estimates.


Sanalla said the closure of several of Libya's oil fields had affected the oil reservoir quality, which had suddenly undergone mechanical, structural and chemical changes.

"These changes can result in early water production and death of oil wells," he added. "Some wells will have to be shut.

Libya holds Africa's largest proven reserves of oil and its main light sweet Sharara and Es Sider export crudes yield a large proportion of middle distillates and gasoline, making it popular with refineries in the Mediterranean region and Northwest Europe.

There is concern the quality of its oil might be impacted, which would make it less attractive to refiners.

"In some fields, we are concerned about bacterial growth which will change the characteristics of the oil," said Sanalla. "Libyan oil is valued for being low in sulfur. The bacteria will raise the sulfur content, making it less valuable."

The oil blockade cost the country more $6.5 billion in revenues from lost production, and NOC is also under serious budgetary constraints, which would impact the maintenance of its oil infrastructure.

"We will have to work over between 160 and 260 wells, at a cost of between $50 million and $100 million," said Sanalla. "Continuing the blockade only makes our long-term problems worse. It is vital that we resume oil production as soon as possible.


This week, the Delta Ocean was seen heading toward Es Sider to load a crude cargo, but the tanker has slowed its speed as a production restart deal has still to be agreed.

The Aframax is expected to reach Es Sider by July 8, according to data from S&P Global Platts cFlow trade flow software.

Last week, NOC said it was preparing for a resumption of oil production and exports from its eastern terminals but it continues to wait for the petroleum facilities guards in the eastern region to lift the blockade.

Force majeure declarations on crude loadings at the Marsa el-Hariga, Brega, Es Sider, Ras Lanuf and Zueitina terminals remain in place, as the ports are still being blockaded by the guards.

NOC also recently called out foreign powers, singling out Russian mercenaries for meddling in the country's oil sector, accusing them of preventing the North African producer from restarting production.

Libya's current civil conflict has recently resembled more of a proxy war, with many other countries involved.

The GNA is backed by Turkey and Qatar while the LNA is supported by Russia, Egypt, the UAE and Saudi Arabia.