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Libyan oil, gas output could be wiped out if state collapses: PFC

Highlights

Libya's oil and gas production could be wiped out indefinitely if the Libyan state collapses, Washington-based consultancy PFC Energy said this week, in a stark warning that the country risks falling back into chaos.

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In a note to clients late Tuesday, PFC said the country's crude output had plummeted from 1.4 million b/d in early July to as little as 150-250,000 b/d in recent weeks as a result of the protests and shut-ins carried out by quasi-government forces, militias, civilian protesters, and oil and gas sector employees.

The government's capacity to act is limited, PFC said, suggesting that individual agreements with each of the protagonists will be needed in the short term, "meaning that the process of restoring output will be slow, incremental and highly susceptible to reversals."

Assuming that eastern production will restart, PFC is forecasting a fourth-quarter production rate of 500,000 b/d. In the longer term, the forecast is for a rate of 800,000 b/d, "with the assumption that a rotating selection of groups will keep substantial volumes offline through 2014," it said.


"In the meantime, the risk of state collapse remains real and rising -- with an increasing chance that all of Libya's hydrocarbon production could be wiped out indefinitely," it said.

The US Energy Information Administration, in a special supplement to its latest Short-Term Energy Outlook, estimated that Libya exported just 80,000 b/d of crude in the first week of September, down from an average 460,000 b/d in August and 830,000 b/d in July.

The EIA, statistics arm of the US Department of Energy, said its estimate for September 1-7 was based on news reports while the estimates for July and August were based on APEX tanker data.

It said the almost 1 million b/d of crude that was offline in August could be brought back within a year.

PFC, however, said that while the government had stated it had sufficient resources to continue to cover expenditure for six months without oil revenues, "faltering state capacity and rising public ire mean that the government may not survive for that long if it is unable to effect at least a partial restoration of production currently still offline."

It warned that if the Libyan state collapsed, the oil and gas industry would likely be targeted by militias seeking to deprive rivals of revenues and leverage, potentially leading to a longer-term outage of the entire sector.

"Libya's hydrocarbon sector was able to recover quickly in the aftermath of the civil war precisely because the various armed militias saw it as a source of future revenue for the victor, and so left infrastructure and facilities largely intact," PFC said.

"But if Libya fragments, rival militias -- no longer confident that they will benefit from oil and gas production -- will seek to weaken their enemies by depriving them of revenues. Libyan production could then remain offline not for a matter of months, but for several years or even decades."

--Margaret McQuaile, margaret.mcquaile@platts.com
--Edited by Alisdair Bowles, alisdair.bowles@platts.com