London — Libya's conflict-battered oil sector is slowly gearing up for a return after the self-styled Libyan National Army ended an eight-month blockade, with exports from its key onshore terminals expected in the next few days, sources said Sept. 21.
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Some of the country's key oil fields such as the 300,000 b/d Sharara and other key fields in the eastern region are preparing for a restart, but the ramp-up is likely to be gradual due to technical and operational glitches along with political volatility.
On Sept. 19, National Oil Corp. lifted the force majeure on crude loadings at ports where foreign militias are not present.
This occurred after the UN-backed Government of National Accord and the LNA agreed to a deal reopen key oil ports and restart oil production.
On Jan. 18, eastern tribes supported by the LNA halted exports from five oil terminals, sharply reducing the country's crude production, which hit its lowest since the 2011 civil war.
Libyan crude production had slumped to 70,000-120,000 b/d in the past few months compared with around 1.10 million b/d before the blockade.
LNA leader Khalifa Haftar said the agreement had "conditions and guarantees that ensure a fair distribution of wealth and spare it being plundered or used in terrorism financing."
The agreement was signed by GNA Deputy Prime Minister Ahmed Maiteeq, but the GNA Prime Minister Fayez al-Sarraj has not yet publicly backed the deal.
Exports to resume
The ports of Marsa el Hariga, Brega, and Zueitina in the east and Zawiya in the west are expected to be the first to export in the coming days, according to sources.
Es Sider and Ras Lanuf, both of which have a capacity to export around 300,000 b/d are likely to remain shut as armed groups and foreign mercenaries are present at these facilities, according to sources.
A source said Libya's largest oil field, the 300,000 b/d Sharara, was back online on Sept. 20 but production would be very slow to start with due to recent technical problems.
Flows on the pipeline from Sharara to the Zawiya export terminal also resumed on Sept. 21, starting at 50,000 b/d, according to another source.
The nearby 70,000 b/d El Feel, or Elephant, oil field is also poised to restart on Sept. 21, with Zawiya refinery due to reopen operations shortly.
Sources said a Suezmax tanker, Marlin Shikoku, had been chartered this week, to load 1 million barrels of Sarir-Mesla crude from Mares el Hariga later this week. This cargo will head to East Asia after loading, and is likely to include storage barrels, they added.
The Minerva Eleonora, which was supposed to load crude from Es Sider in early-September, is likely to be delayed due to the presence of militia at the key terminals.
NOC subsidiary Arabian Gulf Oil Co (AGOCO), which is based in Benghazi in eastern Libya, said it had instructed staff to restart operations at its oil fields.
AGOCO operates the Sarir, Mesla, Bayda, Nafoora and Hamada fields, which have a capacity of around 300,000 b/d.
NOC had previously warned of permanent damage to the oil sector from the oil blockade, from both a budgetary and technical perspective, with severe repercussions for its future output capacity.
In July, NOC chairman Sanalla said output recovery would be slow as the closure of several oil fields had affected the oil reservoirs, which had undergone abrupt mechanical, structural and chemical changes.
This deal signals the possible restart of around 1 million b/d of production and the release of masses of crude in storage, on to a market that is already reeling from oversupply and tepid demand.
Despite the carving of a deal, some analysts remain wary of a sustained production restart.
"Mercenaries at oil fields and terminals will likely keep things choppy," S&P Global Platts Analytics said in a recent note.
"A system of payment flows to various local groups would likely need to be established to ensure stable production going forward. The lack of critical damage to infrastructure stands testament to likely group interests in receiving oil revenues. Absent a clear solution, we expect supply to remain off and on for a while," it added.
Platts Analytics forecasts Libyan crude supply-to-market to reach 365,000 b/d by December from 125,000 b/d in September, including 300,000 b/d from onshore western fields, but eastern exports [which have 800,000 b/d capacity] won't begin until April 2021.
Traders expect the resumption to be gradual and riddled with uncertainty, but around 15 million-20 million barrels of crude and condensate remain in storage at some of the eastern terminals, which could add to the bearishness in the physical oil market.
Similarly, shipping sources remained skeptical about making any predictions, given the repeated false alarms in the last couple of months.
While the lifting of force majeure represents a fresh improvement in the situation, market participants did not reject the possibility of Libya coming off again in the next couple of days, which translated into little impact on freight rates on Sept. 21.
Libya holds Africa's largest proven reserves of oil and its main light, sweet Es Sider and Sharara export crudes yield a large proportion of gasoline and middle distillates, making them popular with refineries in the Mediterranean and Northwest Europe.