Hopes high for Libyan oil output resumption

By Kate Dourian, with Richard Swann and Stuart Elliott in London

August 23, 2011 - Libyan crude oil output is likely to resume within three to four months after the end of hostilities at a rate of 300,000-400,000 b/d initially and rise to 1 million b/d within a year or less, Shokri Ghanem, the former chairman of the National Oil Corporation and de facto oil minister, said August 22.

Ghanem's comments came as the war in Libya was seemingly nearing an end after rebels took control of most of the capital Tripoli.

European oil companies, whose shares rose across the board, said they were watching developments closely to gauge when they may be able to return to the country and restart oil and gas operations.

Ghanem, a former prime minister and OPEC veteran, said it would take "two to three months for oil to start oozing" once hostilities end in Libya, home to the largest crude reserves in Africa.

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"I don't think they can resume production immediately. It might take place in three or four months but to go back to the level they used to produce it may take two years," Ghanem told Platts in a telephone interview, his first since he defected in mid-May.

Global oil prices fell August 22 in anticipation of the imminent return to markets of Libya's high-quality sweet crude oil. (See related chart: Dated Brent (mean $/barrel): January 4 - August 22, 2011).

But Ghanem said an immediate resumption of production at pre-crisis levels would take time, echoing analysts' projections and International Energy Agency assessments.

Libya was producing an average 1.6 million b/d of crude before the crisis, which now appears to be in its final chapter with rebel forces now in control of most of Tripoli.

"To get back to normal, it will take two years because there is some damage to installations and there is a problem with some wells that were not closed properly," Ghanem said, referring to the hasty departure of foreign oil companies at the start of the Libyan rebellion on February 17.

"They may start at 300,000-400,000 b/d and in a year's time they may reach a million, maybe before that. But first there will be some repairs to the pipelines and the boosters and pump stations," he said. He said some equipment at the abandoned fields had been looted and contractors' camps were destroyed. "So to build and repair will take some time. There is a big need. All the cars have been looted," he explained.

The eastern oil fields of Mesla and Sarir, which are under the control of the Arabian Gulf Oil Company (Agoco), which split from parent NOC at the start of the crisis, can produce as soon as they are given the green light but possibly at a lower rate than their capacity.

Mesla and Sarir, Libya's biggest oil producing field, may be able to produce 150,000 b/d if they export from the eastern port of Marsa el Hregha, he said.

Production could be ramped up to 300,000 b/d if the blend is exported from Ras Lanuf, Ghanem said, but noted that Sarir installations had been damaged in attacks in April by troops loyal to Moammar Qadhafi and the extent of the damage is not known. There was also some damage to Mesla, he said.

Furthermore, Sarir crude is waxy and would need to be spiked with Mesla for export, Ghanem said of the two major fields in the Sirte Basin, where nearly 90% of Libya's total reserves of 46.62 billion barrels are located.

There is also the status of the pipelines to consider, some of which were bombed in the west in an effort to cut off supply to Qadhafi's troops and logistics. "It is not simply a question of opening the tap," Ghanem said.

Ghanem said European operators Eni, Total and Repsol were better placed to restart their production from Sirte Basin fields and western fields, including the offshore al-Jurf oil field operated by Total.

"Total and Eni, they can start some production and Eni can start some production from the west while Agoco can start from the east, together it can come up to 600,000 b/d," Ghanem said. There may also be some gas production from Eni's Wafa field, he added.

It will be more difficult for the Waha Group, previously the Oasis Group, to resume output because not all ports are under rebel control and there is some damage to pipelines, he added.

The Waha Group is a joint venture between NOC and the US' Marathon, Hess and ConocoPhillips and produced around 350,000 b/d before the crisis.

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