The African nation’s production has slumped about 1 MMBbl/d to 0.090 MMBbl/d since military strife interrupted oil operations in January. Bringing that production back online might not be so easy after more than nine years of maintenance neglect. Libya’s National Oil Corp. (NOC) told Bloomberg that remedial work at wells alone could cost more than $100 million, money the government does not have.
The NOC has been unable to access its largest oil field Sharara and inject chemicals into a pipeline to stop corrosion. NOC Chairman Mustafa Sanalla said, because of this, a 16 MBbl tank that handles oil overflows and surges, collapsed last month. “We are deeply concerned about corrosion in the pipelines,” he said.
“The longer we wait, the greater the damage and the higher the cost,” Sanalla said in an interview. Damage to the pipelines and storage facilities mean that Libya will struggle to increase production quickly, as they have in the past. AEGIS notes that Libya has perennially experienced oil supply outages since Qadhafi’s ousting. But they have typically brought that production back in short order, once the civil unrest stopped.
In our Factor Matrix we have included Libya’s production in the factor “Middle East Hotspots.” We usually place this factor into the “bullish/priced-in” quadrant when production in Libya is offline and up in the “surprise/bullish” quadrant when oil is flowing at full potential. The fact that Libya may have difficulty bringing back supply in a timely matter is certainly more bullish than situations in the past. The world has too much oil-production capacity, and OPEC+ is cutting production to try and provide balance – not a good time for Libyan production to come back online.