Wednesday, October 26, 2011

Betting on Libya’s Timeline to Increase Oil Production

Muammar Qaddafi’s dramatic fall invariably caused many questions about Libya’s future, including return of its oil production to pre-uprising levels.  Various factors, such as destruction of oil facilities, continued civil unrest and internal divisions, proliferation of small arms across the country, lack of the rule of law and a stable government, as well as the global economic situation created various speculations about timing of Libya’s ability to restore oil production.  A general agreement among experts seems to be 18 months before this North African nation can resume its pre-uprising capacity of 1.6 million barrels a day.  Some say that even if Libyan oil output is fully restored, it would hardly be a game-changer, because it accounted for only around 2 percent of the global production.  But Libya still sits on the biggest oil reserves in Africa, which are sought after because of the high quality of oil.  European and Asian refineries covet the “sweet” crude from Libya for its low sulfur content.
An interesting observation on Libya’s potential to increase its oil capacity was made by Anas Alhajji in Oil and Gas Journal.  According to him, the experiences of Iran, Russia, Kuwait, and Nigeria showed that it took them generally 3 years to boost capacity after a major political instability or violence.  But unlike Kuwait, Russia or Iran, Libya experienced far more infrastructural damage and lacks any institutional and legal structure at this point.  And unlike Iraq, Libya is not occupied or invaded, faces no sectarian divisions (e.g. Sunni vs. Shi’a in Iraq), and may benefit from geographic vicinity to European markets and an open coastline to facilitate oil exports.  But it is still unclear whether the civil unrest in Libya would end with the death of Qaddafi and how soon a government with a constitution and a set of laws would emerge.  Weighing these setbacks and challenges, Anas Alhajji may be right that it will take up to 3 to 4 years before the country returns to the pre-crisis production levels, not 18 months.

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