Libya years away from oil recovery

Libyan oil production will take years, not months, to return to full capacity once a political solution to the conflict is found, according to Barclays Capital.

“The reincorporation of Libyan oil into the world market increasingly seems a distant possibility” according to the study, which warns of a lasting political vacuum after the potential fall of the Gaddafi regime.

Libya is Africa’s third largest oil-producer but in the five months since the civil war, crude production has dropped from 1.6 million barrels per day to less than 100,000 b/d. Domestic consumption is estimated at 270,000 b/d, but over 85% of Libya’s light, sweet crude was exported to Europe before the war.

The prediction comes a month after the International Energy Agency reported that Libya’s crude output would not recover to pre-crisis levels until 2015. Since the conflict began in February, the global markets have lost an estimated 145 million barrels of Libyan oil.

Earlier this month, a group of industry analysts and officials, polled by Reuters, predicted that exports could reach 1 million b/d in matter of months if the conflict ended. But the true extent of the damage to Libyan oil infrastructure is not yet known.

Oil fields and shipping infrastructure in the east are reported to have suffered damage, but in the event of a resolution, Libya’s fields would have to undergo comprehensive surveys to measure the full effects of war.

A series of factors suggest that production will struggle to return to its pre-war levels. Oil reservoirs are likely to have suffered a lack of basic maintenance during the conflict. Libya’s reliance on foreign oil companies also means the international personnel who left in February would need safety reassurances before they could return.

Britain’s recognition of the Transitional National Council (TNC) as Libya’s official government may be the encouragement to reinvest that European oil companies need. But Barclays Capital tempers this optimism.

“To expect a return to the prior status quo in Libya – either politically or in the context of the oil market, both in the short and the long term – would be incorrect” said the report.

Earlier this month, Colonel Muammar Gaddafi barred ENI, an Italian energy firm that was one of Libya’s largest European buyers, from operating in the country. Meanwhile, the rebel leadership has claimed that it will not sign any new oil deals with foreign companies until it becomes an elected government.