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Libyan Oil Export Flow a Trickle, Not a Gush

Source: Reuters 10/7/2011, Location: Africa

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Libya's prized light, sweet oil is trickling slowly onto the global spot market but demand from domestic refiners, production glitches and an internal struggle for control of the sector means it is unlikely to gush until deep into 2012. Oil production resumed in early September and since then a flurry of field restarts has surprised many analysts who have been pessimistic about recovery prospects.

The National Oil Corporation(NOC) estimated Libya is pumping 350,000 barrels per day (bpd) and reiterated that full pre-war production was possible within 15 months. But very little of this has leaked onto the spot market. Just two cargoes were exported in September, or a little over 2 percent of pre-war levels and many think the leap above the 1 mln bpd output hump could still be difficult.

"The ramp-up stage (of oil production) is where quick decision-making will be needed most and where the recovery could be derailed from the very good pace at which is has initially picked up," said Samuel Ciszuk, senior analyst at IHS Global Insight. "We said from the beginning the main challenge might be the ramp-up, rather than the re-start so most of that is still to be seen." Wood Mackenzie's upstream analyst for north Africa Ross Cassidy said it could take three years to restore full pre-war output.

Most industry sources and analysts peg current oil production at between 200,000-300,000 bpd and say that this could at least double by year-end, but Libyan oil officials are prioritizing filling tanks for refineries, not exports, in order to produce the fuels badly-needed to restore order. Reuters calculations show that 130,000 barrels per day of refining capacity is now onstream - a figure that will likely rise to 230,000 bpd once the Zawiyah refinery reaches full output and could rise to 300,000 bpd by year-end if the Ras Lanuf plant restarts.

"Some of the oil is going to internal refiners so it will still be a while before we see a real push on exports," said Olivier Jakob, analyst at Petromatrix. Traders browsing the marketplace for Libyan oil are dubious about availability. Exports are expected to be more brisk in October as processing accelerates at some fields and others pump first oil but trading and shipping sources said so far only two or three of a total five cargoes are thought to be available for export.

Libya was also a regional exporter of products like fuel oil, jet fuel and naphtha but so far barrels processed domestically have been used to meet local demand. "I think we need to take the Libyan figures with a pinch of salt," said an oil trader involved with one of the early Libyan transactions. He added that traders have been confronted with confusion over the quality of crude oil and many have complained that they have not been invited to official tenders. Others may be reluctant to lift cargoes from Libyan waters which some still classify as a warzone for insurance purposes.

This means that the market will be starved of Libya's exports for many months, although higher oil processing at local refineries may still weigh on oil prices since it will cut demand for fuel imports. Oil prices near $105 a barrel are now only slightly above the level in early February, before the Libyan revolt.

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