Libya is restarting production on its largest oil field
The moves causes headaches for OPEC and other oil producing countries.
Libya has taken an important step towards revitalizing its ailing oil industry with the reopening of its largest oil field and is giving OPEC + new headaches as the alliance of large producers tries to curb global supplies. National Oil Corp., Libya's state-owned energy company, lifted force majeure over the western Sharara deposit and ordered its operator to resume production, according to a statement on Sunday. The field will initially produce 40,000 barrels of crude oil per day before reaching its capacity of nearly 300,000 barrels next week, said a person familiar with the situation. That would double total production in Libya to about 600,000 barrels a day, said the person who asked not to be identified as they were not authorized to speak to the media. Sharara crude oil has started reaching the storage tanks at Zawiya port, another person said. The reopening of Sharara follows a ceasefire in Libya's long-running civil war, which has already resulted in many oil fields and ports in the east being reopened after an almost complete shutdown since January. The NOC made no mention of the nearby El Feel (Arabic: elephant) deposit. The oil field, with a capacity of 70,000 barrels per day, usually follows the Sharara shutdowns and is reopened because it relies on electricity from the larger neighboring country to operate. Libya is a member of OPEC + and has the largest crude oil reserves in Africa. However, it is exempt from the group's supply cuts, which began in May when the coronavirus pandemic choked the economy and drove oil prices soaring. The alliance, led by Saudi Arabia and Russia, planned to ease the cuts by 2 million barrels a day from early 2021. But with virus cases accelerating in many countries, the cartel will face a difficult decision at its next political meeting on November 30th and December 1st: whether to stay on course or delay production increases. The reference price for Brent crude has more than doubled since May to around $ 42.25 a barrel, but it's still down 36% this year. "The resumption of Libyan oil production is picking up momentum faster than most people expected," said Bill Farren-Price, a director of energy analysis firm Enverus. The likelihood of further Libyan exports is "an additional headwind for OPEC at a time when it is already struggling with weaker than expected demand as the second wave of Covid-19 intensifies". JPMorgan Chase (NYSE: JPM) & Co. predicts production will climb to 1 million barrels a day by March. Still, the North African country's energy infrastructure is crumbling after nearly a decade of conflict and chaos following the fall of former dictator Muammar Qaddafi in 2011. Frequent shutdowns and poor maintenance have caused pipelines to corrode and storage tanks to collapse. NOC chairman Mustafa Sanalla told Bloomberg in June that well head repairs alone would cost more than $ 100 million, limiting the country's ability to ramp up production quickly. Force majeure is a legal status that protects a party who is unable to perform a contract for reasons beyond their control. Sharara is operated as a joint venture between the NOC, the French Total SE, the Spanish Repsol (OTC: REPYY) SA, the Austrian OMV AG and the Norwegian Equinor ASA (NYSE: EQNR). The NOC, which is based in the Libyan capital Tripoli, said it had entered into a "gentlemen's agreement" with militias known as the Petroleum Facilities Guard, which operated near Sharara. The militia are required to remove "all obstacles" that are hindering operations on the ground, the NOC said. It did so after the United Nations-sponsored talks in Egypt earlier this month, some of which were about restoring the security of Libyan oil facilities. Libya produced 1.2 million barrels a day last year. Khalifa Haftar, a Russia-backed commander who controls much of the east, blocked ports and fields in mid-January when he tried to overthrow the United Nations-backed government in Tripoli. As a result, the production dropped to less than 100,000 barrels per day, most of it from offshore fields.