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Libya’s biggest oil field is back, Nigeria and OPEC should be worried

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Libya’s Sharara oil field, the country’s largest, operated by Libya’s National Oil Corporation (NOC) in partnership with Spain based Repsol, French multinational  Total, Austria’s OMV and Norway’s Equinor, has resumed production and is expected to reach 180,000 bpd.

Libya’s National Oil Corporation (NOC) said in a statement that regular output will be fully restored in the coming days, now that the site has been re-secured after a three-month occupation at the site.

The field in southern Libya has a capacity of 300,000 barrels of crude a day which was shut down in December after guards and armed residents seized it over financial demands and was then taken over last month by forces loyal to eastern Libya’s militia leader Khalifa Haftar.

Libya’s NOC Chairman Mustafa Sanalla in a statement seen by Bloomberg said the corporation had received assurances that site security has been restored which was verified by the corporation own inspection team, enabling staff to return to work.

According to NOC’s statement, the company officially lifted its declaration of force majeure, a legal status protecting the NOC from liability if it can’t fulfill a contract for reasons beyond its control. Plans are also in place to repair 20,000 barrels per day of production capacity destroyed by looting and vandalism during the blockade.

OPEC’s concern

Brent the benchmark for Nigeria crude oil has risen by 20 percent this year due to supply curbs led by OPEC and other large producer’s agreement to reduce output by 1.2-million barrels a day in the first half of 2019 to avert a supply glut as US sanctions on OPEC members Venezuela and Iran restricted supplies further.

The news from Libya’s Sharara will be huge concern for OPEC and its allies who now faces a dilemma on either to include or exclude Libya which was previously exempted from production cuts because of its internal turmoil which affected oil production

The producers’ group will meet again in April to discuss whether to continue the supply reductions in the second half. 

OPEC pumps about a third of the world’s crude, and the biggest of its 15 members is Saudi Arabia, one of America’s closest friends in the Middle East. While the group doesn’t target a specific oil price, it adds or removes supplies in the market and therefore can affect the cost of crude.

Since January 2017, the group and allies including Russia have cut production by about 1.2million, helping to lift international prices and prop up weak oil prices.

Nigeria’s concern

More than any other country, Africa’s biggest oil producing country needs the oil price to rise and in the worst case, remain steady at any price above the $60 benchmark of the 2019 budget. To achieve this, the country needs to avoid disruptions in crude production and also hope that the alliance under OPEC achieves its objective, even though many are yet to comply with the output cut, including Nigeria.

Contrary to a production benchmark of 2.3 million barrels per day (mbpd) used for the 2019 budget estimates by the Federal Government, Nigeria needs to cut production down by 53,000 barrels to arrive at a new quota of 1.685 million bpd down from the reference production figure of 1.797m bpd recorded in January.

 

DIPO OLADEHINDE

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