FactSet Research Systems Inc.
08/27/2024 | News release | Distributed by Public on 08/27/2024 12:15
The Implications of Libya’s Oil Production Outage
Yesterday, Libya's eastern government announced all oilfields in the country will be shut and production and exports will stop. Libya's National Oil Corp (NOC) has not confirmed the stoppage, but the Waha Oil Company said it will start to cut production and that production could stop completely due to protests and pressure. This shutdown is the latest in a string of events related to control over the country's political and economic resources. As an OPEC producer, these production outages may impact global oil balances, but both the magnitude and OPEC's response are likely to be determined by the duration of the outage.
BTU Analytics' latest forecast expects the global market to be largely balanced this year, with an oversupply of ~63 Mb/d. In 2025, BTU Analytics forecasts the market to be oversupplied by an average of 164 Mb/d based on the assumption that OPEC will not unwind the November-2023 production cuts. Libya's production was adjusted down in our current balance forecast to reflect the 300-Mb/d shut-in and force majeure of the Sharara field, but the full outage announced yesterday could be more impactful.
In 2024 to date, production in Libya averaged 1.15 MMb/d, according to the IEA and OPEC's direct communication and secondary sources. Considering historical outages, production in Libya has significantly declined in the past. For example, production averaged only 478 Mb/d from August 2013 to May 2017 due to civil war. During COVID, production fell to as low as 90 Mb/d, and production again declined in 2022 due to internal political disagreements. Currently, BTU Analytics forecasts Libyan production to hold flat at ~1.19 MMb/d thorough the forecast window. However, should the announced shut-ins take place, this entire volume is at risk for an unspecified period of time.
Source: BTU Analytics - a FactSet Company, EIA, IEA
To understand the potential impact of these curtailments on the global balance, BTU Analytics ran a sensitivity analysis using three different scenarios, with each assuming production would be zero on September 1, 2024: Libya completely stopping production for one month, three months, and six months.
Source: BTU Analytics - a FactSet Company
Leaving all other supply and demand assumptions unchanged, a one-month outage shifts the average balance for 2024 from a 63-Mb/d surplus to a 42-Mb/d deficit. A three-month outage would leave the global market short by 252 Mb/d in 2024, and a six-month outage would leave the market short by 358 Mb/d in 2024. In 2025, the market would shift to a 46-Mb/d deficit from the current forecast of a 164-Mb/d surplus under a six-month outage.
|
Global Balance Sensitivities, Mb/d |
||||
|
Current BTU Analytics' Forecast |
1M Outage |
3M Outage |
6M Outage |
|
|
Sept '24-YE24 |
(143) |
(459) |
-1,091 |
(1,406) |
|
2024 |
63 |
(42) |
-252 |
(358) |
|
2025 |
164 |
164 |
164 |
(46) |
Source: BTU Analytics - a FactSet Company
OPEC+ could easily cover for a significant and/or lengthy production outage in Libya. The producing group has spare capacity of 5.47 MMb/d, and this excludes Iran, Libya, and Venezuela. Given the nature of the announced outage and recent concerns over global demand, OPEC could choose to maintain its current production levels and leave the near-term market trending short, which would put upward pressure on pricing. However, ample spare capacity is likely to keep Brent prices from running over $90/bbl in the near term, as infill production could return at any time. The alternative is for OPEC to start to return the more-than-2.2 MMb/d of current production cuts to backfill the Libyan outage, which would result in the global balance remaining largely unchanged and Brent holding rangebound between $75-$80/bbl.
BTU Analytics expects the outage will be short lived, as the curtailments will impact Libya's financials and are unlikely to increase global oil prices to unsustainable levels due to OPEC+'s substantial spare capacity available to backfill.
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