Market Report, "Libya Oil & Gas Report Q1 2014", published

From: Fast Market Research, Inc.
Published: Wed Jan 22 2014

The security risks in Libya that we highlighted could threaten the oil and gas industry's recovery in 2012 have played out. Production has fallen rapidly in Q313 on the back of resurgence in domestic tensions, which could be exacerbated by growing unrest in the wider North African region. Oil and gas production forecasts have been downwardly revised as a result of these developments, particularly for the short term as political tensions are not likely to be resolved in early 2014. The deficit of greenfield investment, owing to political unrest, will spill over into the long term in the form of slower production growth, as Libya underperforms its raw hydrocarbon potential.

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The key trends and developments in Libya's oil and gas sector are:

* In view of a deterioration in political stability that has disrupted production, we have further downgraded our oil production forecast, based on expectations for political tensions to persist through the rest of the year; such that there would continue to be a shut-in of oil export facilities. We have revised our 2013 estimate for Libyan crude oil, natural gas liquids (NGL) and other liquids output in 2013 to 870,640 barrels per day (b/d). This has had a knock-on effect on our forecast for 2014 as we expect the current state of unrest to continue. The political impasse could stabilise by 2015, which could then see a rebound of oil production.
* As with oil, we have further downgraded our short-term forecast for Libyan gas production owing to persistent security disruptions to output in 2013. We expect a decline in gas production in 2013 to about 7.8bn cubic metres (bcm) as a result of output disruptions that have rocked Libya. Production is likely to underperform in 2014 and only rebound in 2015, assuming that the political situation stabilises. This could see gas output pick up to reach 15.2bcm in 2017 and 19.4bcm by 2022.
* There are both upside and downside risks to these forecasts. An improvement to Libya's political situation could see a gush of investment, particularly into greenfield projects, with high oil prices supporting such decisions - we expect the reference basket price of OPEC crude to stay above US$90 per barrel (bbl) over our forecast period. However, a deterioration of political tensions could severely threaten production growth, given the dominance of National Oil Corporation (NOC). As the control of NOC is at the centre of a political struggle between the east and the west, an unfavourable reform of NOC and its organisational structure could see further disruption to Libyan oil and gas production. Already this is playing out, with East Libya having established its own government in Cyrenaica and setting up its own Libya Oil & Gas Corp to supervise the oil and gas assets its supporters had seized in the East.

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