2014-01-03 11:29:16 - New Energy research report from Business Monitor International is now available from Fast Market Research
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.
The key trends and developments in Libya's oil and gas sector
* 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.
* International investment is also a big unknown. Libya's vast oil and gas reserves stood at an estimated at 48.0bn barrels (bbl) and 1.9trn cubic metres (tcm) respectively at the start of 2013. However, political risks, the introduction of new production sharing contracts and a revised hydrocarbon law are all likely to affect the country's business environment and consequently business sentiments.
* We expect refineries to operate below their utilisation rate owing to interruptions to their operations by demonstrators against the new regime. Since the civil war, Libya's oil and gas assets - including refineries - have been focal points around which protests have been organised. This risk will also affect the nearterm prospects for further oil and gas infrastructure developments in Libya.
* Although a number of newbuild refineries have been proposed, we see little likelihood of their materialisation as long as political instability continues in the country.
* Oil and gas consumption is set to fall in 2013 with the resumption of domestic civil unrest. However, over the longer term reconstruction efforts are likely to drive economic growth and oil demand higher. At the time of writing we assumed an OPEC basket oil price for 2014 of US$101.80 per barrel (bbl), falling to US$100/bbl in 2015. Global GDP in 2014 is forecast at 3.1%, up from an assumed 2.6% in 2012. For 2015, growth is estimated at 3.3%.
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