Libya prepares to boost oil exports as key ports reopen

An oil storage tank at Sidra port. Libyan plans to lift crude exports have eased market fears of a supply crunch. (AFP)
Updated 11 July 2018
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Libya prepares to boost oil exports as key ports reopen

  • Four Libyan export terminals are being reopened after eastern factions handed over the ports
  • However war-torn North African country thought unlikely to be unable to plug expected losses from Iran and current outage from Venezuela

LONDON: The price of Brent crude fell Wednesday after Tripoli-based National Oil Corp. (NOC) said four Libyan export terminals were being reopened after eastern factions handed over the ports.

The move, which ends a standoff that had shut down most of Libya’s oil output, was expected to lead to an export uplift of 800,000 barrels a day that was lost in recent weeks after factional infighting.

But in an interview with Arab News, Shakil Begg, global head of oil research at Thomson Reuters in London, said while the Libyan development would ease market concern of a looming supply crunch, the war-torn North African country would be unable to plug expected losses from Iran, or mitigate the current massive outage from crisis-hit Venezuela.

Begg said: “We are skeptical about how much Libyan crude can be exported quickly. One issue is the extent to which some fields have been shuttered because they can’t store the oil being produced.”


He added: “Our expectation is that supply growth will be pretty moderate.” Pipeline infrastructure was susceptible to attack, he said.

Analysts have said the reimposition of US sanctions on Iran by late 2018 could remove between 600,000 and 1 million barrels per day available to global export markets — a threat that has seen the price of Brent crude reach $80 a barrel. On Wednesday, following the Libyan announcement, the price retreated from just under $79 to $77.50.

Begg said that only Saudi Arabia could sustain a big rise in production from around 10.5 million barrels per day to about 11 million barrels in order to plug lost Venezuelan and Iranian production.

“They have between 500,000 and 600,000 barrels of spare capacity which could come onto the market,” said Begg. But even this might not be enough plug supply gaps, he suggested.

A report in Petroleum Economist on July 3 said Libyan eastern ports that fell under the control of Khalifa Hafter’s Libya National Army (LNA), saw the destruction of storage tanks in fierce fighting.

For instance, Ras Lanuf’s storage capacity was cut from 950,000 barrels to 550,000. “With limited storage, and tanker arrivals often episodic, field managers across the Sirte Basin may need to halt pumping operations, cutting daily (Libyan) output,” said Petroleum Economist.

Neil Atkinson, head of oil industry and markets at the International Energy Agency, told Arab News that Venezuela’s production could fall by the end of this year by another several hundred thousand barrels a day, “given the degradation of the oil industry there, a prognosis that is quite widely accepted,” he said.

Begg said Saudi Arabia was increasing production now, but a lot of the increase was being consumed domestically as temperatures rise and demand for air conditioning soars.

Begg forecast that prices this year would hover between $72/bbl to $80/bbl, but could spike at $85/bbl and he had a similar forecast for 2019.

A statement on NOC’s website said the company was aiming for “the lifting of force majeure in the ports of Ras Lanuf, Es Sider, Hariga and Zuetina after the facilities were handed over to the corporation this morning, July 11.”

“Production and export operations will return to normal levels within the next few hours,” said NOC.

The statement also said that “the chairman (Mustafa Sanalla) and members of the board of directors of the NOC commended the Libyan National Army General Command for putting the national interest first.”

Sanalla also said Libya needed a proper national debate on the fair distribution of oil revenues.

“(This) is at the heart of the recent crisis. The real solution is transparency, so I renew my call on the responsible authorities, the ministry of finance and central bank, to publish budgets and detailed public expenditure. Libyan citizens should be able to see how every dinar of their oil wealth is spent.”

FASTFACTS

Libya, with Africa’s largest crude reserves, lost hundreds of thousands of barrels of daily production last month amid clashes between armed militias.


Asia’s refining profits slump as Mideast exports surge

Updated 23 February 2019
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Asia’s refining profits slump as Mideast exports surge

  • Since 2006, the Asia-Pacific has been the world’s biggest oil-consuming region, led by industrial users South Korea and Japan along with rising powerhouses China and India
  • However, overbuilding of refineries and sluggish demand growth have caused a jump in fuel exports from these demand hubs

SINGAPORE: Asia’s biggest oil consumers are flooding the region with fuel as refining output is exceeding consumption amid a slowdown in demand growth, pressuring industry profits.
Since 2006, the Asia-Pacific has been the world’s biggest oil-consuming region, led by industrial users South Korea and Japan along with rising powerhouses China and India.
Yet overbuilding of refineries and sluggish demand growth have caused a jump in fuel exports from these demand hubs.
Compounding the supply overhang, fuel exports from the Middle East, which BP data shows added more than 1 million barrels per day (bpd) of refining capacity from 2013 to 2017, have doubled since 2014 to around 55 million tons, according to Refinitiv.
Car sales in China, the world’s second-biggest oil user, fell for the first time on record last year, and early 2019 sales also remain weak, suggesting a slowdown in gasoline demand.
For diesel, China National Petroleum Corp. in January said that it expected demand to fall by 1.1 percent in 2019. That would be China’s first annual demand decline for a major fuel since its industrial ascent started in 1990.
The surge in fuel exports combined with a 25 percent jump in crude oil prices so far this year has collapsed Singapore refinery margins, the Asian benchmark, from more than $11 per barrel in mid-2017 to just over $2.
Combine the slumping margins with labor costs and taxes and many Asian refineries now struggle to make money.
The squeezed margins have pummelled the stocks of most major Asian petroleum companies, such as Japan’s refiners JXTG Holdings Inc. or Idemitsu Kosan, South Korea’s top oil processor SK Innovation, Asia’s top oil refiner China Petroleum & Chemical Corp. and Indian Oil Corp., with some companies dropping by about 40 percent over the past year. Jeff Brown, president of energy consultancy FGE, said the surge in exports and resulting oversupply were a “big problem” for the industry.
“The pressure on refinery margins is a case of death by a thousand cuts ... Refinery upgrades throughout the region are bumping up against softening demand growth,” he said.
The profit slump follows a surge in fuel exports from China, India, Japan, South Korea and Taiwan. Refinitiv shipping data shows fuel exports from those countries have risen threefold since 2014, to a record of around 15 million tons in January.
The biggest jump in exports has come from China, where refiners are selling off record amounts of excess fuel into Asia.
“There is a risk for Asian market turmoil if (China’s fuel) export capacity remains at the current level or grows further,” said Noriaki Sakai, chief executive officer at Idemitsu Kosan during a news conference last week.
But Japanese and South Korean fuel exports have also risen as demand at home falls amid mature industry and a shrinking population. Japan’s 2019 oil demand will drop by 0.1 percent from 2018, while South Korea’s will remain flat, according to forecasts from Energy Aspects.
In Japan, oil imports have been falling steadily for years, yet its refiners produce more fuel than its industry can absorb. The situation is similar in South Korea, the world’s fifth-biggest refiner by capacity, according to data from BP.
Cho Sang-bum, an official at the Korea Petroleum Association, which represents South Korean refiners, said the surging exports had “triggered a gasoline glut.”
That glut caused negative gasoline margins in January.