* Refining demand to cap exports until year end
* Ramp-up to 1 mln bpd level could pose challenges
* Damage, looting, foreign visas still big factors
* Power struggle in sector begins to affect operations
By Emma Farge and Jessica Donati
LONDON/TRIPOLI, Oct 7 Libya's prized light,
sweet oil is trickling slowly onto the global spot market but
demand from domestic refiners, production glitches and an
internal struggle for control of the sector means it is unlikely
to gush until deep into 2012.
Oil production resumed in early September and since then a
flurry of field restarts has surprised many analysts who have
been pessimistic about recovery prospects.
The National Oil Corporation(NOC) estimated Libya is pumping
350,000 barrels per day (bpd) and reiterated that full pre-war
production was possible within 15 months.
But very little of this has leaked onto the spot market.
Just just two cargoes were exported in September, or a little
over 2 percent of pre-war levels and many think the leap above
the 1 mln bpd output hump could still be difficult.
"The ramp-up stage (of oil production) is where quick
decision-making will be needed most and where the recovery could
be derailed from the very good pace at which is has initially
picked up," said Samuel Ciszuk, senior analyst at IHS Global
"We said from the beginning the main challenge might be the
ramp-up, rather than the re-start so most of that is still to be
Wood Mackenzie's upstream analyst for north Africa Ross
Cassidy said it could take three years to restore full pre-war
Most industry sources and analysts peg current oil
production at between 200,000-300,000 bpd and say that this
could at least double by year-end, but Libyan oil officials are
prioritising filling tanks for refineries, not exports, in order
to produce the fuels badly-needed to restore order.
Reuters calculations show that 130,000 barrels per day of
refining capacity is now onstream - a figure that will likely
rise to 230,000 bpd once the Zawiyah refinery reaches full
output and could rise to 300,000 bpd by year-end if the Ras
Lanuf plant restarts.
"Some of the oil is going to internal refiners so it will
still be a while before we see a real push on exports," said
Olivier Jakob, analyst at Petromatrix.
Traders browsing the marketplace for Libyan oil are dubious
Exports are expected to be more brisk in October as
processing accelerates at some fields and others pump first oil
but trading and shipping sources said so far only two or three
of a total five cargoes are thought to be available for export.
Libya was also a regional exporter of products like fuel
oil, jet fuel and naphtha but so far barrels processed
domestically have been used to meet local demand.
"I think we need to take the Libyan figures with a pinch of
salt," said an oil trader involved with one of the early Libyan
He added that traders have been confronted with confusion
over the quality of crude oil and many have complained that they
have not been invited to official tenders. Others may be
reluctant to lift cargoes from Libyan waters which some still
classify as a warzone for insurance purposes.
This means that the market will be starved of Libya's
exports for many months, although higher oil processing at local
refineries may still weigh on oil prices since it will cut
demand for fuel imports.
Oil prices near $105 a barrel are now only slightly
above the level in early February, before the Libyan revolt.
LOOTING AND DAMAGE
Tripoli is abuzz with talk of visiting envoys from companies
like Royal Dutch Shell and Eni but workers are
returning very slowly due to confusion over counterparties as
well as safety and logistical concerns.
"Reaching 1.6 million barrels per day is going to be
difficult because of the safety issues, the exodus of foreign
workers, the breakdown of supply lines and widespread looting of
oil field compounds. From the Sirte Basin you could get
bottlenecks because of damage to terminals like Es Sider," said
Ross Cassidy at Wood Mackenzie, referring to the country's main
Most of the field restarts have been in areas untouched by
fighting, but pumping oil in the Sirte Basin, which holds 80
percent of proven reserves, could prove difficult.
These fields mostly feed into export terminals where
extensive war damage has already been reported and are not far
from the remaining pro-Gaddafi bastions, making them vulnerable
to future sabotage attacks.
In an indication of how long it might take to repair the
worst of the damage, Benghazi-based oil firm Agoco said it could
take a year to fix its power turbines near Mesla attacked by
pro-Gaddafi troops this summer.
A full survey of damage has not been completed and oil
executives in offices in Milan, Paris and New York are grappling
with anecdotal evidence emerging from little known officials.
More damage is still being discovered and a Libyan official
for Italian oil firm Eni said its largest field Elephant was in
ruins, although the chief executive denied this.
Looting and the destruction of supporting infrastructure
like offices and housing may also stall operations.
One oil trader whose firm is involved in the upstream and
has yet to return to Libyan soil said a colleague had spotted
company trucks on television being used by fighters as desert
Another important factor that could stall activity is an
emerging power struggle within the oil sector between rival
government and industry factions with poorly-defined
These are being played out in the regional rivalry between
the oil-rich east and the capital Tripoli, between interim
rulers the National Transitional Council and within the NOC.
Besides the loss of Libya's top oil official Shokri Ghanem
who defected in June, many other key NOC staff have left in
mysterious circumstances, Libyan industry sources said, amid
allegations of corruption and ties with the former government.
This has created confusion for foreign companies and there
are already early signs that this is affecting daily operations,
with workers for the Libyan firms Sirte Oil and Waha Oil going
on strike in recent weeks.
It is possible that leadership could change again when the
NTC is officially dissolved upon the formal "liberation".
Relations between the NOC and its subsidiaries are also
strained, with firms like Agoco, which played a key role during
the revolution, likely to seek greater authority.
"The whole status of the NOC is in question," said Wood
"The question is: who's in charge? Not everything is going
to fall into place."