Energy Risk Africa

Energy Risk Africa

Sunday, March 6, 2011


Some in the oil market think that Saudi Arabia can tap their reserves to replace lost Libyan oil produce. Barclays Capital argues this is not the case.
Latest estimates suggest around 1 mb/d of crude oil production is currently affected in Libya, with the rest of the 0.6 mb/d increasingly under threat too.

A plethora of foreign companies suspended their operations yesterday.
Repsol, one of the largest foreign operators in Libya, has suspended all its production and exploration activities in Libya, including output from the country’s El Sharara oil field (200 thousand b/d of key export-grade crude).
Another company with significant exposure to Libya, Eni (total production of oil liquids in Libya is around 550 thousand b/d), also suspended oil production from a number of sites as a precautionary measure following Statoil, BP, Shell and others who had already closed down their offices and removed expatriate staff.
Eni also announced the suspension of natural gas supplies through the Greenstream pipeline running across the Mediterranean from Libya to Italy.
Earlier in the week, al-Jazeera had reported that crude production at the Nafoora oil field (400 thousand b/d) had stopped because of a strike by workers, though this was denied later. Either way,
Some in the oil market believe Saudi Arabia would tap into their reserves to pick up the slack.
Barclays argue this is not the case:
"Firstly, the grades and quality of crude available from Saudi Arabia is likely to be different from Libya," says Suki Copper at Barclays Capital.
For instance, the volume-weighted average of Libyan grades would have an API of around 37-38, while the current shut in Saudi production is biased towards medium crude.
Cooper goes on to say:
"Moreover, Libyan crude is sweeter, with CPC Blend and Azeri Lights likely to feel the shortages. Effectively, West African crude should receive a higher bid from the Med, with the ultimate effect likely to be seen via a widening in the Brent-Dubai spread, as prompt supplies of Brent-related crudes remains the issue
"Moreover, the time taken to bring those Saudi barrels to the market is likely to be significantly longer compared to the ongoing Libyan production. Thus, the concept of a barrel for barrel replacement is not a correct one.
"Ultimately, the overall significance of the situation in Libya is more than just about lost barrels. It continues to inject a huge amount of uncertainty in the oil market especially for the medium term, as destabilisation in the Arab world, home to the world’s largest oil and gas reserves and production, is of extreme significance."

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