Libya's oil output cut by 1.4 million b/d; loyalists press eastward

Fighting in Libya has nearly stopped the country’s production of oil, reducing output by 1.4 million b/d to less than 300,000 b/d, according to Total SA.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 11 -- Fighting in Libya has nearly stopped the country’s production of oil, reducing output by 1.4 million b/d to less than 300,000 b/d, according to Total SA.

“Oil production in Libya must have fallen to between 200,000-300,000 b/d maximum,” said Total Chief Executive Christophe de Margerie, adding that there are “about 1.4 million b/d less" than normal.

“There is no problem of supply to the market," de Margerie said, adding, "We have stocks so there is no risk of a shortage.”

Total has shut down its production at two Libyan oil fields: Al Jurf (offshore) and Mabruk (onshore), where it shares production with other companies, de Margerie said.

With the unrest, Libya is producing just 300,000-400,000 b/d, down sharply from its typical production of 1.8 million b/d, according to Holly Pattenden, head of oil and gas analysis at the Business Monitor International in London.

But even those amounts will drop, according to Eni SPA Chief Executive Officer Paolo Scaroni, who said his firm will stop all of its remaining oil output in the next few days, ending production that already has been cut by two-thirds from its normal 280,000 boe/d before the crisis.

However, Eni facilities are on “hot standby” in Libya ready to restart quickly, the firm said in a presentation to investors, adding that none of the company’s oil infrastructure has been damaged by the violence.

Loyalists press eastward
The remarks of Pattenden, Sacaroni, and de Margerie coincided with reports that forces loyal to Libyan leader Moammar Gaqhafi had seized the oil hub of Ras Lanuf and were driving eastward toward the port of Mersa al-Brega and cities beyond.

“They bombed us with tanks, airplanes, missiles coming from every direction,” said one rebel fighter, following the battle with loyalist forces for control of Ras Lanuf.

Seif al-Islam Gadhafi, a son of Gadhafi, underlined the loyalist determination to drive out members of the provisional government that has taken form in the country's east, saying, "They and their families will flee on the frigates of the Christians."
London-based Exclusive Analysis predicted that Mersa al-Brega is likely to see heavy fighting and substantial property damage including to hydrocarbons and aviation assets, while risks to oil carriers along the eastern coast have increased.

The analyst said all property in Brega, “including marine and hydrocarbons infrastructure is at severe risk of substantial damage, due to the frequently inaccurate or indiscriminate use of area weapons, such as BM-21 multiple rocket launchers, by both sides.”

Exclusive Analysis also took note of rebel reports that loyalist forces have used oil tankers to launch rocket attacks on onshore facilities.

While noting that such reports have not been confirmed, the analyst said that “the reports themselves will suffice to place anti-Gaddafi forces on alert for any tankers near Benghazi or other eastern cities, which places such vessels at elevated risk of attack as they approach rebel-held coastal areas.”

Tankers cancel shipments
Earlier reports suggested that Brega has already run out of crude oil stocks due to weeks of unrest in the country, forcing crude tankers to cancel their shipments and travel to Saudi Arabia for work.

"We are not going there for the time being. [Our vessel] Frankopan was canceled because there was not enough cargo," said Ivica Pijaca, tanker chartering manager for Croatian maritime firm Tankerska Plovidba.

"What they had in storage, they pumped out and loaded on to tankers,” Pijaca told Reuters, adding, “The last aframax to get any cargo was on Mar. 5."

In the last few weeks before cargoes ran out, Tankerska was able to load two 80,000-tonne aframax vessels at Brega, which loaded 51,000 b/d in January.

According to Pijac, ships diverted from Libya are now heading to Egypt’s port of Sidi Kerir to collect cargoes of crude delivered there from Saudi Arabia which has increased output to make up for Libya's shortfall.

Gadhafi urged to step down
Meanwhile, in Brussels on Mar. 11, UK Prime Minister David Cameron and German Chancellor Angela Merkel urged Gadhafi to step down.

"I think it is a moment for all of Europe to understand that we should show real ambition. There is a democratic wave that we should be encouraging. We should be reaching out to those people," Cameron said.

“France asks the EU to reaffirm the common will that Col. Gadhafi leaves, and to recognize the Libyan authorities as they have expressed themselves in the Libyan opposition council,” said French President Nicolas Sarkozy.

Sarkozy also said he and Cameron were “ready, on condition that the UN wishes, that the Arab League accepts and (that) the Libyan opposition which we hope to see recognized, agrees, for targeted actions if Gadhafi uses chemical weapons or air power against peaceful citizens.”

However, Gadhafi is unlikely to be ousted by rebels, according to James Clapper, the top US intelligence officer who Mar. 10 told a congressional committee that the US must contemplate the national-security implications of a Gadhafi victory—or even a stalemate.

“With respect to the rebels in Libya, and whether or not they will succeed or not, I think frankly they’re in for a tough row,” he said, adding the momentum had shifted to Gadhafi.

“I don’t think he has any intention of leaving. From all evidence that we have…he appears to be hunkering down for the duration,” said Clapper, who added that Libya could end up split into two or three parts or "you could end up with a Somalia-like situation."

That view did not sit well with Eni’s Scaroni, who warned against allowing Libya to end up as a failed state.

“What would be the worst potential outcome is to have a kind of Somalia situation in Libya that has no government for a long period of time,” Scaroni said over Bloomberg television. “But if this happens, this will not just be Eni’s problem. It will be a problem for Europe, for everybody.”

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