Libya struggles to reopen refineries
Thursday, Mar 29, 2018
Libyan efforts to restore functionality to its oil refining industry during 2018 continue to face a range of challenges. The strong revival of crude oil output to above 1 million bpd earlier this year spurred the National Oil Co. (NOC) to prioritise efforts to bring its three refining units back into operation.

However, these efforts to match the dramatic recovery of Libya’s upstream sector are facing an uphill struggle, as practical problems, labour unrest and the effect of recent oilfield shut-ins weigh on the sector.

Libya’s oil production sector has indeed enjoyed a strong comeback, but production shut-ins have hampered the process of recovery of the oil sector as a whole during the first quarter.

The key Sharara and El-Feel fields both suffered interruption in February, with problems now lingering at the latter. These are vital to Libyan oil production, aimed both at the export market and at domestic crude oil refining needs. Their closure because of pipeline disruption and labour disputes has restricted flows of crude oil to the 220,000 bpd Ras Lanuf and 120,000 bpd Zawiya plant, as well as the 10,000 bpd Marsa al-Brega complex.

Libya’s Petroleum Facilities Guard (PFG), tasked with providing security at the oilfields, went on strike in February, adding to NOC’s woes.
Regarding pipeline closures cutting off oil supplies, NOC chief Mustafa Sanalla has now said that those responsible, including a landowner who claimed that oil leakage had contaminated his property, should be prosecuted.

Aside from the instability in oil supply to refineries, the shut-ins at Sharara and El-Feel have also distracted NOC from efforts to repair infrastructure and other tasks, while lost output from the shut-in at El-Feel cost NOC around US$30 million per day.

While NOC seeks to maintain stability operations to ensure an adequate supply of oil and functional infrastructure, Libya is fighting a rearguard action against fuel smuggling.

Loadings of unauthorised fuel cargoes onto vessels have dogged the operations of refineries, and once again drawn attention away from more urgent matters related to repairs and renewals.

While inland pipeline routes to the coast are precarious and prone to interruption, and port facilities remain vulnerable to interference, supply routes to the south have been more promising.

The smallest plant, NOC subsidiary Sirte Oil Co.’s Marsa al-Brega refinery, is operational, delivering diesel and gasoline by road during the first quarter to around 30 fuel stations in the south of the country.

However, an explosion and fire at the refinery on March 10 saw the plant closed temporarily, and damage is being assessed.

Despite the myriad issues holding back Libyan refining recovery, NOC remains insistent upon a steady move towards full restart of capacity.
A tender for a maintenance and oil spill cleaning contract at the Ras Lanuf plant was issued in late March, as NOC tries to get back to normal operations.

Other contracts for the renovation of tank facilities and related infrastructures are also now being offered, such as a March tender for maintenance and the Sabah storage terminal at the Marsa al-Brega plant.
Issued in March, the tender indicates that NOC is moving forward with practical measures to revive full activity at the refinery near Sirte.

Adding to the air of recovery are tenders now being issued by NOC for works at the three refineries, aimed at maintenance and cleaning of oil spillage.

A lack of availability of finance for the necessary costs of repairs to the refineries must also be addressed. Sanalla acknowledged that budgetary constraints had hampered efforts to move towards full oil sector recovery, and this vagueness will certainly deter inward investors and bidders for the new contracts.

Contractors will also be discouraged by the volatile state of industrial relations. The dispute between NOC and the PFG has been resolved, but observers and participants will want to see a restoration of a stable working relationship to satisfy themselves that the chances of a repetition of the recent shut-ins have been reduced.

This relationship will be crucial to ensuring that supply to refineries remains stable, and the budgetary position is clarified. These features are absolutely necessary if the refining network is to return to a more credible position in 2018.

NOC has made valiant efforts to consolidate the upstream position, but clarity of the refining recovery plan, in particular a comprehensive timeline and costing of the repairs and upgrades, remains elusive. NOC pledged greater transparency in its operations to encourage inward investors and contractors, and now it must give more importance to this concept in its refining ambitions. If it does not, its valiant efforts to drag Libya’s oil sector back to normal operations could go unrewarded.

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