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Will 2019 be the Year of the VLCC for Libyan Oil Trade?

VLCCs could start their trips back into Libya, should current plans set in motion be actually implemented. In its latest weekly report, shipbroker Gibson said that “in 2010 Libyan oil production topped 1.6 million b/d, 9 years on and crude output since has struggled to come close to sustaining anywhere near that. In 2018, it seemed like progress had been made and looked promising with production averaging almost 1 million b/d, showing signs of a potential road to recovery. With the country effectively split in two and rebel groups holding significant power – both in the east and west – oil facilities have at times been used as monetary and political bargaining tools for different groups to appropriate power. The latest issue concerns the shutdown of Libya’s largest oilfield, El Sharara, which can produce 340,000 b/d and has been offline since December. If Libya wants to fulfil its potential, protecting these oilfields from insurgents will be key”.

According to the shipbroker, “Libya is certainly not lacking in ambition, with the chairman of state oil company NOC – Mustafa Sanalla – signalling their intent to increase production to 2.1 million b/d by 2021, over 1 million b/d more than current levels, whilst also investing over $50 billion in infrastructure. Sanalla also indicated their desire to encourage foreign investment, stating that he will visit China in the first quarter of 2019 to formally discuss investment into Libya’s oil and gas production opportunities. China has been steadily increasing crude imports from Libya since 2016 when they imported just over 11,000 b/d, up to over 155,000 b/d in 2018. Foreign direct investment from China could indicate a possible signal to increased Libyan imports in future. However, with previous uncertain investments from China in the past, notably Venezuela, it could be deemed an extremely risky investment”.

Gibson added that “part of the investment plan is to build a state-of-the-art port suitable for VLCCs to berth. VLCCs haven’t fully loaded in port for over 5 years due to a build-up in silt at the Es Sider terminal. The Libyan Seaport Authority have recently agreed to part fund, with the US based Guidry Group foundation, a $1.5 billion grant for the construction of the project on the eastern city of Susah. The harbour itself already has a natural depth of 18 metres, only a few metres short of what’s needed for a fully loaded VLCC. Local neighbours Sudan and Chad have reportedly also welcomed the project stating their desire to use it. The port will hope to capitalize on being strategically placed for vessels travelling between Asia and Europe via the Suez Canal and to and from the US”.

The London-based shipbroker concluded that “in the short term, national sources expect domestic crude output to rise back to 2010 levels this year, producing close to 1.6 million b/d. However, much of this will heavily depend on the domestic security and administration situation. Bearing in mind the frequency of armed attacks and the recent history of Libya unable to follow through on ambitious plans it looks increasingly unlikely. Despite being a country torn between competing militant parties, the central bank in Tripoli controls oil revenues and NOC budgets and has signalled their intent to rid of all militant controlled oilfields. Once this is under control, they believe production can ramp up and contribute to national growth. Whether that can be done efficiently and anytime soon remains to be seen”.

Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “VLCC Owners had hoped for pre Chinese holiday momentum to help reverse the recent slide but although activity did pick up there remained a wall of availability to soak hopes, and lead to a continuation of the decline. Rates now slide below ws 40 to the East for older units, and little better than ws 45 for modern vessels too, with runs to the West moving in the low ws 20’s. A bottom may now be in near sight, but it will take a lot more digging for Owners to get out of the hole. Suezmaxes slowly circled around an unchanged centre point, with rates to the East at around ws 80 and a little over ws 37.5 to the West, with no catalyst for meaningful change in near sight. Aframaxes flattened further to 80,000mt by ws 100 to Singapore on thin demand, and easy supply. Charterers will be looking to chip away further next week”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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