Libya

The US sales from the strategic reserve have been about 1 million bpd and are due to end soon. Saudis have upped output by about 1 million per day as well. My concern is how the US output will be ‘replaced’ next month as it looks like Libya won’t be back online as before any time soon. So unless demand falls it will be up to the Saudis. If they don’t have the capacity they could lose control of prices to the upside.

From CNBC:

Libyan oil production was just shy of 1.6 million barrels per day in February, before the uprising swept across the country, leading to six months of civil war. Production in May was down to 60,000 barrels per day, according to the International Energy Agency (IEA).

“The medium-term outlook is that they probably have the potential to produce more than the 1.6 million, so it’s a very bullish scenario for anyone who is ready to invest in Libya,” Johannes Benigni, managing director of JBC Energy, told CNBC Wednesday morning. “The reality factor is, everyone knows that Libya was easier to run in a dictatorship than in a democratic or semi-democratic environment, and those guys first have to prove that they are able to bring back stability.”

The TNC, headed by Mustafa Jalil, appears to be relatively cohesive at the moment, but the rebels are composed of a complex mix of political, tribal and social alliances that analysts worry may not hold once their common enemy is beaten.

Benigni said that he expected that Libya could pump 400,000 barrels per day by the end of the year, but that in the best case scenario it would be 12-18 months before it returned to pre-war levels.

Goldman Sachs had forecast average output of 250,000 barrels per day in 2012, with a potential to increase to 585,000 barrels per day by the end of the year if rebels were to take control of infrastructure in the west of the country. The rebellion, which began in the east of the country, rapidly seized parts of the Libyan oil industry. Goldman’s predictions were based around output from those eastern facilities.

In a report issued on Tuesday, however, the bank said that the seizure of western oil assets increases the likelihood that output could ramp up more swiftly.

Analysts have been struggling to obtain reliable information on the state of much of the Libyan oil infrastructure. A report from Exclusive Analysis, the risk forecasting firm, said that exports would be likely to resume from the east within three months and from the west within six to nine months.

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4 Responses to Libya

  1. scarmani says:

    Interesting post regarding energy percentage of economic activity.
    http://gregor.us/policy/obsolete-expertise-and-the-us-economys-energy-problem

    There will probably be a second “emergency” release of oil from reserves by the US and IEA when oil prices creep back up to the level that led to the first release:

    http://www.reuters.com/article/2011/07/15/us-iea-release-idUSTRE76E1V020110715 : “I think from the beginning there were always two bullets in the chamber. They’ve only used one so far.”

    That should be good enough to tide things over until Libyan production is partially restored, assuming (dangerously) that Libya doesn’t devolve into tribal warfare. If the assumption holds, Libya coming back online buys the world another year of 4% growth to the end of 2012.

    If Iraq is stable and can ramp up its production 100 kbpd / month through 2013, that buys the world another year of 4% growth to the end of 2013.

    After that all the lucky breaks are exhausted and the following facts inescapably come to bear:

    – Russia and Saudi Arabia are now both effectively producing at their maximum sustainable crude oil production capacity; their net exports will continue to decline in direct correlation with the increase in their domestic consumption.

    – Non-OPEC, non-Russian production of conventional crude oil is already in gradual and permanent decline.

    – World economic growth has been directly correlated with growth in crude oil consumption.

    – Barring a miraculous technological breakthrough in the next 24 months, the world economy will not achieve energy efficiencies and substitutions of a scale meaningful in comparison to the coming shortfall in crude oil production vs. demand trend.

    Thus, after the end of 2013, the real world economy will be unable to grow at 4% / year.

    With the paradigm of trend growth shattered, global debt markets will ultimately collapse and (following war) a new order of economic organization will obtain.

    Reply

    Tom Hickey Reply:

    @scarmani,

    Thus, after the end of 2013, the real world economy will be unable to grow at 4% / year.
    With the paradigm of trend growth shattered, global debt markets will ultimately collapse and (following war) a new order of economic organization will obtain.

    That’s the nut of it. The current debt paradigm requiring constant growth above the interest on debt is unsustainable. Barring innovation that can be scaled up in a timely fashion, the trick will be to achieve a steady state a current population. The numbers don’t look so good for achieving that. The world may be in the verge of losing a bunch of people that resources cannot support under impending existing conditions. See links in my post on Economics and Energy.

    And then there is global warming to complicate matters.

    Reply

  2. John M says:

    At some point, we are going to have to invest in alternate energy sources. Wind power and solar power are ideal small, medium, and large scale projects that private individuals and corporations can do. The Obama Administration should have built up and repaired our infrastructure, one element of which is the electrical grid. They could extend the electrical grid around the US so that anyone could tap into it as a consumer or as a producer of electricity.

    Regardless of the actual source of energy, our energy future is in electricity, although elemental hydrogen might serve as an alternate carrier (note the term) for aircraft and other things.

    Fixing our infrastructure would also help our economy.

    Reply

  3. Adam2 says:

    Oil consumption in the 1970s was a higher percentage of economic activity than it is now.

    Higher priced oil while cost-push inflationary won’t lead to stagflation of the past.

    Reply

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