Libya's El Sharara Shuts Down: What's The Impact?

Summary

• Libya’s giant El Sharara oilfield has been shut down.
• 300,000 barrels per day of oil production is at risk because of one landlord. How is this possible and what does this mean to investors?
• This time may be different.

In October, I published Not All Oil Producers Are Created Equal, in which I discussed in detail the volatility of Libya's oil supply:

^{Source: www.peakoilbarrel.com, OPEC Charts}

The oil production in this country can swing by more than 500,000 barrels per day in just a few months, which makes predicting Libya's oil supply, and therefore the global oil supply, very difficult.

Just a week ago, the National Oil Corporation had declared force majeure on the 70,000 bpd El Feel after a protest by guards closed the field, and this morning, Reuters reported that Libya’s giant El Sharara oilfield has been shut down because a landlord closed a valve in protest against pollution near a pipeline crossing his land.

How can a landlord have such an impact on the world's oil supply?!

The following is a Twitter exchange that briefly discusses the topic:

I presume that Mr. Mohamed is guessing that the disruption will last for only a few "days," but that's besides the point.

The primary takeaway here for oil and oil equities investors is how fragile oil supply can be in certain parts of the world, such as Libya, Nigeria, or even the Middle East.

This Time May Be Different

Long gone are the days that oil supply disruptions passed us by without impacting oil prices, because the "oil glut" has all but disappeared:

According to OPEC's latest monthly oil market report, total OECD commercial oil stocks fell in December to 2,888 mb, or 109 mb above the latest five-year average. From December through January, weekly oil inventory reports continued to show large total oil inventory declines, which means total OECD commercial oil stocks may already be at or near the five-year average.

Bottom Line

Regardless whether the current disruption of 300,000 barrels per day lasts for a few "days" or weeks, one thing is for certain: some countries are more volatile than others, and this observation should be incorporated in oil supply forecasts.

When I think about oil supply from Libya and Nigeria, I also keep in mind the risk of frequent disruptions. The best method that I can think of how to incorporate fragile supply from volatile countries is by assigning a risk factor, such as incorporating a 10% to 20% haircut to supply capacity forecasts.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[E-Bob]

I'm not the brightest bulb in the pack so I don't understand how a 300,000 bpd stoppage will affect "global oil" when the United States alone consumes 18,000,000+ bpd. Add in oil usage in other countries and 300,000 bpd becomes an even smaller percentage. I do understand that 300,000 bpd is cataclysmic if your country's oil consumption is 500,000 bpd and the first 300,000 comes from Libya!

[pg guy]

Black eye for US when despite Ghadafi giving up WMD aspirations, warmonging BHO and HRC attacked and destabilized the country. Some analysts consider the Nork's threats to be a rational response of self preservation in the face of US treachery. I tend to agree.

[enge2103]

Regretfully many mistakes were made, certainly also by the ruling elite in Libya, but for sure the Libyan and North African people have become the victims of it all and yes our refinery in Switserland, with the best and the cleanest RFCC-Complex operation worldwide was in the end also victimised.

RFCC = Resid Fluid Catalytic Cracking

Regards, my hearth is still bleeding.

[dowjonesfla]

wasn't force majeure declared on another field (name escapes me but 70K bpd capacity)?
Force majeure isn't something you declare one day and back to operations the next is it?

[dowjonesfla]

VA - any update on this? Story seems to keep changing by the hour, often going from "something serious" to "nothing to worry about." This is potentially meaningful disruption in an already tight market.

[ValueAnalyst]

Last I saw was that the disruption caused a loss of 500,000 barrels of production, but is now over

The point of the article, however, is that the supply from Libya (and a few other companies) is so volatile, uncertain, and projections of global supply fails to account for this volatility.

[enge2103]

ValueAnalyst,
Libya has regretfully become a very unreliable supplier, ever since the Gadafi families problems started in 2008/2009 and the oil supply stop to their own refineries Tamoil in Italy and Switserland, both shutdown now.
In the past before 2009 it was fine to work with them, the Libyans, but their private lifes were the problems for serious business.
Very regretfully all of northern Africa and the Libyan people are suffering very severely ever since, even some of my ex-collegues and families.

[ValueAnalyst]

enge2103,

Thank you for your comment. I appreciate you sharing your perspective.

I am truly sorry to hear about the very severe suffering through which your ex-colleagues and their families are going. Your comment reminds us everything we observe have real consequences on humans.

I hope that the situation improves quickly for the benefit of all.

Thank you again for your comment and I wish you best,

ValueAnalyst.