Tankers: Is Another Source of Disruption Under Way?

While all the headline attention regarding the tanker and energy market is focused on the Red Sea, another source of disruption could be emerging in Libya. In its latest weekly report, shipbroker Gibson said that “the Libyan oil sector is no stranger to output disruptions but this week has seen the North African producer back in the spotlight, with Libya’s NOC declaring force majeure at the 300kbd Sharara oil field due to a resurgence in local protests over fuel prices and a reported lack of economic opportunities. This comes after a series of production shutdowns in the wake of the Libyan Civil War, with the country’s oil infrastructure often being a target between the various factions. The shutdown in the Sharara field has affected pipeline crude shipments to the Zawiya oil terminal, where storage capacity is limited. Additionally, there are now reports that the 120kbd Zawiya refinery could become a target for separate protests in a sign of potential escalation if the groups demands are not met”.

According to Gibson, “for the time being, surprisingly there has been a somewhat positive impact on the Cross-Mediterranean Aframax market, with only 4-5 prompter cargoes being affected and around 10 cargoes being pushed into next week which has provided some support for local Aframax rates and has led to a stronger feel for the region. This can be explained by the port facilities at Zawiya remaining operational despite lower crude deliveries but a prolonged outage could start to negatively impact the market, once the current backlog of cargoes has been cleared”.

The shipbroker added that “in terms of what could be at stake, Libyan oil exports averaged 1.035 mbd in 2023, with December posting particularly strong volumes at 1.1 mbd, the majority of which was shipped via Aframax and to a lesser extent Suezmax tankers. The vast majority of this crude stays locally in the region, with Italy the largest importer of Libyan grades taking 380kbd of Libyan crude in 2023. Libyan cargoes have also found a home in Spain and France, where Libya’s light sweet crude is a popular feedstock for Mediterranean refiners for processing into gasoline. Alternative grades such as Algeria’s Saharan, Azeri and CPC blend are all likely to find support, if loadings are not resumed soon, which could put some downside pressure on local refining margins”.

“All of this comes against the backdrop of an ambitious plan to boost Libyan output capacity to 2 mbd by 2030. Recent data shows Libyan crude output has remained broadly flat in 2023 after staging a recovery in the second half of 2022, following a period of disruption and blockades at key facilities. 2023 production averaged 1.145 mbd which makes the 2030 target of 2 mbd given the current issues potentially challenging to achieve unless the required stability and sustained output growth can be achieved towards the intended target” Gibson noted.

The shipbroker concluded that “the current disruption has so far been limited to the Sharara field and negotiations are underway to find a solution. Yet, this development shows that the risk of supply disruption in Libya has not faded after previous episodes and could flare up again in the future, which may pose a risk to the Mediterranean crude tanker market, if future disruption were to be significant enough. However, ambitious production targets require a stable investment environment for international oil companies to operate and bring additional capacity online. While the current turmoil is not expected to reach the same level seen in 2022, it shows the ongoing difficulties faced by Libya’s oil industry and its expanding production”.

Nikos Roussanoglou, Hellenic Shipping News Worldwide