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BMI View: Oil and gas output will bounce back strongly in 2012 with production set to reach pre-war levels by mid-year. Over the longer term, volumes are likely to increase beyond pre-war levels as new investment flows into under-explored areas.

The main trends and developments we highlight in Libya’s Oil & Gas sector are:

- We anticipate oil production of 1.7mn barrels per day (b/d) in 2012, rising to nearly 1.8mn b/d by 2016 and 1.9mn b/d by 2021. Gas output is also likely to increase from 4.89bn cubic metres (bcm) in 2012 to 16.50bcm by 2016 and 16.67bcm by 2021. These forecasts are subject to upside risks depending on the level of upstream investment that can be drawn by the National Transitional Council (NTC) and by a new democratically elected government. Foreign suitors are likely to be attracted by Libya’s vast oil and gas reserves, which stood at an estimated at 44.3bn barrels (bbl) and 1.56trn cubic metres (tcm) respectively in 2010.

- Until a new democratically elected government is established, key contracts reviewed, and a petroleum law approved, above ground risks will continue to deter some investors. The news that the eastern province of Cyrenaica will seek to create a local council is a timely reminder of these risks, However, BMI anticipates that the potential benefits of new investment far outweigh the risk of a discontinuation of policy or regulatory uncertainty.

- Before the civil war there was 378,000b/d of refining capacity in Libya (according to BMI’s Downstream Projects Database). At the time of writing, refinery output stands at just 158,000b/d, with the facilities at Tobruk, Sarir and Lawiya operating at near full capacity. The 220,000b/d refinery at Ras Lanuf is still offline and is not set to resume processing crude until April 2012, according to the National Oil Company (NOC). Our forecasts point to a gradual restoration of refinery utilisation towards pre-war levels by October 2012. Additional refinery capacity was set to come onstream in 2019 from the proposed Zwara facility; however, it remains to be seen whether project partners NOC and Tamoil will follow through with the plans.

- Consumption is set to return to pre-war levels more gradually because damage to infrastructure is likely to lead to lower domestic demand from power generation and industrial facilities.

However, over the longer term, reconstruction efforts are likely to drive economic growth and oil demand higher. We anticipate consumption will bounce back from 145,000b/d in 2011 to reach 306,000b/d by 2016 and 331,000b/d by 2021. Gas production is likely to rise to pre-war levels to of 16.50bcm by 2014.

At the time of writing we assume an OPEC basket oil price for 2012 of US$99.38/bbl, falling to US$97.23/bbl in 2013. Global GDP in 2012 is forecast at 2.6%, down from an assumed 3.1% in 2011, reflecting a faltering recovery in the US and continued concerns over the eurozone debt crisis. For 2013, growth is estimated at 3.3%.