The availability of light sweet crude in the Mediterranean will rest on Libya's ability to overcome its production problems next year, while regional refiners may have to contend with limited sour supplies.
Libya's state-owned NOC had aimed to increase its oil output to 1.45mn b/d in 2021, after a ceasefire agreement in 2020 ended over a year of hostilities and a months-long blockade on crude exports. But the country's political situation has remained fragile this year and a number of infrastructure and labour issues have prevented NOC from achieving its target. Argus estimates that Libya produced just 1.12mn b/d of crude in November.
Libyan oil minister Muhammad Aoun said that the country's production was as high as 1.25mn-1.3mn b/d recently and that it now aims to produce 1.4mn b/d of crude by the middle of 2022. But this new target may prove an uphill challenge too, given the unexpected disruption that Libya's oil sector has faced in recent weeks. More than 300,000 b/d of crude production from four fields was shut in the western part of the country on 20 December, including output from El Sharara, Libya's largest field. NOC subsequently declared force majeure at the Zawia and Mellitah terminals, and told Argus on 25 December that output had fallen to 880,000 b/d.
The shutdowns — which NOC attributed to an internal dispute within the Petroleum Facilities Guard — came just before Libya's first presidential election was postponed. The election had been due to take pace on 24 December, but 48 hours before the vote the country's electoral commission HNEC recommended a month-long postponement, saying inadequate legislation had resulted in the absence of a final candidates' list. A successful election would have laid the foundations for NOC to secure much-needed investment to repair infrastructure. But for the time being, the company must continue to operate in a climate of political instability.
Should Libya succeed in raising its crude output in 2022, the extra supply would likely be directed to its core European customers and create increased competition for western neighbour Algeria. Argus tracking show the share of Algerian Saharan Blend crude exports heading to northwest Europe and the Mediterranean was 70pc in January-November this year, up from 64pc and 63pc in 2019 and 2020, respectively.
Sour options
In terms of sour crude supply, a decision by Iraqi state-owned marketer Somo to stop exporting Basrah Light from January 2022 could impact trade flows into Europe. Argus tracking indicate that total Basrah exports to northwest Europe and the Mediterranean averaged 438,000 b/d in January-November, with Basrah Light making up the smallest share of the three Basrah grades at 24pc. The figure excludes volumes sent to Sidi Kerir in Egypt, which can remain in storage or load for Europe or the Americas.
It remains to be seen what Mediterranean refiners will do next year to make up for the lack of Basrah Light. Some may choose to ramp up purchases of Basrah Medium and Basrah Heavy, but those preferring a lighter slate could look to replace Basrah Light with alternatives from other Mideast Gulf producers. Russian Urals may benefit from the absence of Basrah Light, although its gravity is closer to Basrah Medium.
Mediterranean refiners seeking sour supplies will have greater choice if and when US sanctions against Iranian exports are lifted. A new round of talks aimed at reviving the Iran nuclear deal began on 27 December. Sanctions on Iran's oil sector were reimposed in 2018 after the US unilaterally exited the deal. A return of Iranian barrels to the market in 2022 could weigh on the price of other Mideast Gulf supplies.
