Libya Declares Force Majeure οn Exports from Ports of Ras Lanuf, Es Sider

Libya's fragile oil sector recovery suffered further disruption at the weekend when state-owned NOC declared force majeure on exports from the major eastern ports of Es Sider and Ras Lanuf because of heavy fighting between armed groups in the area.

The ports -- with a combined export capacity of 560,000 b/d -- only resumed operations in August having been closed for more than a year after anti-government protesters occupied the terminals.

Libya succeeded in boosting production to 1 million b/d by the end of October, and NOC was hopeful of returning output to pre-crisis levels of around 1.5 million b/d by end-2014.

But first the major 340,000 b/d capacity Sharara field was closed in November because of security issues, and now exports are threatened from the country's largest and third-biggest ports.

"NOC has declared a state of force majeure at the ports of Es Sider and Ras Lanuf because of armed clashes in the area," it said in a statement posted to its website.

"A crisis team has been employed to ensure operations can be suspended and restarted safely. NOC and its subsidiaries are committed to working to maintain the equipment and the capacity of the country's oil," it said.

It added it was taking steps to keep operating staff, wells, pumps, piping and equipment in the area safe.

INDUSTRY REACTION

The oil price -- which has been in freefall in since mid-June -- was boosted Monday by the Libyan force majeure, and a likely fall in Libyan exports could breathe life back into the sweet crude market in the Mediterranean, traders said.

"The force majeure in Libya over the weekend may well revitalize the sweet crude market. Differentials have been under pressure, but they should recover a little bit," one trader said.

"I would imagine that there should be more interest in Mediterranean sweet grades from people who had been looking to take Libyan. The Es Sider and Ras Lanuf terminals are important, accounting for around half of Libyan exports," the trader said.

Shipping sources said that the force majeure at Es Sider and Ras Lanuf could force ships that have already been fully fixed to be diverted to other Libyan loading areas.

"For the moment I have not heard of ships already fixed being canceled, but no doubt charterers will look to redirect ships to workable load ports. Any ships that are currently on subjects from Es Sider and Ras Lanuf will probably fail," said a Mediterranean-based shipowner.

A trader added: "I'm not sure that charterers will want to wait in front of a Libyan port that is under force majeure. I know people who waited for 15 days at Libyan ports before they were able to load cargoes, and that was when there wasn't even a force majeure," the trader said.

Aframax freight rates on the cross-Mediterranean route, basis 80,000 mt, rose Worldscale 27.5 last week, largely due to a steady supply of cargoes from Libya.

Shipping sources said the rising rates could be halted this week as a result of the reduction in Libyan supply.

"The force majeure at Es Sider and Ras Lanuf will inevitably take some steam out of the market," said a shipbroker.

AIR STRIKES

The Libyan air force launched air strikes Saturday near Es Sider to stop the advance of the Islamist fighters closing in on the port and the surrounding area.

The air raids were followed by clashes on the ground that tapered off in the evening only to resume again Sunday, AFP reported.

Libya currently has two rival administrations claiming legitimacy and vying for power over the oil sector, the life blood of the economy.

Production had been running at some 700,000 b/d -- half the country's capacity -- before the force majeure at Es Sider and Ras Lanuf was declared.

Prime Minister Abdullah al-Thani, who leads the Tobruk-based government, was elected in June and has gained the recognition of the international community.

The capital, Tripoli, is now under the control of an Islamist-led coalition, under rival Prime Minister Omar al-Hassi, backed by the powerful Libya Dawn militia.

To gain greater control of Libya's income from crude oil exports, the Tobruk government announced Sunday that it is planning major changes to the oil revenue payment system.

Payments will no longer go through the central bank in Tripoli. These accounts will be closed, Al-Thinni told the Al-Arabiya news station.

Instead, NOC will have to rely on international banks.

(Platts)