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Boston, MA -- (SBWire) -- 05/18/2013 --BMI View: Oil and gas production have bounced back strongly in 2012.Over the longer term, both oil and gas volumes are likely to increase beyond pre-war levels but the extent of this increase will be limited by the significant political risks in the country, arising from both domestic tensions between the east and the west, and from an emboldened Islamic militant movement in North Africa. This could limit greenfield investment in particular and cap growth in both reserves and production.

The key trends and developments in Libya's oil & gas sector are:

- We estimate total liquids production of 1.62mn barrels per day (b/d) in 2012, rising to 1.78mn b/d in 2017 and 1.87mn b/d by 2022. Gas output is forecast to increase from an estimate of 12.0bcm in 2012 to 18.0bcm in 2017 and 20.9bcm by 2022.These are conservative forecasts based on the assumption that Libya will continue to return to pre-war levels of growth.
- There are both upside and downside risks to these forecasts. An improvement to Libya's political situation could see a gush of investment particularly into greenfield projects, particularly with high oil prices supporting such decisions - we expect the reference basket price of OPEC crude to stay above US $90/bbl over our forecast period. However, a deterioration of political tensions could severely threaten production growth, given the dominance of NOC. As the control of NOC is at the centre of a political struggle between the east and the west, an unfavourable reform of NOC and its organisational structure could see the oil-rich east seize NOC's assets at the expense of output.
- International investment is also a big unknown. Foreign suitors are likely to be attracted by Libya's vast oil and gas reserves, which stood at an estimated at 47.1bn barrels (bbl) and 1.5trn cubic metres (tcm) respectively in 2012. However, clear political risks, the introduction of new production sharing contracts (PSC), and a revised hydrocarbons law are all likely to affect the country's business environment.
- Before the civil war, there was some 378,000b/d of refining capacity in Libya. However, we expect refineries to operate below their utilisation rate owing to interruptions to their operations by demonstrators against the new regime. Since the civil war, Libya's oil and gas assets - including refineries - have served as focal points around which protests have been based.
- Oil and gas consumption is set to return to pre-war levels gradually because damage to infrastructure is likely to lead to lower domestic demand from power generation. However, over the longer term, reconstruction efforts are likely to drive economic growth and oil demand higher.

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