Libya: Genscape’s December Production Expectation, Waha Oil Co.& the High-Frequency Production Monitor

There are clear indications that Libyan production is beginning to consistently exceed the pro rata 'soft cap' that it and Nigeria purportedly agreed to (Nigeria 1.8 mm bpd and Libya 1.0 mm bpd) during the 173 OPEC meeting, which concluded on December 1, 2017. Therefore, monitoring Libyan oil production in near-real-time is becoming more important for market players for a few reasons.

First, if there were a 'soft cap' on Libyan production, it would have made sense for OPEC to clearly state as much in its press release on December 1, 2017. The market can handle the truth; these caps, if stated firmly, would be cause for a joyous occasion.

Second, many market watchers have said there is no reason to worry about Libya if there is no actual production cap because they believe that the nation is already producing close to capacity. Yet, barring an increase in geopolitical strife (Presidential elections loom large in 2018), and assuming a moderate increase in field consistency, Genscape data indicates 1.25 mm bpd is certainly possible now.

Third, vessel counting, the 'standard' method for gauging some countries' production, is neither consistent nor accurate for understanding Libyan production volumes. It is important to note that, just because ports close for various issues does not mean that production also shuts in. For example, several ports shut down in late December due to weather, but the fields kept producing. As such, exported volumes dropped over 170 kbpd in December vs. November 2017; however, production did not actually decline anywhere near that amount. Production estimation from cargo counting also requires waiting on the vessel to load. Genscape's High-Frequency Production Monitor ('Monitor') saves time and increases accuracy because it monitors field production changes daily.

Libya's December 2017 Crude Production

Despite severe storms that made monitoring somewhat difficult during parts of December, Genscape's Monitor projects Libyan oil production reached 926 kbpd in December.

Adjusting for the assumption that bad weather masked certain field signals, Genscape expects that Libyan oil production reached 977 kbpd in December 2017. Notably, the Monitor has a monthly standard deviation of 59 kbpd, which we expect to come into play during December. By adding volumes for both condensate and NGLs, Genscape forecasts that the total liquids production for December was 981 kbpd, or 1,032 kbpd adjusted for signals obscured by weather.

During the first half of December, Genscape consistently detected total liquids production surging above 1.10 mmbpd (the black line in the chart below represents the 5-day moving average). During the second half of the month, due to inclement weather and pipeline attacks, the Monitor showed a significant decrease in Libyan production.

According to an article by the Financial Tribune on January 2, 2018, 'Libya's total crude oil production dipped to 950,000 bpd last week, down from 1.08 million bpd as of December 18, a person with direct knowledge of the matter told Bloomberg.' (Note: the production cited by the FinancialTribune excludes condensate and NGLs, which Genscape's Monitor includes). Thus, total liquids production was close to 1.135 mmbpd as of December 18 and 1.05 mmbpd during the last week of December vs. the Monitor's expected production of 1.02 mmbpd during the same week.

The Monitor also correctly detected the Waha Oil Co ('WOC') production impact from the attack by unknown assailants on the Zaggut to Es Sider pipeline in eastern Libya on December 26. Just prior to the attack, the Genscape saw production of approximately 256kbpd, which is close to the 269kbpd WOC announced on December 17.

WOC appears to have announced on January 1 that production was back to approximately 255 kbpd. As of January 1, the Monitor detected production beginning to recover from WOC. The chart below shows the expected daily production levels for the Waha Oil Co. operated fields. To illustrate the impact from weather obscuring some signals, we have added an adjusted production level, which is the red line.

Finally, as it pertains to Waha Oil Co. production levels, Genscape correctly detected the consistent increase in production levels throughout the entirety of 2017, front-running the company's December 17 announcement by nearly four weeks.

Genscape designed the Monitor at the field/area level and then aggregates the data into a nationwide production volume that is available weekly and monthly - no export counting, no refinery utilization estimation, and no human 'sources' needed. And, it's difficult to hide production and claim compliance when the flare signatures tell the truth.

Rather than await cargo counting and agency monthly reports about Libyan production, it makes sense to incorporate Genscape's High-Frequency Libyan Production Monitor into the process and get earlier, reliable insight into crude production levels.

As its first test, we launched the monitor on the morning of OPEC's December OMR, prior to the report's release. The expected production level for November was accurate and within one standard deviation of what the agencies reported.

Notably, the High-Frequency Libyan Production Monitor is part of Genscape's African Crude Oil Supply Report, which provides the most valuable, comprehensive window available into the current state of African oil supply. Using Genscape's proprietary monitoring, Government and publicly available data, and imagery, the report combines an academic forecast and data science to provide a unique view of the rapidly changing oil-producing continent, with details for 26 countries and a specific focus on the conflict states of Libya, Nigeria, and Sudan/South Sudan. Click here to learn more about the African Crude Oil Supply Report.

Follow Devin Geoghegan on Twitter at @GlobalOilSD.