Government approves establishment of oil refinery in south Libya – in Sharara oilfield

Rounding up the government’s Seventh Regular cabinet meeting Monday, Official Spokesperson Mohamed Hamuda revealed that the government had approved the establishment of the first refinery in the El Sharara oilfield.

This will also include a plant to produce cooking gas.

The decision also prescribes that royalties and taxes by participating foreign oil companies and concession contracts are to be invested in the completion of maintenance work.

No more details were given by the government.

Background

It will be recalled, however, that the plan to build new regional refineries is not new. On 30 October 2013, the then Prime Minister Ali Zeidan announced that a decision had been taken by his government to build two new oil refineries.

The larger of the two refineries with a capacity of 300,000 barrels would be built in Tobruk while the smaller one with a 50,000 barrels capacity would be in the southern town of Ubari. Zeidan had stressed that these would be to produce fuel for local consumption.

Decentralization, diversification and import substitution

Building new refineries would tick many boxes. It is one of the easiest and obvious means of diversification of incomes and reducing the cost of imports such as refined fuel products.

Libya needs to develop its downstream capacity in order to take advantage of its natural local advantages as well as help the economy and diversification.

A refinery in the south would also tick the political decentralization box as well as solve the acute supply shortage to the south of fuel and cooking gas.

The announcement by Zeidan that the Ubari refinery would have a capacity of only 50,000 barrels, however seemed at odds with expert views at the time that refineries need to be of a capacity of at least 300,000 to make them commercially competitive.

It was unclear at the time why its capacity was not increased for possible export to sub-Saharan Africa, for example.