Libya aid to subsidise Tunisian energy deal
A new deal with Libya could help Tunisia meet its short-term demand for fossil fuels and opens up the possibility of a revival for the planned $2bn refinery in Skhira.
Under the terms of the agreement, signed in June, Tunisia will purchase 10m barrels of oil between August 2013 and year-end 2014, at reduced prices. The crude is to be delivered at a rate of 450,000 barrels per month between August and December 2013, and 650,000 barrels per month in 2014. The sale price was not disclosed, but Libyan news outlets indicated that the parties had agreed upon a preferential rate. Tunisian economy minister Ridha Saidi has said initial payment would be deferred, although the length of the deferment has not been specified.
Tunisia, which has a small reserve of oil and a slightly larger reserve of gas, has been a net importer of oil since 2000, with the exception of 2009, when output increased and consumption fell. According to the Tunisian Petroleum Enterprise (Entreprise Tunisienne d’Activités Pétrolières, ETAP), monthly oil production stood at around 2m barrels as of January 2013.
Oil imports have weighed heavily on the balance of payments, which has already been stressed as FDI, European demand for exports and tourist revenues have declined. In late June, foreign currency reserves dropped to TD10.47bn (€5.15bn), equivalent to 94 days of imports – down from 100 days at the same point last year and 140 days in late 2010. This is the first time that reserves have dropped below the 100-day mark, the level the Central Bank considers adequate for financial security.
The energy sector is also a drag on the fiscal balance due to fuel subsidies, although the government is moving ahead with a reform programme to help reverse the trend of rising deficits. The state lowered fuel subsidies in March for the second time in six months, putting up pump petrol prices by 6.8%. The cut is expected to reduce expenditures in the 2013 budget by TD500m (€246m), down to TD4.2bn (€2.07bn).
Tunisian and Libyan representatives discussed a handful of other joint projects at the June meeting, including a $2bn refinery in Skhira, which is expected to serve both domestic and foreign markets. The facility is slated to have an initial capacity of 120,000 bpd of oil equivalent, with the possibility to increase this to 250,000 bpd if adequate supply is confirmed. The Libyan oil and gas ministry confirmed in June that it would participate in the Skhira refinery, although its role in the project was not specified.
The project was originally awarded to Qatar Petroleum in 2007, but it was put on hold as declining global oil prices undermined the motivation for the refinery. Libya agreed to take over in late 2010, including tentative plans to process Libyan crude. However, plans were derailed again by political upheaval in both countries.
In 2012, Qatar Petroleum announced that it would re-join and revive the project but that rising costs required the participation of an additional partner. The sign-on of Libya’s oil and gas ministry in June could provide the support needed to get this key project off the ground, although its role has yet to be defined. Skhira would be Tunisia’s second refinery, more than quadrupling capacity from the current 34,000 bpd.
There had been discussion about building a pipeline to supply the Skhira facility with Libyan crude. At the June meeting, parties reportedly agreed to set up a working group to study the feasibility of providing Libyan oil as feedstock. According to local media, this could include building a link from Libyan oilfields to the Trapsa oil pipeline that runs to the Skhira oil terminal. The same working group is also expected to produce feasibility studies for a proposed 260-km gas pipeline from Libya’s Mellitah gas complex to Gabes.
While its reserves are limited in comparison to regional giants such as Algeria and Libya, Tunisia is working to maximise the value of domestic oil and gas in an effort to reduce energy costs in a sustainable way. The state is working to encourage new exploration, but Tunisia will likely need to see a return to economic and political stability before investment picks back up to 2010 levels. Nonetheless, the recent partnership with Libya should lay the groundwork for a higher-performing sector.