| Economic articles
Al-Shalwi: “Ras Lanuf Refinery Between Crude Oil Exports and Local Refining”
Written by: Oil and economic expert Abdulmonsef Al-Shalwi, presenting an objective oil-economic analysis for decision-makers in Libya.
Libya is currently witnessing the return of one of its most important strategic oil assets to full national operation: the Ras Lanuf Refinery and Industrial Complex. After years of shutdowns and technical, security, and operational challenges, the refinery has officially returned under the control of the National Oil Corporation and full sovereign management.
This has revived a major economic and technical question frequently discussed in oil, economic, and policy-making circles:
Is it economically better for Libya to operate the Ras Lanuf refinery and refine oil locally, or would exporting crude oil directly be more profitable for the state?
The scientific answer is neither simple nor one-sided. It depends on a complex set of technical, economic, financial, and strategic variables, including the refinery’s nature, product composition, future oil prices, domestic subsidy policies, and the growth of local energy demand.
An objective approach therefore requires studying both scenarios from a national-interest perspective in the short, medium, and long term.
First: Technical and Economic Characteristics of the Ras Lanuf Refinery
The Ras Lanuf refinery is not merely a conventional refining unit. It is part of an integrated industrial complex linked to petrochemical industries and the production of intermediate and heavy derivatives. Technically, it was designed to feed downstream industrial activities, not just produce fuel for local consumption.
Its targeted refining capacity is around 220,000 barrels per day, which is relatively large compared to Libya’s domestic market size. A significant portion of its output — especially diesel — would be directed toward:
- The local market to meet growing fuel demand.
- Petrochemical industries and industrial complexes connected to the refinery.
This means the refinery’s viability cannot be evaluated solely on direct profit margins from fuel sales. It must also include industrial added value, reduced imports, supply security, and indirect economic impact.
Second: Scenario One — Keeping the Refinery Shut and Exporting Crude Oil
Under this scenario, the entire 220,000 barrels per day would be exported as crude oil without local refining.
According to estimates based on international forecasts — including Goldman Sachs expectations for oil prices in 2026 reaching around $90 per barrel — Libya’s oil cash flow could reach approximately:
- $31 billion in total cash flow after deducting partners’ shares and some existing local refining operations.
However, with Ras Lanuf remaining inactive, Libya would continue importing large amounts of fuel, especially diesel, to meet domestic demand.
After deducting fuel import costs, net oil income would decline to approximately:
- $23 billion in 2026
- Equivalent to roughly 151 billion Libyan dinars based on the exchange rate used in the estimates.
Looking ahead to 2030, international estimates — including Oxford Economics forecasts — suggest global oil prices may decline due to the gradual energy transition and increasing pressure on fossil fuels.
In that case:
- Cash flow could fall to around $25 billion
- Net income could decline to approximately $19 billion
- Equivalent to only around 93 billion Libyan dinars
This highlights a crucial issue:
Full dependence on crude exports makes Libya’s economy more vulnerable to global oil market fluctuations without creating real local industrial added value.
Third: Scenario Two — Operating the Ras Lanuf Refinery
In this scenario, 220,000 barrels per day would be redirected from exports toward domestic refining.
Naturally, this would reduce crude export volumes, but the refinery would produce:
- Diesel
- Kerosene
- Liquefied petroleum gas (LPG)
- Heavy products
- Feedstock for petrochemical industries
Part of these products would supply the local market, while another portion could be exported or used in value-added industries.
According to some economic estimates, expected returns in this scenario could reach approximately:
- 152 billion Libyan dinars in 2026
This is close to the crude export scenario, meaning the short-term direct financial difference is not decisive.
However, by 2030, due to changes in global oil markets, returns could decline to around:
- 82 billion Libyan dinars
At this stage, the real challenges begin to emerge, because operating the refinery alone does not automatically guarantee maximum economic returns, especially if current subsidy policies and uncontrolled energy consumption continue.
Fourth: The Decisive Factor — Subsidy Policy and Energy Consumption
One of Libya’s biggest economic challenges is not only production or refining, but local energy consumption patterns.
Libya ranks among the countries with extremely high fuel consumption relative to the size of its economy and population, due to:
- Broad fuel subsidies
- Very low domestic fuel prices
- Smuggling
- Poor consumption efficiency
- Lack of energy-saving policies
Many economic studies indicate a strong relationship between economic growth and energy consumption, estimated in some cases at around 64%. This means uncontrolled economic growth could lead to a sharp increase in local fuel demand.
This creates a serious issue:
The more subsidized domestic consumption expands, the more oil is diverted from exports to the local market, reducing state cash revenues.
Fifth: Is Refining Better Than Crude Exports?
Scientifically and economically, it is impossible to say absolutely that one option is always better than the other.
The outcome depends on accompanying conditions.
Operating the refinery becomes more beneficial when:
- Fuel import bills are reduced.
- The refinery is linked to value-added petrochemical industries.
- Technical operating efficiency improves.
- Subsidy policies are gradually reformed.
- Libya’s overall oil production capacity increases.
- The refinery is managed according to high commercial and economic standards.
Meanwhile, crude exports become more profitable when:
- Oil prices are very high.
- Global refining margins are weak.
- Local operating and maintenance costs rise.
- Refinery efficiency is low.
- Subsidized domestic consumption continues growing without controls.
Sixth: The National Strategic Dimension
Beyond direct financial calculations, there is an important strategic dimension.
Having domestic refining and downstream industrial capabilities contributes to:
- National energy security
- Reducing dependence on imports
- Creating industrial jobs
- Supporting regional development
- Localizing oil industries
- Building local value chains
However, achieving success in this path requires careful economic management, because local refining without parallel economic reforms could become a financial burden instead of a source of added value.
Conclusion
The economic and technical reality surrounding the Ras Lanuf refinery is not black and white. It lies in a complex middle ground shaped by market dynamics, energy policies, and public policy considerations.
Operating the refinery may provide Libya with major industrial and strategic value, but it does not automatically guarantee maximum cash revenues, especially under high subsidies and rapidly growing energy consumption.
On the other hand, relying entirely on crude exports may generate higher cash flows during certain periods, but it leaves Libya’s economy hostage to global oil market fluctuations without genuine value diversification.
Therefore, the most balanced solution may not be choosing between exports or refining, but rather combining both intelligently through:
- Increasing total oil production,
- Improving refining efficiency,
- Expanding petrochemical integration,
- Gradually reforming subsidy policies,
- Controlling growth in domestic energy consumption.
Ultimately, the issue is not only how much oil Libya produces, but how every barrel is managed in a way that serves the country’s long-term economic future and national stability.
