The resignation of Libya’s deputy oil minister, Refaat al-Abbar, last week threatens to make the current uneasy situation in Libya’s oil sector even worse. With close ties to the Benghazi-based Libyan National Army (LNA) and to the Tripoli-based Government of National Unity (GNU), he is regarded as a trusted figure by both sides in the country’s ongoing civil war. He is also seen by potential foreign investors as an important figure for some semblance of stability in the country that may have presaged renewed international investment into it.
As it stands, Libya is currently producing around 1.2 million barrels per day (bpd) of crude oil, but has plans to increase this to 1.45 million bpd by the end of this year, 1.6 million bpd within two years and 2.1 million bpd within three to four years. All other things factors being equal, these targets would be entirely achievable, as Libya has around 48 billion barrels of proved crude oil reserves – the largest in Africa. Before the removal of long-time leader, Muammar Gaddafi, in 2011, the country had been easily able to produce around 1.65 million bpd of mostly high-quality light, sweet crude oil, notably the Es Sider and Sharara export crudes that are particularly in demand in the Mediterranean and Northwest Europe for their gasoline and middle distillate yields.
Moreover, production had been on a rising production trajectory, up from about 1.4 million bpd in 2000, albeit well below the peak levels of more than 3 million bpd achieved in the late 1960s. The NOC also had plans in place before 2011 to roll out enhanced oil recovery (EOR) techniques to increase crude oil production at maturing oil fields. As such, the NOC’s predictions of being able to increase capacity by around 775,000 bpd through EOR at existing oil fields looked well-founded.
All of this, however, was sidelined with the onset of the civil war after the removal of Gaddafi, with oil volumes remaining subject to wild swings until September 2020. The 18th of that month saw a tenuous agreement signed between Khalifa Haftar, the commander of the rebel LNA, and elements of Tripoli’s U.N.-recognised GNA to lift the blockade of Libya’s energy infrastructure. At that point, Libya’s crude oil production was averaging only around 70,000 bpd. Key parts of that deal, which was initially only intended to last for one month, was an in-principle agreement to look into establishing a commission to determine how oil revenues across Libya are distributed and to consider the implementation of a number of measures designed to stabilise the country’s perilous financial position. According to figures from the Libyan National Oil Corporation (NOC), the blockade of Libyan oil that ran from the 18th of January to the 18th of September when the deal was agreed and the blockade was lifted cost the country at least US$9.8 billion in lost hydrocarbons revenues.
Around six months after the tentative September 2020 agreement, though, the power demarcation issues surrounding Libya’s oil industry had still not been clearly set out and rivalry between the oil ministry and the NOC was intensifying. In March this year, the GNU formed a new oil ministry, appointing Mohamed Oun as its head. He made it clear how he wanted the responsibilities split: the ministry would control the big picture elements of the oil and gas sector – crucially, including the awarding of licences – while the NOC would focus on increasing oil and gas production. This would mark a major reduction in the responsibilities of the NOC, which, under Mustafa Sanalla, had gradually been expanding its remit to include many tasks that would usually be regarded as being in the purview of a country’s oil ministry.
In an attempt to resolve these impasses between the oil ministry and the NOC, meetings were held between GNU Prime Minister, Abdul Hamid Dbeibah, and Oun and Sanalla but no lasting agreement was made. To make matters even worse, the 6th of September saw the oil ministry release a statement saying that its recommendation in August to change the board of directors of the NOC - including the dismissal of Sanalla as chairman – still stood. This was supported by the suspension of loading operations at Es Sider and Ras Lanuf by protestors demanding the removal of Sanalla, with support among the local Petroleum Facilities Guard that protects the key eastern ports. On Sanalla’s side, moves were also afoot for significant on the ground protests, together with much backroom dealing between Sanalla’s supporters and Prime Minister Dbeibah. Following this, Dbeibah stepped in to say that Sanalla would, in fact, be staying in his post.
Last week’s resignation of Deputy Oil Minister al-Abbar will only add to the sense of chaos that surrounds Libya’s oil sector, with the negative ramifications that this has for securing any meaningful investment from foreign sources. According to several oil industry sources, Libya had been in conversation with a various international oil companies to invest in Libya, with Abbar playing a part in those initiatives. This would have built on the positive momentum generated just over a year ago when, at a meeting between NOC chairman Sanalla, and the chief executive officer of oil and gas giant, TotalEnergies, Patrick Pouyanne, the French firm agreed to continue with its efforts to increase oil production from the giant Waha, Sharara, Mabruk and Al Jurf oil fields by at least 175,000 bpd. TotalEnergies also agreed to make the development of the Waha-concession North Gialo and NC-98 oil fields a priority, according to the NOC. The Waha concessions – in which the French oil and gas firms took a minority stake in 2019 – have the capacity to produce at least 350,000 bpd together, according to the NOC, which added at that time that TotalEnergies would also ‘contribute to the maintenance of decaying equipment and crude oil transport lines that need replacing.’
Given this continued factionalism across the country, there is no reason to believe that even if an agreement is made it will last any longer than any other similar agreement, including the key September 2020 one. This means that Libya’s oil production will be as subject to sudden supply drop-offs as it has been since 2011, with sudden blockades the most likely response of both sides to any perceived slight to their interests. These ongoing disagreements could then spiral – as they have often done – into a full-scale shutdown, as elements of the prevailing precarious ceasefire breakdown. In any event, the NOC may conclude that it is necessary – from a financial perspective (and/or a political one) – to shut some or all of Libya’s major eastern oil fields operated by its subsidiary, the Arabian Gulf Oil Co., given the country’s ongoing budget crisis.
By Simon Watkins for Oilprice.com
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