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Cyril Widdershoven

Cyril Widdershoven

Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently, he holds several advisory positions with international think tanks in the Middle…

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Stability In Libya To Start An Oil Race

Libya

Libya’s ongoing civil war, which has resulted in a hothouse environment for extremists, Da’esh supporters and regional coalitions, could be heading to a slowdown in activity. Arab media sources claim that the two main adversaries, Libyan general Khalifa Haftar, currently ruling the east of the country via the Libyan national army (LNA), and UN-backed Fayez Al Serraj, Head of the Presidential Council, have reached an initial agreement to cooperate. During a meeting in Abu Dhabi, both parties seem to have agreed to form communication channels between the PC and the Operation Dignity (which was described by Haftar as the Libyan national army). At the same time, Al Serraj en Haftar has agreed that the general will be nominated for president of Libya in March 2018. Such an agreement would be a major success, not only for the two Libyan factions but especially for the main power brokers, Egypt and the UAE. The next weeks will be crucial for a successful implementation, as there is already opposition to the deal. Colonel Mahmoud Al Zagal, who is the commander of the Libyan National Guard (LNG) in Tripoli, openly has refuted the option that Haftar is in the picture.

Egypt’s President Sisi is in Abu Dhabi discussing Libya’s future with the Crown Prince and Deputy Supreme Commander of the UAE Armed Forces Sheikh Mohammed bin Zayed Al Nahayan. Egyptian and Emirati forces are conducting military operations inside of Libya in their fight against the Muslim Brotherhood and D’aesh. The UAE has been a longtime supporter of Egypt’s fight against the Muslim Brotherhood, D’aesh and Al Qaeda. Related: Russia Inclined To Extend Output Cut Deal With OPEC

It now seems that the Cairo-Abu Dhabi axis has been successful in setting up a feasible Libyan power- sharing agreement. The talks seem also to have yielded enough support to set up a civilian-led Libyan national army, while support is given to unite state institutions. Still the position of the Libyan oil company or its nationwide operations have not been mentioned.

Even though most media attention has been focusing on the direct political-military Libyan discussions, the Cairo-Abu Dhabi axis also is looking at the oil and gas sectors of the North African country. Since the removal of Muammar Qaddafi in 2011, the oil and gas sectors have been in shambles. Optimism about a possible full return of Libyan oil and gas volumes to the market have been quelled by the ongoing civil war, the implosion of the state-owned national oil company and the lack of interest of international operators to return. Oil production has plummeted from prewar highs, although some positive developments have been seen in recent weeks. Media reports that Libya could be soon ramping up its oil production have been met by mixed reactions, as this could have a detrimental effect on global oil prices, due to an increased oil glut in the market. Egypt has always had a keen interest in importing crude oil from Libya, which is doubly important now after the political crisis with Saudi Arabia. Still, attacks are continuing to block part of production volumes again. Libya’s production capacity at present is slated to be around 750,000 bpd, but only if no infrastructure is being blocked or blown up.

On the sidelines a totally power game is being played. Egyptian and Emirati oil and gas companies, investors and oilfield services, are preparing for their own Arab Hydrocarbon Eldorado. Backed by the staunch support of the Cairo-Abu Dhabi axis leaders, Egyptian and several Emirati companies have been preparing to enter the Libyan oil and gas sectors in full. The current deal, if put in place, would bring back stability to the region and remove a lot of the risk associated with investing in the former North African OPEC leader. Already last month news emerged that Egypt’s national oil company EGPC and its oilfield services affiliate Petrojet are preparing to reactive their Libyan operations. The latter has been without any doubt on the table in Abu Dhabi, between the Libyan factions but also during the Egyptian-UAE meetings. Already cooperation exists between EGPC and NOC, the Libyan national oil company. A long list of other Egyptian entities, such as Egyptian Drilling Company (EDC), Challenger Drilling or ENNPI, will be lining up. Others such as TAQA Arabi are also looking to set up shop in Libya. The main focus of all of this will be to revamp Libya’s oil and gas infrastructure, especially field operations and oil-gas pipelines. New oil and gas fields will be taken on later. Another key point of interest is the need in Libya to revamp and expand the natural gas infrastructure, not only to the Libyan industrial basin but also to get a wider domestic consumer base. TAQA Arabia, currently heavily involved in the nationwide Egyptian domestic gas infrastructure developments, is a logical competitor for this. Related: Oil Prices Crash To Pre-OPEC Deal Levels

Emirati companies, including ADNOC subsidiaries, are also expected to flock to Libya after a real political stabilization is in place. Looking at the ongoing discussions inside of Abu Dhabi’s main oil and gas entities, Libya could be a new hotspot. Abu Dhabi’s TAQA, ADNOC’s NPPC, Mubadala and independent Petrofac, are expected to be the frontrunners to reap the rewards of the UAE military-economic support for Libya.

The competition for Egyptian-Emirati companies in Libya will be stiff. However, the current market situation is not a real liberal or open one. Geopolitical interference, and direct power broker relations with the two factions will be playing a major role in the upcoming decision making process. European and American services companies, dreaming about a new Libyan revival, should be re-assessing the facts on the ground. The Arab political-military marketing machine is in place. El Serraj and Haftar will understand where their allegiances are. The combined power of the Pharaoh and the Falcon is not to be underestimated. In the present fragile political-military situation no bargaining is allowed.

By Cyril Widdershoven for Oilprice.com

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