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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Can Libya Really Double Its Oil Output?

  • Libya’s oil production has stabilized at around 1.2 million bpd in recent months.
  • Libya’s NOC is looking to raise production to 2 million bpd within the next three to five years.
  • Investment from international oil companies will be crucial in realising this production capacity hike.
Libya

Before the removal of its long-time leader, Muammar Gaddafi, in 2011, Libya had easily been able to produce around 1.65 million barrels per day (bpd) of mostly high-quality light, sweet crude oil. Production had been on a rising production trend at that point, up from about 1.4 million bpd in 2000, and the country still had around 48 billion barrels of proved crude oil reserves – the largest in Africa. Although this output level was well below the peak levels of more than 3 million bpd achieved in the late 1960s, the National Oil Corporation (NOC) had plans in place before 2011 to roll out enhanced oil recovery (EOR) techniques to increase crude oil production at maturing oil fields. These plans were put on hold due to an increase in sectarian hostilities across the country but they are back in place now. A new ‘Strategic Programs Office’ (SPO) has been created by the NOC and it will orchestrate a rise in Libya’s production capacity to 2 million bpd in the next three to five years, according to a recent comment from NOC chairman, Farhat Bengdara.

Key to this plan succeeding will be the investment of international oil companies (IOCs), but there is a foundation of IOC interest to build upon. Prior to the removal of Gaddafi in 2011, numerous high-profile IOCs were either operating in Libya or had plans to. Given the civil war that has been raging on and off since Gaddafi’s removal, this number has dwindled, but a few hardy IOCs are still there, currently with a focus on Libya’s gas. One such company is Italy’s Eni, which – along with France’s TotalEnergies and the UK’s BP and Shell – have been at the vanguard of Europe’s efforts to secure alternative energy supplies to those from Russia, following the invasion of Ukraine in 2022. The government in Rome has pledged to eliminate Russian gas by 2025 and, to this end, has announced several new short- and medium-term measures to boost liquefied natural gas (LNG) and pipeline flows from other sources. Related: Oil’s Low Prices Draw Rash Of Hedging

Recently, the Italian oil and gas giant signed an agreement with the NOC that would see it invest around US$8 billion to produce about 850 million cubic feet per day (mmcf/d) from two offshore gas fields in the Mediterranean Sea. The deal – as stated by the NOC’s Bengdara - would involve the renewal of an existing agreement originally struck in 2008. Eni currently produces gas in Libya from its Wafa and Bahr Essalam fields operated by Mellitah Oil & Gas, a joint venture between the Italian company and the NOC. According to Eni, gas from the fields is transported to Italy through the 520 kilometre 8 billion cubic metres per year (bcm/y) Green Stream pipeline that crosses the Mediterranean Sea and lands in Gela in Sicily. These gas flows were interrupted at the beginning of the year due to unscheduled maintenance at the Mellitah Complex, according to Eni, but have since been restored to full capacity. It may be, therefore, that Italy is seeking to secure the stability of its gas supplies from Libya through further investment from its key oil and gas companies into the country and, more broadly, into other target suppliers in the region. 

Prior to this, Bengdara had also stated that he expected a separate program of offshore and onshore drilling to start within the coming months, under the leadership not just of Eni but of BP and TotalEnergies too. Back in April 2021, at a meeting between then-NOC chairman, Mustafa Sanalla, and the chief executive officer of 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. It 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 then-Total took a minority stake in 2019 – have the capacity to produce at least 350,000 bpd together, according to the NOC. The NOC added that the French firm would also “contribute to the maintenance of decaying equipment and crude oil transport lines that need replacing.”  

Having said this, the security and financial risks for IOCs working in Libya remain exceptionally high. Quite aside from the disjointed government apparatus and the ongoing civil war, the threat of further force majeures being implemented in key oil and gas hubs in the country remains ever present and is not likely to diminish any time soon. The root cause of this dates back to the lack of clarity in the agreement of 18 September 2020 as to how funds from Libya’s gas and oil sector would be divided up between the various warring political factions there. 

On that date just over two years ago, a deal was struck between Khalifa Haftar, the commander of the rebel Libyan National Army (LNA), and elements of the United Nations-recognised Government of National Accord (GNA). In the deal, Haftar made it clear that the resultant lifting of the oil blockade then in place would not last unless a precise framework was agreed upon about precisely how oil revenues would be divided up between various groups from then on. Such a framework has still not been agreed and the failure to do so has resulted in a series of blockades of various ports and installations. These included most the 60,000 bpd Brega operation, and the Zueitina port, with crude loadings average around 90,000 bpd. Production also stopped at Abuatufol, Al-Intisar, Anakhla, and Nafura. Just prior to this, the Sharara field in the west of the country, which can pump around 300,000 bpd, was also shut down and before this the El Feel oil field, which produces 70,000 bpd, was closed.

At various other points since then, farcical scenes have emerged at the top of the political structure in the country. July last year saw the GNU Prime Minister, Abdul Hamid Dbeibah, replace the widely-respected Mustafa Sanalla as chairman of the NOC with Bengdara, who is a long-time associate and friend of Dbeibah’s. Sanalla - who had received backing from both of Libya’s opposing legislative bodies - rejected Dbeibah’s authority to sack him, and warned Dbeibah not to touch the NOC or the oil revenues and contracts that it manages. Bengdara then held his own news conference at the NOC headquarters building and received the backing of two major NOC affiliate companies - Al Waha Oil, and Arabian Gulf Oil - before Al Waha then deleted its message of support. All of this followed the failed attempt by Fathi Bashagha – appointed prime minister of the ‘alternative government’ in the east of the country three months before – to seize power in Tripoli. This occurred amid the ongoing refusal of the Dbeibah - who was appointed through a United Nations-led process in 2021 - to hand over power until such a time as a properly elected government was voted into office by the people of Libya. 

It might be that the need of the West to keep securing alternative energy supplies away from Russia may lead to pressure being brought to bear on the NOC and the various political factions causing mayhem in Libya. The key to this would be to finally push forward on the terms of the original September 2020 agreement signed by Haftar and Maiteeq that included the formation of a joint technical committee to deal with the oil money disbursements. According to the official statement at the time on the role of the proposed technical committee: “It will oversee oil revenues and ensure the fair distribution of resources… and control the implementation of the terms of the agreement.” In order to address the fact that the GNA effectively holds sway over the NOC and, by extension, the Central Bank of Libya (in which the revenues are physically held), the committee would also “prepare a unified budget that meets the needs of each party… and the reconciliation of any dispute over budget allocations… and will require the Central Bank [in Tripoli] to cover the monthly or quarterly payments approved in the budget without any delay, and as soon as the joint technical committee requests the transfer.”

By Simon Watkins for Oilprice.com

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  • Mamdouh Salameh on March 29 2023 said:
    Libya has indeed the reserves and the ability to raise its crude production to 2.0 million barrels a day (mbd) in the next 5-6 year shaving hit 2-3 mbd production in the late 1966s and early 1970s. Moreover, its very high quality oil is very much in demand in Europe Libya has a ready market for its oil partly because of close proximity. Furthermore, there are many International Oil Companies (IOCs) who are ready to continue investing in Libya or start anew there.

    But to achieve its oil targets, Libya needs first and foremost political stability and foreign investments. Most of the major facilities and fields are disrupted from time to time shutting both production and exports.

    Once stability or a relative calm has been established in the country, IOCS will be keen to return to Libya motivated by projections that oil prices will start surging soon with Brent crude hitting $90 a barrel in the first half of 2023 an probably touching $100 before the end of the year.

    And with a continued robust global oil demand aided by a shrinking global spare oil production capacity including OPEC+’s, the global oil market badly needs Libya’s oil.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




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