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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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Libya Invites Oil Majors To Produce More Oil And Gas

  • Last week, Libya’s GNU announced the lifting of a force majeure on oil and gas exploration activities.
  • TotalEnergies and Eni have expressed interest in resuming operations in the country.
  • Libya’s crude production has been relatively steady in recent months at 1.2 million bpd.

Given the fragile supply-demand balance in the global energy market and the toxic inflation-interest rate mix with which many developed economies have been struggling, news of additional oil and gas supplies is welcome. Such news came last week from Libya, in which crude oil production has averaged as high as 1.261 million barrels per day (bpd) in the past month, with its Government of National Unity (GNU) announcing the lifting of a force majeure on oil and gas exploration activities in the country. In a 5 December statement, the GNU added that it is ready to provide the necessary support and the provision of a safe working environment for international oil companies (IOCs) and called on those with previous agreements to resume their operations. These sentiments were echoed by Libya’s National Oil Corporation (NOC). Whether or not such assurances will prove sufficient to lure in new IOCs to Libya remains to be seen but two heavyweights of the oil sector – Italy’s ENI, and France’s TotalEnergies – look set to continue their efforts in the conflict-ridden country. Before the removal of its long-time leader, Muammar Gaddafi, in 2011, Libya was not the twisted parody of the failed state that it is today. The country had easily been able to produce around 1.65 million bpd of mostly high-quality light, sweet crude oil and production had been on a rising production trend, up from about 1.4 million bpd in 2000. Although this output was well below the peak levels of more than 3 million bpd achieved in the late 1960s, the NOC had plans in place before 2011 to roll out enhanced oil recovery (EOR) techniques to increase crude oil production at maturing oil fields. Given this plan, there appeared scope to increase crude oil production up to the 2.1 million bpd targeted by Libya’s minister of gas and oil, Mohamed Aoun, and to hit the informal interim target of 1.6 million bpd by the end of 2023. It is apposite to remember as well at this point that Libya still has around 48 billion barrels of proved crude oil reserves – the largest in Africa. 

Related: The Oil Price Cap Continues To Baffle Traders

The core problem in this production plan has been the civil war across the country that has been raging in one form or another since Gaddafi’s removal in 2011. The onset of a new wave of optimism for the country as a whole, and for its full oil and gas potential to be realised again, came in September 2020. Preceding that month, a broad-based blockade of Libya’s energy infrastructure had caused its oil production to plummet from around 1.2 million bpd to less than 100,000 bpd at one point. On the 18th of September, though, as analysed in depth at the time by OilPrice.com, a deal was struck between Khalifa Haftar, the commander of the rebel Libyan National Army (LNA), and elements of the U.N.-recognised Government of National Accord (GNA). Haftar made it clear at that point that the resultant lifting of the oil blockade was only in place for one month unless a precise framework was agreed about precisely how oil revenues would be divided up between various groups from then on. 

Such a framework in all the detail required has still not been agreed and the failure to do so has resulted in a series of further embargoes on the oil sector, large and small, since then. The most significant recent example of the chaos that can be caused by such actions in Libya came earlier this year. April saw widespread blockades of various ports and installations, including the 60,000 bpd Brega operation, and the Zueitina port, with crude loadings average around 90,000 bpd, and 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. These sites are key suppliers of mostly high-quality light, sweet crude oil, notably including 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. Overall, during that wave of blockades and shutdowns, Libya was losing around 550,000 bpd of its oil production. 

At various other points throughout this year, farcical scenes have emerged at the top of the political structure in the country, such as it is. July this year saw the GNU Prime Minister, Abdul Hamid Dbeibah, replace the widely-respected Mustafa Sanalla as chairman of the NOC with Dbeibah’s long-time associate, Farhat Bengdara, who was governor of the Central Bank of Libya from 2006 to 2011. Sanalla rejected Prime Minister Dbeibah’s authority to sack him, and in a fiery television appearance, the former NOC chairman – who had received backing from both of Libya’s opposing legislative bodies - warned Dbeibah not to touch the NOC or the oil revenues and contracts that it manages. The would-be NOC chairman, 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. Bashagha, and the Nawasi Brigade militia who accompanied him, were eventually driven out of the city by various of the many factions fighting there. This occurred amid the ongoing refusal of the Dbeibah - who was appointed through a United Nations (UN)-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. Bashagha, who led three such coup attempts in three months, is unlikely to stop his current attempts to seize power, given the distinct possibility that recent talks held in Egypt at the behest of U.N. envoy Stephanie Williams to reach an agreement on a new constitutional framework and a timeline for elections might see him side-lined. 

In short, Libya continues to exude all the friendly, reliable, and stable vibe of a puff adder on Benzedrine, so its appeal to IOCs would appear limited. Nonetheless, for various geopolitical and economic reasons related to legacy in the region, both Italy’s ENI and France’s Total Energies look set to continue their efforts in the country and even to expand them. At the beginning of November, newly appointed chairman of the NOC Bengdara stated that Libya plans to finalise a US$6-8 billion deal with ENI to develop offshore gas fields as it refocuses on boosting its gas production and tapping some 80 trillion cubic feet of proven reserves. According to previous comments from Bengdara, ideas are in place to install another gas pipeline from the east of Libya to Greece to augment the potential export capacity inherent in the gas pipeline already in place from Libya to Italy. In addition, Bengdara has said there could be another pipeline linked to the Damietta LNG plant in Egypt, with ENI in place as the leader of the SEGAS consortium that owns Damietta LNG. Bengdara added that there is also a program of drilling offshore and onshore that will start soon, under the leadership of ENI and BP. “We are in talks with TotalEnergies to invest more in Libya and increase production, and other companies of course,” he highlighted. 

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.”  

By Simon Watkins for Oilprice.com


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