There are still high hopes for Libya’s oil industry despite weeks of disruption to its output. However, as the country continues to face political uncertainty and disruption to production due to aging infrastructure, several changes will have to be made if it hopes to develop its energy industry to its full potential.
The minister for oil and gas in Libya, Mohammed Oun, stated in December that the country has a “promising future” in oil and gas with the potential to generate enormous wealth for the country. He explained, "We have many oil and gas discoveries that can be developed, and it is possible to open the door to foreign investments."
Libya is thought to hold 48 billion barrels of crude, making it the world’s ninth-largest oil nation, as well as 52 trillion cubic feet of natural gas. Its production levels stand at an average of around 1.3 million bpd, with the hope of achieving 1.8 million bpd in 2022. Unlike many OPEC+ members, Libya is exempt from the coalition's production quotas due to the country's volatile security and economic situation, giving it the potential to up production on its own terms.
Much like other African nations, Libya hopes to exploit its natural oil reserves to support the development of the national economy. While the International Energy Agency and many state governments around the world push for the transition away from fossil fuels, many poorer countries see this as their time to shine. Countries that have not been able to profit from the ‘black gold rush’ of the past can now develop their oil industries to meet the ongoing global energy demand.
However, damage to a pipeline last week has already thrown a spanner in the works. The need to halt output due to repairs on the damaged pipeline resulted in 200,000 bpd of oil being taken offline. Due to disruptions, production levels fell to 700,000 bpd last week, the lowest in over a year. Supply issues in Libya and Kazakhstan, as well as concerns around the Omicron variant of the coronavirus, led to a fall in oil prices this week.
Libya has repeatedly faced problems with its oil output, as a disagreement between Petroleum Facilities Guards (PFG) and the National Oil Company last month at the country’s largest oil field, Sharara, sent 350,000 bpd offline. El Sharara provides a critical supply of crude to Libya’s largest refinery, the Zawia plant, which produces around 120,000 bpd. The outage also affected Ruwais, Zawia, and Khums station gas supplies.
The PFG is the paramilitary force tasked with protecting energy facilities across the country. However, for several years it has been closing plants as a means of protest to push for higher salaries and for political demands. To get oil production back on track, the government has had to come to several agreements with the PFG in recent years.
In this case, a presidential election was expected to be held on December 24th, which did not go ahead due to a dispute over suitable candidates. It was to be the first election of this kind since the overthrowing of dictator Muammar Qaddafi in 2011. The election, supported by the UN, was postponed for a month with the parliamentary committee overseeing the process saying it would be “impossible” to hold the vote as originally scheduled. With uncertainty around whether the election will take place as (re)scheduled, officials worry this could lead to conflict in the country, which could further hinder the country’s industries.
The end to the three-week militia blockade across several western oilfields meant that production levels once again rose to 1 million bpd this week. This was aided by the completion of repairs on the damaged pipeline. However, Libya’s ageing infrastructure has faced years of neglect, making future outages more likely. Weak infrastructure and the volatile relationship between the government and the PFG means that the country’s oil output is uncertain week to week, an issue that has repeatedly hindered Libya’s foreign investment prospects.
This week, Libya’s oil sector once again faces uncertainties due to weather-related issues. Bad weather led to the closure of ports, the Es Sider, Ras Lanuf, Hariga and Zueitina terminals, in the East of the country on Saturday. The closures are expected to last for over a week and could be extended if poor weather conditions continue.
The potential for Libya’s oil industry is significant, as it holds one of the world’s largest crude reserves. But it must invest in its ageing infrastructure to ensure it can handle greater oil output. In addition, ongoing political unrest could hinder the country’s output, ultimately deterring international oil firms from investing. If the presidential elections go ahead and the country can achieve a relative level of political stability, it could eventually attract greater foreign investment and develop its energy sector to its full potential.
By Felicity Bradstock for Oilprice.com
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