Coronavirus coverage might overshadow the recent developments in Libya, yet rarely has the situation on ground been more complex and difficult to predict. Field Marshal Khalifa Haftar first announced that he is about to take control of entire Libya, allegedly spearheading a “popular mandate” to consolidate the North African country, only to later declare a month-long ceasefire for the entire holy month of Ramadan. The internationally-recognized government of National Accord (GNA) riposted by declaring that it does not trust Haftar and that its fighters would continue fighting, disregarding the unilateral ceasefire announced by the Field Marshal. More fighting, less long-term certainty and no thought for Libya’s ailing oil sector – a combination of things that Libya needs the least on its road to recovery.
Field Marshal Haftar’s army has been fighting to wrest control over Tripoli for 13 months already, yet the last 2-3 weeks witnessed a series of military victories of militias associated with the GNA. Sorman and Sabrata, two cities on the Mediterranean coast, have come under effective GNA control, complicating Haftar’s quest of besieging Tripoli. The alteration in the ongoing civil war’s course might be very well linked to Turkish armed forces increasing their involvement by means of drone reconnaissance flights and airstrikes against Haftar airbases, as well as military equipment and means of transport. It is against this background that the ceasefire should be assessed, just as the May 01 shelling of the Zanata neighborhood in Tripoli, fighting has reached an impasse and both sides see more benefit in taking the heat out of the fighting so that they can prepare for further military action.
With his strategic position weakened, Field Marshal Haftar is creating some smoke and mirrors for the international community, another round of lengthy deliberation on how the unified post-civil war Libya should come about. Even countries generally assumed to favor Haftar as the new Libyan national leader have lobbied against the sudden announcement – the UAE which has just recently supplied a sophisticated air missile defense system to Haftar has called upon all Libyan parties to stick to political process, French authorities claimed that unilateral action will not solve the conflict. Related: This Could Be The Beginning Of A Tremendous Oil Rally
Russia also protested against the unilateral character of Haftar’s announcement, saying that whatever future Libya is to have, it must take place with a social support across all sectors.
Yet all relevant parties are cognizant of the fact that absent any proper UN brokerage the political process is at best frozen, if not dead entirely. UN talks, the (seemingly) only international platform for constructive dialogue has seen its capacities debilitated this spring, with the position of the UN special envoy on Libya having been vacant for more than 2 months already. The spread of coronavirus might also render constructive talks difficult – heretofore Libya has only had 60-odd cases with 3 reported casualties, however the deadly virus might become a much bigger threat than it is now, especially in Tripoli where most previous cases were diagnosed. With no real prospect of a mediated outcome, where does this leave Libya’s embattled oil sector?
Graph 1. Libya’s Oil Production in 2020 (million barrels per day).
Source: Thomson Reuters.
Since January 18 when Field Marshal Haftar started the ongoing blockade of all Libyan ports and export terminals, Libyan oil output has been in a freefall. Back in the day the chairman of the Libyan NOC Mustafa Sanalla predicted that if no measures are taken to counteract Haftar, Libya’s oil production would plummet to 72kbpd, all the way from 1.2mbpd in mid-January. It might have seemed a very implausible proposition back in the day, but it turned out to be a prophetic one – as of April 30, Libya’s production stood at 95kbpd. The CEO of the Italian oil firm ENI Claudio Descalzi stated during one of his most recent executive calls that he expects Libyan production to come back to normal around end June. It remains to be seen what could potentially kickstart such an output rebound.
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Currently only two oil-producing objects are safe from any military blockade – Libya’s offshore assets, Bouri and Al Jurf, both located along the Tunisian maritime border. The ENI-operated Bouri field was Libya’s first offshore venture, having decommissioned the previous floating storage and offloading vessel, Bouri is now utilizing a brand new FSO with 1.5 MMbbls of storage capacity. The Total-operated Al Jurf has a production capacity of 45kbpd and is using the Farwah FPSO, wielding an aggregate storage capacity of 0.9 MMbbls. Given that the Libyan national oil company holds 70% of Bouri and 50% of Al-Jurf, its share of Libya’s total output stands around 60kbpd, which has left an indelible mark on NOC’s financial stature.
According to data provided by the Libyan NOC, the cumulative financial losses arising from the production blockade amount to $4.35 billion as of end-April. In terms of output lost, some 110 million barrels have been missing, with Libya’s output effectively consisting exclusively of offshore fields. The Libyan NOC’s income revenues have parched up compared to last year’s relative financial bounty, February incomes were at a mere $555 million, roughly a quarter of last year’s average. With oil production decreasing to the lowest minimum possible, nationwide availability of transport fuels has been deplorable. Especially dire is the fuel situation in the capital Tripoli – there are no gasoline or diesel stocks there, whilst Benghazi has some 14 days’ worth of gasoline inventories and 2 days’ worth of Diesel.
By Viktor Katona for Oilprice.com
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