Given that Libya has exhibited all the stability of a puff adder on benzedrine since the West removed its longstanding leader, Muammar Gaddafi, in 2011, it is little wonder that it has found attracting foreign investment into its flashpoint oil and gas sector a tad tricky since then. It is a testament, though, to Libya's hydrocarbons potential that any significant lull in hostilities between the multitude of self-interested factions in the country is sufficient to re-engage the interest of several hardy oil and gas companies. Italy's Eni is one such company, with an announcement last week that it is to sign an agreement with Libya's state-owned National Oil Corporation (NOC) that will 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 chairman, Farhat Bengdara, in a television interview with the local al-Masar station - 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 eight billion cubic metres per year (bcm/y) capacity 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. According to the NOC's Bengdara, the reduced exports to Italy were a result of Libya's preference at that point to send gas for electricity production instead. 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. Like all other European countries, Italy is seeking to offset the loss of Russian gas and oil supplies following the invasion of Ukraine in February 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.
One highly notable success in this context, which may also boost gas flows into Europe more broadly, was the announcement by Eni - in conjunction with U.S. hydrocarbons giant, Chevron - of a major new gas discovery in the 1,800 square kilometre Nargis offshore area concession. This discovery followed the announcement in December 2022 that the two companies had hit at least 3.5 trillion cubic feet of gas with its Nargis-1 exploration well in the eastern Nile Delta, about 60 kilometres north of the Sinai Peninsula. As analysed in depth by OilPrice.com, Eni said the Nargis-1 well find confirms the validity of its focus on Egypt offshore: "[â¦] which [we] will further develop thanks to the recent award of exploration blocks North Rafah, North El Fayrouz, North East El Arish, Tiba and Bellatrix-Seti East". This all follows Eni's discovery of the huge Zohr field in the East Mediterranean in 2015.
As Libya tries to main gas production of at least 1.5 billion cubic feet per day (bcf/d), Bengdara said back in November that the upcoming US$8 billion deal with Eni would be a key part of Libya's refocusing its efforts on boosting its gas production and tapping some 80 trillion cubic feet of proven reserves. According to previous comments from the NOC chairman, ideas are also 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. He 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 [also] in talks with TotalEnergies to invest more in Libya and increase production, and other companies of course," he highlighted.
These plans for Libya's gas sector were announced in tandem with its plans for the development of its oil sector, with Bengdara stating that Libya wants foreign investment in order to be able to boost its oil production up to 2 million barrels per day (bpd) in the next three to five years. According to industry figures, Libya - which does not have an OPEC quota - pumped 1.17 million bpd in December, and Bengdara said last week that its oil and condensate production has stabilised now to around 1.255 million bpd. Having said all this, it is apposite to note that the legality of any deals for gas or oil signed by Bengdara or the Government of National Unity (GNU) in Tripoli that appointed him could be challenged at any point by the Libya's eastern-based parliament.
The core problem in this respect has been the ongoing 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 political factions active 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 which Haftar made it clear that the resultant lifting of the oil blockade then in place would not last unless a precise framework was agreed 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 further embargoes on the oil sector, large and small, since then. The most significant recent example came last April with widespread blockades of various ports and installations. 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. Overall, during that wave of blockades and shutdowns, Libya was losing around 550,000 bpd of its oil production.
At various other points since then, farcical scenes have emerged at the top of the political structure in the country. July that 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 rejected 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 then-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. 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.
Nonetheless, there remains huge natural oil and gas resources potential in Libya. Before the removal of Gaddafi, Libya 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.
By Simon Watkins for Oilprice.com
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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… More