Although Libya’s crude oil production is now re-approaching the 1 million barrels per day (bpd) level, according to various industry reports, the outlook for sustained gains appears as tenuous as it has been since the removal of long-time leader, Muammar Gaddafi, in 2011, and the ensuing multi-factional civil conflict that ensued. Given the delicate supply and demand balance at play in the oil market, which is likely to remain for some time, as analysed in depth in my new book on the global oil markets, even relatively incremental additions to that supply on the margin can be significant.
On the one hand, up until the most recent blockade of its western fields ended and eastern ports, Libya had been producing around 1.2 million bpd. Even from that level, though, there is ample scope to increase this to the 2.1 million bpd targeted by Libya’s minister of gas and oil, Mohamed Aoun, and to hit the informal interim targets of 1.45 million bpd by the end of 2022, and 1.6 million bpd by the end of 2023. Libya has around 48 billion barrels of proved crude oil reserves – the largest in Africa – and before the removal of Gaddafi the country had been easily able to produce around 1.65 million bpd of mostly high-quality light, sweet crude oil. This comprised most notably 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. Moreover, production had been on a rising production trajectory, up from about 1.4 million bpd in 2000, albeit well below the peak levels of more than 3 million bpd achieved in the late 1960s. This said, 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. As such, the NOC’s predictions of being able to increase capacity by around 775,000 bpd through EOR at existing oil fields looked well-founded.
Moreover, prior to the most recent blockade there was further cause for optimism for a sustained bounce in Libyan oil production, as the country’s Government of National Unity (GNU) approved the sale of the 8.16 percent stake in the country’s giant Waha oil concessions held by the U.S.’s Hess Corporation to the remaining stakeholders. These are France’s TotalEnergies (with a 16.3 percent share), and ConocoPhillips (also 16.3 percent), each of which were to be offered half of Hess’s stake. This followed highly positive news in April last year after the meeting between NOC chairman, Mustafa Sanalla, and the chief executive officer of oil and gas giant, 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 and 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 TotalEnergies took a minority stake in 2019 – have the capacity to produce at least 350,000 bpd together, according to the NOC, which added that: “[TotalEnergies will also] contribute to the maintenance of decaying equipment and crude oil transport lines that need replacing.”
In a similarly positive vein, last August saw news that Royal Dutch Shell (Shell) was looking to return to Libya, after senior representatives of the company met with NOC chairman Mustafa Sanalla during their visit to Tripoli. Shell had ceased its operations in Libya in 2012, partly due to contract terms but mainly because of the deteriorating security situation after the removal of Gaddafi, according to local news reports, but during the meeting with the NOC had discussed contributing to the development of various oil fields in Libya and to increasing its activity in developing refineries in the country. Also looked at was Shell’s participation in various renewable energy projects, including plans for the capture and use of associated gas in several of Libya’s major oil fields, and the development of oil storage terminals in Es Sidr and Ras Lanuf. According to reports from November, Shell also examined other projects related to exploration in the onshore Sirte and Ghadames basins, as well as the offshore Cyrenaica basin, and proposed re-developing ageing fields such as block NC-174 in the Murzuq basin and developing new fields including in the Ain Jarbi block.
On the negative side, however, there remain significant short- and long-term constraints hanging over Libyan oil production. In just the past few months, there have been severe reductions in the country’s oil output from - in reverse order: the just-ended blockade of its western fields and closure of ports in the east; a major pipeline closure; and the closure of several ports on the east due to bad weather. Longer-term, major political problems continue to simmer, as they have done since the removal of Gaddafi, with the delay of December’s scheduled presidential elections being a case in point, and likely to be a spark for further major trouble in the oil sector. Multiple disputes over the eligibility of candidates in the elections in just a reflection of the uneasy understanding that has been in place since an agreement was signed on 18 September 2020 between Khalifa Haftar, the commander of the rebel Libyan National Army (LNA), and elements of Tripoli’s U.N.-recognised GNA to lift the then-blockade of Libya’s energy infrastructure.
At that point in 2020, with Libyan oil production only averaging around 70,000 bpd, the agreement between the two sides that had been engaged in a three-year civil war was to be reviewed after just a month, as highlighted by Haftar. He also made it clear at that stage that unless a further agreement laid out precisely how oil revenues were to be divided in the future, in a manner that was agreeable to his side, then no extension of the deal to keep the blockade lifted would be granted. This was addressed to a degree with a corollary in-principle agreement by the GNA – particularly supported by its then-Deputy Prime Minister, Ahmed Maiteeq - to look into establishing a commission to determine how oil revenues across Libya are distributed and also to consider the implementation of a number of measures designed to stabilise the country’s perilous financial position. Since then, progress on all fronts has been difficult to detect, although in terms of broader policy, the oil and gas ministry recently sent a series of proposals to the GNU aimed at improving the sector’s organisation in order to attract more investment from foreign companies.
Although the ministry did not publically release the details of these proposals, the legal sources spoken to by OilPrice.com at the time highlighted that they are broadly in line with the original ideas in the September 2020 agreement that were aimed at clarifying how oil revenues would be paid and dispersed. Part of this process would be the creation of technical committees with representatives drawn from all sides of the civil conflict. These separate committees would deal with field awards, in tandem with the oil and gas ministry, and the dispersal of oil and gas revenues, in tandem with the ministry and the Central Bank of Libya (in which the revenues are physically held).
By Simon Watkins for Oilprice.com
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