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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Libyan Oil Production Is Only Heading Lower

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When back in September 2016 the Libyan National Army retook control over the export terminals in the country’s Oil Crescent from the Petroleum Facilities Guard and handed it over to the National Oil Corporation, everyone breathed a sigh of relief. After a two-year blockade, the terminals could once again start loading crude and Libya could start recovering its oil industry.

Two years later, the LNA is once again in control of the Oil Crescent. But this time it has shared this control with another NOC, and no oil is being loaded at the terminals. As a result, the country’s oil production is falling steadily, the official NOC’s chairman Mustafa Sanalla has warned.

“We hope that the army leadership will hand over the ports to keep oil production going, and any other discussion can be held with the government, the central bank, the house of representatives,” Sanalla said in a statement carried by Bloomberg. The statement is an appeal to the command of the LNA, which won control of the ports after a series of clashes with militants in June.

Led by a commander of the PFG who is wanted by the internationally recognized authorities, the militant groups tried to wrest control of five oil terminals from General Khalifa Haftar’s LNA, which is affiliated with the eastern government, but until recently worked well with the Tripoli-based, western NOC that the UN recognizes as the only entity legally allowed to sell Libya’s oil.

The LNA won, but this time it did not pass control of the terminals to the legal NOC. The eastern NOC effectively suspended loadings of oil in the beginning of July, as the tankers docked to load did not have express permission from it, which immediately erased 850,000 bpd from daily loadings. However, since the storage tanks at the ports are full, this has meant that production at several fields also needs to be suspended.

“Despite our warning of the consequences and attempts to reason with the LNA General Command, two legitimate allocations were blocked from loading at Hariga and Zueitina this weekend. The storage tanks are full and production will now go offline,” NOC’s Sanalla said at the time.

The prospects are grim. Sanalla said in his recent statement that current daily production is 527,000 barrels of oil. That’s about half the amount Libya pumped just two months ago, and “tomorrow it will be lower, and after tomorrow it will be even lower and everyday it will keep falling,” unless the eastern NOC agrees to hand over control of the ports.

Related: Chinese Refiner Stops U.S. Oil Imports, Turns To Iranian Crude

So far there have been no indications that this would happen. In fact, the eastern NOC has accused the western NOC of mismanaging oil revenue money, reflecting the overwhelming sentiment among the population in the east of the country. The company said that from now on, all export revenues will go into a central bank in the east. What revenues these will be remains unclear: the UN and the EU have both called on the LNA to release the terminals to the western NOC, and the EU has urged buyers of Libyan oil to not do business with the eastern NOC.

The two NOCs, which at one point tried to settle their differences and work together, are in a deadlock. With the ports closed and no oil leaving Libya, revenues are zero, which will at some point force a reconsideration of the situation on the part of LNA and the eastern NOC. Until then, the production drop will add fuel to the oil price rally.

By Irina Slav for Oilprice.com

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