The Militarization Of Libya’s Oil Industry

Haftar Could Theoretically Take Over Libya's Oil Exports Without Tripoli

As General Haftar continues his offensive designed to take control of Tripoli and oil revenues, he is using the National Oil Company (NOC) facilities for military purposes. He has seized the NOC's airfield, taken over oil terminals to station warships and other military vessels of the LNA (Libyan National Army) and has been attempting to requisition NOC tub boats for his war effort as well. The Tripoli-based NOC describes it as the "militarization of the Libyan national energy infrastructure". The NOC says that at this point, the General's actions are threatening the oil company's abilities to maintain operations.

More specifically, our sources in the NOC say that Haftar has taken the following moves to militarize the energy infrastructure:

- Es Sider Port: Haftar has seized the Es Sider airstrip for military use. There is a constant stream of military personnel entering the port of Es Sider, and attempting to requisition NOC vessels there.

- Ras Lanuf Terminal: Haftar is using this terminal to dock warships and other military vessels.

In other words, Haftar has turned Libya's Oil Crescent into an all-encompassing military base, and in doing so is also turning the oil ports into arsenals from which he can receive more arms from external players. There are indications that the French delivered new weaponry to Haftar through Ras Lanuf late last week. This is how Haftar will win this war, even if it takes him longer than he would like to fight back militia loyal to the Government of National Accord (GNA) in Tripoli.

Es Sider and Ras Lanuf (in the Oil Crescent) are still far from Tripoli (over 600 kilometers), but the key to this game is the fire power.

The bigger picture here is all about US sanctions on Iran. Trump is going to meet with some oil price challenges over these sanctions and the move to end waivers, and OPEC is not expected to significantly increase production to balance out supply. Trump is banking on Libyan supply and using Haftar to meet that goal, which means seizing the ports and terminals.

The oil trade in the country divided by civil war is run by the National Oil Corporation (NOC), which attempts to position itself as a neutral party in a conflict between the LNA and the National Accord Government (GNA), operating across the country, sending the benefits of exports to the central bank based in Tripoli, but also partly to the officials on the territories controlled by the LNA.

As we have mentioned repeatedly, Haftar needs access to the oil revenues in Tripoli to fund his war effort, and the NOC is nervous because the general has the power to hijack the oil flow entirely. This is leverage he continues to hold over the NOC in return for cash. We brought up AGOCO earlier - a NOC subsidiary that most never hear about because they've released production figures and are only responsible for producing approximately one-third of the country's oil. This is where Haftar is going first for money, and he's being very vocal about it. The message is this: Pay up or the oil stops flowing. The only reason these facilities are secured right now is because of Haftar.

Haftar will get the funds he needs from NOC subsidiaries, and he already controls the oil, so without external intervention, Tripoli now looks likely to fall to the general but not without a fair amount of militia headache. Now that he controls the ports, he can also unilaterally export Libya's oil, but he'd rather take Tripoli first - ideally before Ramadan, which starts on the 6th.

(Click to enlarge)

Over the weekend, the NOC released oil revenue figures, which came in at $1.5 billion, with total first-quarter revenue at $4.4 billion. That includes sales from AGOCO, which is a NOC subsidiary in the country's eastern region that presently accounts for around 304,000 bpd of the country's output.

This is what the official revenues look like from the NOC:

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Also on Monday, an armed group fired a rocket-propelled grenade at the control station of the El Sharara oilfield, but any further attack was thwarted after clashes with security forces controlled by the LNA. This has not affected production, but Sharara is still the most vulnerable oilfield, having only recently been secured by Haftar from the hands of local protesters and militia.

Geopolitics in the Oil Patch

Yemen Is Trying To Release 1 Million Barrels of Crude Into the Market

Four years ago, Yemen's crude stopped flowing, both in terms of production and exports. During that time, up to 1 million barrels of oil has been trapped in no-man's land in a Red Sea storage tanker. Like Libya, Yemen has two rival governments and two rival central banks representing their respective sides in the proxy war between Saudi Arabia and Iran. The Houthis (Iranian-backed) are now requesting that the UN create a mechanism by which to safely release all that oil onto the market and split the money between the two central banks. It's actually the perfect time to release this oil onto the market to help fill the gap that is being left by Iranian crude tied down by US sanctions.

Uprising and Coup Attempt in Venezuela

The military is divided between the opposition leader and Maduro, and Guaido's attempt yesterday to essentially launch a coup, calling for a mass uprising, did not have enough military support to finish the job. In other words, he hasn't won over the top military brass. The uprising was still in full force as of Wednesday morning, with violence engulfing the streets and Maduro still clinging to power, while reports emerged that the secret police head had absconded to the Guaido camp, though that has not been independently confirmed. To make his point re the military, Maduro appeared on state TV next to the military top brass this morning. In the meantime, beware the information war between Russia and the US on reports coming out of Venezuela.

More Posturing in the Middle East, With Russia

Russia and Iran are getting ready for joint military exercises in the Strait of Hormuz in a provocation that follows repeated threats by Iran to close off the key oil waterway over US sanctions. Iran has also designated all US troops in the Middle East "terrorists", in retribution for the terrorist label for the Iranian Revolutionary Guards.

Oil Worker Kidnappings Pick Up Pace in Nigeria

Last week, two Shell workers were abducted and their police escorts killed, and this week, three more oil workers were kidnapped in the Niger Delta when gunmen attacked an oil rig owned by Niger Delta Petroleum Resources. The two Shell workers were freed by security services on Tuesday, but the three others remain unaccounted for. The timing is significant: On 1 May, a Dutch court is scheduled to deliver its ruling in a historic case against Shell, which has been accused of instigating the Nigerian government to use brutal tactics to suppress protests in the oil-rich Niger Delta against pollution from oil production. We believe this pending decision is related to the May 1st ruling.

Global Oil & Gas Playbook

- The bidding war is officially on over Anadarko's Permian assets after Chevron's $33-billion bid celebration was overshadowed by Occidental Petroleum's unexpected move to bid $38 billion. As of this week, Anadarko has decided to restart negotiations with Occidental, and Warren Buffett has even weighed in, backing Occidental with $10 billion through Berkshire Hathaway. That's a major vote of confidence in Occidental at a time when analysts have been leaning toward Chevron as the most likely winner. Occidental is offering $76 a share for the Anadarko assets, while Chevron offered $65 per share.

- Taqa (Saudi Arabia's Industrialization & Energy Services Co), backed by the Saudi sovereign wealth fund (PIF), is targeting two acquisitions this year of North American origins for $1.2 billion. Only one of those acquisitions has been revealed, and includes Texas-based Schlumberger's Mid-East drilling-rig business (for around $415 million). The drilling company drills in Kuwait, Oman, Pakistan and Iraq, onshore.

- Mexican Pemex reported $1.88 billion in losses for Q1, blaming the losses on financial costs of the peso's depreciation against the dollar. Pemex could risk a junk investment grade credit rating.

- A 20% stake in Novatek's Arctic LNG2 project has been acquired by Chinese national oil companies CNPC and CNOOC (10% each). French Total SA also has a 10% stake, and the Saudis are currently in talks with Novatek as well for a potential 10% stake. Novatek is Russia's largest private natural gas company and Arctic LNG 2 follows the Yamal LNG plant. CNPC also has a 20% stake in Yama, with Total (20%). The two LNG projects, when the second is finished, stand to render Russia among the world's top 5 LNG producers, with an expected 37.5 million tons per year capacity. The Chinese stakes in Arctic LNG2 come as data from China shows that LNG imports surged in March, rising by 4.06 million tons, up over 25% year-on-year.

- More trouble for Tullow Oil in Africa after the company was forced to slash production forecasts for this year over "technical issues" at the Jubilee and TEN fields in Ghana. Forecasts for the year are now at 90,000-98,000 bpd, down from 93,000-101,000 bpd.

- ConocoPhillips' Q1 2019 earnings have come in at $1.8 billion, up $900 million from the same quarter last year. Q1 adjusted earnings were $1.1 billion, the same as Q1 2018. These figures include the ICC settlement in the Venezuela PDVSA case as well as gains from Cenovus Energy. Production (not counting Libya) was 1.32 million boe/d, up 94 million boe/d for the same quarter last year.