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Unrest In Libya Remains Major Obstacle To Higher Oil Production

  • After Gaddafi’s removal, the security and financial risks for IOCs working in Libya skyrocketed.
  • Libya’s crude production has fallen by some 300,000 bpd last week as its National Oil Company has shut in the country’s largest producing field.
  • Libya aims to boost production to 2 million bpd through 2027.

Given that Libya still has 48 billion barrels of proved crude oil reserves – the largest in Africa – recent comments from National Oil Corporation (NOC) chairman Farhat Bengdara that it is on track to rise oil production from the circa-1.2 million bpd seen in recent months to 2 million bpd within the next three years at the earliest might appear well-founded. So too might his comment that the NOC is also planning major bidding rounds for oil exploration blocks this year. However, politically-driven problems emerging last week at the Libya’s largest oil field – Shahara – and the nearby El-Feel field highlight the obstacles that these plans may well run into.

Until the removal of long-time leader Muammar Gaddafi in 2011, Libya had easily been able to produce around 1.65 million barrels per day (bpd) of mostly high-quality light, sweet crude oil. Production had also been on a rising production trend at that point, up from about 1.4 million bpd in 2000. Although this output level 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. There had also been plenty of interest from a slew of international oil companies (IOCs) to be involved in expanding production on existing fields and exploring new opportunities in oil and gas.

However, after Gaddafi’s removal, the security and financial risks for IOCs working in Libya skyrocketed. Quite aside from the disjointed government apparatus and the ongoing civil war, the threat of force majeures being implemented in key oil and gas hubs in the country remains ever present, as highlighted by recent events. Indeed, 7 January saw the NOC declare force majeure at the Sharara oil field, after it and the nearby El-Feel oil field were closed after major protests flared over high domestic fuel prices and the parlous state of the country’s economy. These closures removed a combined 370,000 bpd of oil out of Libya’s production. At the core of the protests, and all the others that preceded it, are economic problems that arose from a political impasse dating back to an agreement made on 18 September 2020. The deal was signed by General Khalifa Haftar, the commander of the rebel Libyan National Army (LNA), and elements of the United Nations-recognised Government of National Accord (GNA) and was aimed at ending the long-running blockade of key Libyan oil assets at the time. Haftar made it clear that the resultant lifting of the blockade would not last unless a precise framework was agreed on how precisely oil revenues would be divided up between various warring factions from then on. As the blockade that had run from 18 January to 18 September had already cost Libya at least US$9.8 billion in lost oil revenues, assurances were made by senior GNA officials that a detailed action plan to resolve the problem would be put into place.  Related: India Fuel Demand Hits 7-Month Peak in December

Following this, a joint technical committee to deal with the oil money disbursements was formed towards the end of 2020, comprising representatives from the two key opposing sides. According to the official statement at the time on the role of the proposed technical committee: “It will oversee oil revenues and ensure the fair distribution of resources… and control the implementation of the terms of the agreement.” In order to address the fact that the GNA effectively held sway over the NOC and, by extension, the Central Bank of Libya (in which the revenues are physically held), the committee would also “prepare a unified budget that meets the needs of each party… and the reconciliation of any dispute over budget allocations… and will require the Central Bank [in Tripoli] to cover the monthly or quarterly payments approved in the budget without any delay, and as soon as the joint technical committee requests the transfer.”

Given the high economic and political stakes involved in gaining as great a share of Libya’s oil money as possible, no agreement that satisfied the opposing sides was made then or since. Instead, several attempts have been made to effectively railroad the oil money towards one side or another through a series of political manoeuvres, which has also involved the stewardship of the NOC. July 2022 saw the then-Government of National Unity (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 - who had received backing from both of Libya’s opposing legislative bodies - rejected Dbeibah’s authority to sack him, and warned Dbeibah not to touch the NOC or the oil revenues and contracts that it manages. 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 himself 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. As it stands now, the situation has become even more fragmented. Dbeibah remains Prime Minister and leader of the now UN-recognised GNU, which is based in Tripoli. On the other side, based in the east of the country, is the Government of National Stability (GNS), led by Prime Minister Osama Hammad (which is aligned to the Libyan House of Representatives) and the LNA (still under the command of General Haftar). Elections scheduled for December 2021 remain indefinitely postponed. 

This said, even a modicum of normality in the oil sector could allow Libya to reach its new oil targets, as there has been progress in the country’s gas sector that could be replicated. Last year, Italian oil and gas giant Eni signed an agreement with the NOC that would 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 Bengdara - 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. Around the same time, Bengdara said a programme of offshore and onshore drilling was planned, 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. 

By Simon Watkins for Oilprice.com

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