The battle for control of Libya’s oil production continues, and the latest wrinkle includes a deal with Swiss mining giant Glencore.
Glencore secured a deal with Libya’s National Oil Company to buy half of the country’s oil output. Thea deal could allow Libya to find stable buyers for its crude oil, but it could also exacerbate internal conflict within Libya.
Libya has been in tatters for several years as a civil war divides the country and leaves most governing institutions crippled. Oil production has collapsed from a Qaddafi-era total of 1.6 million barrels per day (mb/d) down to around just 400,000 barrels per day, according to the latest estimates. Related: Big Oil: Which Are The Top 10 Biggest Oil Companies?
There are several reasons for the decline. Part of the problem is the closure of several main oil export terminals on the coast, including Es Sidra and Ras Lanuf. Violence between militant groups has inflicted damage upon critical infrastructure including pipelines and storage tanks. In December 2014, rocket attacks hit the Es Sidra port, forcing its closure.
Another problem is two rival governments who both lay claim to the country’s natural resources. The government based in Tripoli controls the central bank and the National Oil Company, some of the last functioning institutions. But a rival government setup in the east, recognized by the international community, has tried to setup competing entities, including its own national oil company. Related: Oil Finds Some Support As WTI Hits $40 Mark
So not only have closed ports cut off production, but due to the lack of security as well as the political uncertainty (including possible force majeure declarations), many potential buyers of Libyan crude shy away.
Thus, the deal between the NOC and Glencore is a potentially significant one for the Tripoli government. Glencore will take Libya’s oil and find buyers. The oil will be exported through the eastern Hariga port, which currently exports around 140,000 barrels per day.
Predictably, the deal with Glencore has raised the ire of the eastern government, which has promised to make efforts to block any Glencore tankers from taking oil from Hariga if they move forward with the deal. The government sent a letter to the Swiss company seeking confirmation on whether or not it had reached a deal with Tripoli, according to Bloomberg.
The ongoing conflict between the two government factions could prevent substantial increases in oil exports. Indeed, the Glencore deal threatens to escalate tensions. Related: Natural Gas Companies Slammed By Low Prices
Just a few weeks ago, the eastern government shut the port of Zueitina, cutting off oil exports, in an effort to wrangle control from Tripoli. The closure forced Libya’s oil exports to drop below 400,000 barrels per day. The eastern government says that any oil tankers hoping to load oil from Zueitina must register with the government and its own national oil company.
To make matters worse, militants affiliated with ISIS in Libya have also targeted the country’s oil and gas infrastructure. In October, ISIS militants attacked the Es Sidra port, although were repelled before they could reach the port itself.
Despite the challenges and risks, international oil companies still brave the uncertainty to operate in Libya. A few of the companies with assets in Libya include Eni, Wintershall, Gazprom, ConocoPhillips, Marathon, Repsol, Total, and others.
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Libya depends overwhelmingly on oil and natural gas for its economy. In 2012, oil and gas exports accounted for 98 percent of government revenue. Not only has the severe cutback in exports hurt the economy, but the collapse in oil prices has also sapped the country of resources.
The Tripoli-based government hopes to use the Glencore deal to secure sales for its oil, but the signs point to more conflict between east and west. With little chance of a near-term solution, it appears unlikely that Libya will be able to significantly ramp up exports beyond the current 400,000 barrels per day anytime soon.
By Nick Cunningham, Oilprice.com
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