Libya’s oil production plunged to a five-month low this week, dragged down by another outage at the country’s largest oil field.
On July 30, Libya’s National Oil Corporation declared force majeure on crude loadings at the Zawiya port, due to another “valve closure halting crude oil supply” from the Sharara oil field to the port. It’s the second outage at the field in ten days.
The NOC said that staff from its subsidiary, Akakus Oil Corporation, “attempted to reopen the valve but were prevented from doing so by a local armed group.”
As a result of the outage, Libya’s oil production fell to a five-month low of 950,000 bpd, according to Bloomberg. Prior to the disruption, Libya had succeeded in raising output to 1.3 million barrels per day (mb/d), the highest level in six years.
“This latest incident only serves to highlight the fragility of our security environment and total disregard for the impact of such acts on the lives of everyday Libyans,” NOC Chairman Mustafa Sanalla said in a statement. “The loss of production at Libya’s largest oilfield severely disrupts power supply to the grid and continued funding of basic services. This is most acutely felt by communities in the South.”
The four-month assault on Tripoli by the Libyan National Army (LNA) has stalled, but until recently, Libya’s oil production had largely held up. The two outages at the Sharara field could be an indication of a deteriorating security situation.
As the LNA’s assault against the internationally-recognized Government of National Accord (GNA) in Tripoli has dragged on, the militia led by Khalifa Haftar has become stretched thin. “This has sucked in the LNA’s resources from elsewhere in Libya, weakening its already loose hold over territory nominally under its control, particularly in the centre and south west of the country,” Hamish Kinnear of Verisk Maplecroft wrote in a July 22 briefing, shortly after the Sharara field suffered its first outage. “This means that the group will become increasingly unable to prevent disruptive sabotage attacks” of this kind. Related: Iran’s Newest Escape Route To Key Asian Oil Markets
Others agree. With the LNA and GNA bogged down in the fight for Tripoli, there is a “nationwide security vacuum,” Iliasse Sdiqui, senior analyst at Whispering Bell, a risk management firm, told Oilprice.com in an email. That has led to the possibility that local groups, often driven by their own local grievances, are increasingly able disrupt oil operations.
For now, it’s possible that the outage could be brief. Libya’s NOC said that “[n]egotiations are ongoing in an effort to restart production as soon as possible.”
However, the “more acute threat stems from the possibility a warring faction in the current conflict will resort to halting crude flows, either directly or indirectly, as a political card,” Sdiqui of Whispering Bell said. “So far, there is evidence that factions are exercising restraint and being cautious as nobody wants to be the first one accused of disrupting the backbone of the country’s economy.”
Libya earns about 95 percent of its total national revenue from oil so even a temporary outage is highly damaging. “Ensuring the security of Libya’s oil infrastructure should be of utmost priority to all stakeholders, regardless of affiliation, as the livelihoods of Libyans across the country depend on stable oil revenues,” a spokesperson for the GNA told Oilprice.com in an email. “There can be no stability in Libya without an urgent end to the violence. The Government of National Accord is thoroughly committed to achieving political stability and national reconciliation, and to establishing a timeline for democratic elections.” Related: Should Tesla Give Up On Solar?
But the outage at the Sharara field is a worrying sign that instability is growing worse, not better. Hamish Kinnear of Verisk Maplecroft notes that the LNA had gained some “international legitimacy as a protector of Libya’s oil and gas infrastructure” over the past two years. But the LNA’s assault on Tripoli was opposed by much of the international community because of the likelihood that it would destroy a fragile peace process – which it has. At the same time, the LNA’s campaign has largely run aground amid stiff resistance from the GNA and GNA-aligned groups, and the fight has devolved into a protracted civil war.
Oil supply outages would further damage the LNA’s reputation. “A failure to maintain security for oil and gas infrastructure would damage the LNA’s legitimacy and invite increasing scrutiny from international powers, particularly a US administration concerned with maintaining the security of oil supplies and low prices,” Kinnear of Verisk Maplecroft concluded.
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Despite the disruption of around 300,000 bpd from Libya, oil prices fell mid-week. The outage in Libya, which would normally drive up global oil prices, was overshadowed by trade war concerns and disappointment following cautious comments from the U.S. Federal Reserve.
By Nick Cunningham of Oilprice.com
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