The troubled North African state could increase its oil production in the months ahead, following an improved political outlook, but threats linger, writes Martin Clark.
What: Prospects for a return of Libyan oil production are improving.
Why: An agreement has been reached between Libya’s NOCs, while the PFG has also come out in support of the GNA.
What next: Protests at Hariga are a concern but, overall, things are looking up in Libya.
Hopes are rising that more oil could be about to flow from Libya, after indications that some fields, as well as key export ports, are set to re-open as different factions come together.
A plan to unite the two rival National Oil Corp. (NOC) groups – one from Tripoli, the other from Bayda – is regarded as a further sign that a political agreement repairing some of the divisions within the troubled country is near.
There is still a daunting task ahead in patching up the fractious country and its damaged infrastructure. However, the recent political outlook has, crucially, been more conciliatory.
Most recently, the Petroleum Facilities Guard (PFG), which controls the Ras Lanuf and Es Sider export terminals, has said that it is now working with the unity government’s state oil company to re-open some facilities.
“The commander of Petroleum Facilities Guards (PFG), Ibrahim Jathran, has announced that oil will be pumped soon and [some] oilfields of the oil crescent [region] will be also prepared to resume work,” a PFG spokesman, Ali Hassi, said last week, as quoted by Reuters. “Jathran said that we, the PFG of central region, will work with the NOC that belongs to the presidential council of the Government of National Accord [GNA].”
The NOC is working with the United Nations-backed GNA, led by Prime Minister Fayaz Seraj, and is trying to bring together rival factions whose armed backers have fought for control of oil resources since 2014.
The sentiment concurs with comments last week made by NOC officials in Tripoli.
“After the unification of [the] NOC, the opening of the ports and the increase of production are absolutely our top priorities,” NOC’s chairman, Mustafa Sanalla, said in remarks published on the NOC’s website. “We have heard hopeful noises in recent days about the opening of the ports.”
The state-backed oil company has an ambitious plan to bring Libya’s oil production back up to pre-revolution levels – around 1.6 million barrels
per day – although damage to key infrastructure sites may take years to repair fully.
It remains unclear, for instance, whether the latest comments from Libya’s oil guard brigade and the NOC mean re-opening all the main strategic export ports – Es Sider, Zawiya, Ras Lanuf and Zueitina – which have been closed since 2014.
Recommencing shipments from these facilities could restore a potential 850,000 bpd of crude export capacity, and start to rebuild some of the sales lost since the country split apart.
Militant attacks, fighting between rival factions and a conflict between two rival governments have taken their toll on Libya’s once-strong oil and gas industry. Estimates put oil production at around 350,000 bpd, or less than one quarter of the level of output before the 2011 uprising. Exports are also highly volatile, and not just because of reduced port capacity and upstream production.
Libya was shipping just 200,000 bpd on tankers during some parts of May, after the largest NOC subsidiary, Arabian Gulf Oil Co. (AGOCO), slashed output from southeastern fields because of a row over export rights.
The row saw crude loadings at the vital Marsa el-Hariga port in eastern Libya suspended at times.
Exports from Hariga presently account for about three-quarters of Libya’s oil production, and national income would be halved if they were stopped, NOC officials claim. Indeed, warning signs began flashing again last week as a PFG unit complained of a shortfall in wages and opted to shut down Hariga, delaying some recent shipments.
Nonetheless, the NOC’s declaration to merge the two competing arms is a significant step forward.
The NOC in Tripoli, which is recognised by the international community, and the eastern NOC had operated in parallel as the rival governments struggled for control.
The UN-backed GNA in Tripoli is meant to supersede those administrations, but hardliners on both sides are holding out. As a concession, NOC intends to move its headquarters to Benghazi when security allows.
A statement from the Tripol-based NOC on July 2 said a working agreement had been reached, with Sanalla set to continue as chairman, while his Bayda-based counterpart, Nagi el-Maghrabi, would also join the board.
El-Maghrabi said that a “strategic choice” had been taken in order to “put our divisions behind us and to unify and integrate [the] NOC … for the good of Libya.”
The move has even given [the] NOC the confidence to re-open talks with various industry players. On July 12, the company held meetings in Tripoli with Eni North Africa, Mellita Oil & Gas and Waha Oil – all existing investors in the country – to address key problems and operational issues.
No further details of the meetings were released but the companies will no doubt be keen to know the condition of their assets and investments and, above all, when they can start to put them back to work again and recoup some of their outlay.
Long road back
These are all positive moves but the complexities of piecing together a nation ravaged by years of civil conflict should not be underestimated.
Even with the best of intentions, there will be a long road back for Libya’s oil production and its exports.
The country faces a massive clean-up bill, given the scale of the damage to oilfields, long-closed pipelines and its shattered ports, as well as the ongoing security threat.
Recovering more than 1 million bpd in lost production is likely to be a complex, costly and protracted business, hampered by continued political infighting, sometimes over local grievances, the array of armed groups controlling oilfields, and there is also the potential for further setbacks.
Islamic State (IS) militants fighting in the western city of Sirte have targeted the country’s oil infrastructure in the past. Even if they are driven out of their stronghold by pro-government forces, the risk of attacks will not cease immediately. Quietly, officials know that this is a long-term and, probably, extremely delicate process. A member of the government’s presidential council, Mousa Alkoni, speaking at a ceremony in Tripoli on July 11 said that once discussions with the PFG had been finished, “the force majeure will be lifted”, with both sides working to re-open the ports.
Alkoni conceded that he doubted production would return to previous levels anytime soon. Still, with reconciliation in the air, Libya’s prospects look better now than they have for a long time.
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