Libyan barrels’ return may be temporary
Production could ramp up quickly, but the countdown is already ticking on another round of shutdowns
Libya’s oil production has nearly tripled since the end of an oil port blockade. But the country’s state-owned National Oil Corporation (NOC) has in effect jumped the gun by re-opening ports and fields, despite the failure of all sides to agree a deal hammered out by US diplomats. In the absence of a deal, the shutdown may return by 18 October.
Khalifa Haftar, head of the powerful eastern Libyan National Army, ordered the blockade in January. He declared it over in mid-September after signing an agreement with Ahmed Maiteeq, deputy prime minister of Tripoli’s UN-recognised Government of National Accord (GNA). But GNA prime minister Fayez-al-Sarraj and most of his cabinet have refused to sign the deal, which calls for the creation of a new commission to decide how oil revenue is spent.
Some in the GNA have accused Maiteeq of selling out, and pro-GNA gunmen forced Maiteeq to cancel a press conference announcing the deal. Haftar, in turn, warned the day he agreed the deal that the blockade was being lifted for only a month, subject to the deal’s acceptance.
90,000bl/d – Rise in Libyan oil production
For now, NOC is ploughing forward with the lifting of force majeure in a growing number of ports and fields. In the last week of September, NOC hit its target of raising production to 260,000bl/d, up from c.90,000bl/d during the shutdown.
One limitation on re-openings is the presence of mercenaries. The NOC has admitted facilities held by mercenaries will remain shut, in particular singling out Wagner, a Russian military contractor with ties to Moscow, which is aligned with Haftar.
And these exceptions have significantly crimped Libya’s oil recovery. Southwest Libya’s Sharara field, the country’s largest producer at 315,000bl/d, remains shut because Wagner units are deployed there. The neighbouring 90,000bl/d El Feel field is also closed, and their absences are in turn keeping their export port, Zawiya, offline.
Wagner is also present in Libya’s largest oil port, Sidra, along with nearby Ras Lanuf. Both remain shut, keeping Waha—Libya’s largest joint venture oil company at 300,000bl/d—offline in the western Sirte Basin.
Central Sirte Basin fields, including those operated by Germany’s Wintershall and Libyan-Canadian joint venture Harouge Oil, may reopen, with part of the area’s potential 400,000bl/d output able to be diverted from Sidra by pipeline spurs to the Brega and Zueitina terminals, both of which are now open.
Further east, NOC subsidiary Agoco has reopened fields including Sarir and Mesla (a combined 300,000bl/d) exporting out of Tobruk’s Hariga terminal.
NOC is ploughing forward with the lifting of force majeure in a growing number of ports and fields
Back-of-the-envelope calculations indicate that, from a technical, if not political, standpoint, Libyan production can rise fairly rapidly to 700,000bl/d—admittedly still well short of the 1.2mn bl/d being produced before the shutdown.
Meanwhile, diplomats, with the US taking the lead, are working behind-the-scenes to persuade Haftar to extend the deadline and for the GNA to agree to the revenue commission. One major GNA objection is that the commission would, in effect, disrupt what NOC chairman Mustafa Sanallah has called the ‘dual-key’ control of Libya’s oil industry.
After six years of civil war, Haftar and the Tobruk government controls almost all onshore oil fields, including those in the Sirte Basin, home to two-thirds of production. Balanced against that, the Tripoli government—at war with Tobruk—is the initial recipient of the oil revenue, by dint of it having international recognition and thus, de jure at least, control of NOC. It must then share these revenues with its enemy.
A new revenue commission threatens to disrupt that delicate and slightly incongruous balance, particularly if, as some in the GNA fear, part of its government were to defect, giving Tobruk a majority vote on the commission.