The Libyan Oil in a Sea of Chaos, War and Disruptions

[nehad ismail + 6]

When writing about Libya’s oil, it is not possible to avoid the murky geo-politics of the region.

 

Who controls the oil?

In 2019 Libya received $20 billion according to Central Bank figures. Oil revenue accounts for over 90% of the national income.

Oil was discovered in 1958 and production started in 1961.  Before the 2011 Arab Spring, Libya produced between 1.5 and 2 million barrels per day. This has dwindled to around 1 million in the last couple of years. Once Africa’s third-largest producer of oil, with 1.6 million barrels per day (bpd) before the revolution, Libya’s oil output declined to just 150,000 bpd in May 2014. That figure has since increased, and the output is now about 1.1 million bpd, according to media reports.

The National Oil Corporation announced last year that it hopes to raise production by another million barrels per day by 2024. But to achieve such production target requires peace, stability and investment. However to realize the full potential, Libya needs to invest some $60 billion but who is to pay?

Libya has the fifth largest oil reserves of 48 billion barrels and has some 54 trillion cu ft. of natural gas. El Sharara is the most important field producing 300,000 barrels per day.

Since the toppling of the regime in 2011, two seats of power had emerged in Libya: one in eastern Libya led by General Haftar supported mainly by Egypt, Saudi Arabia and the United Arab Emirates, and the GNA in Tripoli supported by the UN, Turkey and Qatar.

But in the chaotic situation in Libya, it is not often clear who controls the main oil fields and the export operations?  General Haftar who is fighting against the UN recognized Government of National Accord GNA), controls most of the oil fields and installations including Surte basin which produces two-thirds of Libya’s oil, but the NOC has the exclusive legal right to sell the oil.  The UN as well as Libyan legislation demand that NOC is the only authority to sell oil and to sign agreements with foreign companies. According to Reuters Libya’s state oil firm NOC on Friday 17^th January condemned calls to shut oil export terminals in eastern Libya controlled by military commander Khalifa Haftar ahead of a summit in Berlin Germany where he will face pressure to halt his campaign to take the capital.

Eastern Libya and part of the south of the country is controlled by the Libya National Army (LNA) of Haftar, who has been trying to conquer the capital Tripoli, home to the U.N.-backed Government of National Accord (GNA). It is worth noting that GNA is an interim government for Libya that was formed under the terms of the Libyan Political Agreement, a United Nations-led initiative, signed on 17 December 2015.

 

In 2016, Haftar seized most facilities in Libya’s east and in recent months his forces swept through the south, taking control of the major El Sharara and El Feel oil fields. But now the Tripoli based National Oil Corporation (NOC) is responsible for production, maintenance, exploration and working with foreign oil companies to operate the fields, the refining and so on. The Italian Eni, French Total and the American Exxon-Mobil, Halliburton, Baker Hughes are heavily involved in Libya.

NOC, the National Oil Corporation was founded in 1970 to increase petroleum production and to seek opportunities for investment and exploration. The NOC was caught in the internal war between various factions. General Haftar tried to seize the oil and sell it to foreign buyers but the US intervened and forced him to leave the selling and exporting of oil to NOC. The revenues are paid to the Central Bank in Tripoli.

 

Libyan oil is exported by NOC through a number of seaports such as Ras Lanouf, Sidra and Zawyia. Libya exports some 1 million barrels per day and 2 billion cu ft. of natural gas which is transported through undersea pipeline to Italy. It is estimated that the Libya had lost more than $135 billion since 2014. The campaign by Haftar forces to shut sea ports cost Libya almost $1 billion.  While high-level meetings continue in trying to bring some sort of resolution to Libya’s conflict, the National Oil Corp. (NOC) has continued producing Libyan oil.

 

Latest Developments

Russia and Turkey are competing to expand their involvement in Libya’s oil and gas sectors. On Nov. 27, 2019 Ankara and the GNA signed two separate agreements, one on military cooperation and another on maritime boundaries of countries in the Eastern Mediterranean. Turkey’s strategy has two aims; first is the defeat of Haftar forces and for this reason Turkey signed a new defence agreement with the GNA and the second aim is to sign deals for sharing the oil and gas in the Mediterranean.

Egypt, Cyprus and Greece are not happy about the Turkish-Libyan accord. This is the opportunity for Turkey to assert its presence in the East Med. What Turkey is saying: “No major gas project and pipelines are going to Cyprus without Turkey’s approval”. The geopolitical game has changed. New alliances have emerged. Greece, Cyprus and Egypt are working together on gas projects to isolate Turkey but the challenges are enormous. This development has the potential of creating problems for the East Med gas pipeline which will cost $6bn, and will take 5-6 years to complete to export gas from the region to Europe.

The future will remain uncertain until a political solution is found and the conflict comes to an end.

 

Nehad Ismail

Middle Eastern Affairs particularly Oil and Economic Issues

 

 

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[Boat + 1,323]

There is a glut of oil in the world even with all the geopolitical forces at work. Both sides would be hurt by lower oil prices if Libya went to full production. The same with Iran and Venezuela. This is my conspiracy theory for the day.

[Tom Kirkman + 8,860]

20 hours ago, Boat said:

There is a glut of oil in the world even with all the geopolitical forces at work. Both sides would be hurt by lower oil prices if Libya went to full production. The same with Iran and Venezuela. This is my conspiracy theory for the day.

But that actually isn't a conspiracy theory.

[nehad ismail + 6]

I agree wiht @Tom Kirkman yes there is a glut and this explains why oil prices are stubbornly refusing to soar despite all the geo-political risks in the Middle East. After the U.S drone killing of Qassem Soleimani the Iranian military commander, two weeks ago, many analysts expected prices to hit $100 per bbl. Back in September when Iranian missiles hit the Aramco oil facilities in Khurais and Abqaiq, prices jumped some 20% before going back to below $70 per bbl. All this suggests that the martket is well supplied.

[Tom Kirkman + 8,860]

1 hour ago, nehad ismail said:

All this suggests that the market is well supplied.

And the market should stay well supplied for a while, barring any major catastrophe, such as the Strait of Hormuz getting shut down.

[nehad ismail + 6]

Absolutely @Tom Kirkman. Shutting the Strait of Hormuz by Iran will invite US military response and the prices will rocket.