By Robin Mills
On the anniversary of its revolution, Friday last week, Libya’s oil industry had been in chaos for six years. Large oil companies active there – ConocoPhillips, Hess and Suncor among them – have stopped including it in their forecasts.
A conference this month on Libya-US relations, titled New Vision, Hope and Opportunities, was denied any hope when Donald Trump’s chaotic travel ban forced its cancellation. And yet, amid worsening fighting and political chaos, oil production has rebounded sharply from late last year.
Before its 2011 revolution, Libya produced 1.6 million barrels of high-quality, light sweet crude per day. Output plummeted during the conflict, recovered quickly, then fell again as militia infighting, local protesters, a rogue oilfield guards force and an ISIL affiliate closed ports and damaged fields.
At times in 2016, production dropped as low as 180,000 barrels per day. It had picked up to 528,000 bpd by October, setting the benchmark for November’s Opec talks. Libya, along with Nigeria, was exempted from participating in the agreement reached to cut the group’s output.
But by last month, Libyan production had reached some 715,000 bpd, with optimistic talk of hitting 1.3 million bpd by the end of this year. The gain so far blunts the planned Opec cuts of 1.2 million bpd across the organisation.
The stage was set for this recovery in September when the Libyan National Army (LNA) of General Khalifa Haftar seized the eastern oil ports of Es Sider, Ras Lanuf, Zueitina and Marsa El Brega from the Petroleum Facilities Guards (PFG), supporters of the Government of National Accord (GNA) in Tripoli. These ports, with a total capacity of 710,000 bpd export oil from the Sirte basin, the country’s producing heartland. The PFG, together with an Islamist group, the Benghazi Defence Brigades, launched a counterattack in December that was beaten off.
Also in December, the PFG ended its blockade of the pipeline from the important Sharara and El Fil (Elephant) fields in western Libya. In the wake of these gains, the chairman of Libya’s National Oil Company (NOC), Mustafa Sanallah, has been trying to entice foreign oil companies to return.
Mr Sanallah is seeking a release of funds from the GNA to pay for badly needed repairs to fields and oil storage facilities damaged in the fighting. Es Sider in particular has been able to export very little after an ISIS attack in January last year.
But the political situation remains chaotic. The GNA has UN recognition, but the rival House of Representatives, based in the eastern town of Tobruk and backed by General Haftar, refuses to acknowledge it. The general, seeking international allies, recently visited Moscow. Although the LNA now controls most of the country’s oilfields and export terminals, the proceeds flow to the GNA.
At current export levels and prices, Libya will earn about US$11 billion from oil exports this year, compared to the government budget of $26bn. With foreign currency reserves down to $43bn and inflation at 20 per cent, the currency has fallen to 6 dinars to the dollar on the black market, against the official rate of 1.4.
At the target rate of 1.3 million bpd, the country could close most of its budget deficit. But it seems unlikely to get much beyond 800,000 bpd or so without major repairs and investment in reopening shuttered fields. Dwindling savings have kept the country afloat but also fuelled the fighting. By next year, an escalating economic crisis seems inescapable.
In April, the eastern government attempted to sell oil independently but was frustrated by UN opposition. Should it at some point gain control of revenues from the territory it controls, western Libya and the GNA would face economic collapse. Without a rapid turnaround in security and political reconciliation, and the return of international operators, Libya’s impressive oil gains will be short-lived.
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Robin Mills is chief executive of Qamar Energy, and author of The Myth of the Oil Crisis.
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