Growing discord between oil ministry, NOC Minister Oun, NOC Chairman Sanalla clash over key oil policies Platts Analytics expects Libyan supply to be volatile in coming months.
A tug of war to control Libya’s oil sector is brewing again. The row between Libya’s oil ministry and the state-owned National Oil Corporation has escalated in recent weeks though both sides are working to find a resolution in the coming days.
If unresolved, this dispute could start to impact the country’s oil output, analysts and sources close to the matter told S&P Global Platts. This also comes at a critical time for Libya, which is desperate to attract more investments from international oil companies.
Since the civil war of 2011, Libya’s profitable yet fragile oil sector has been a huge flashpoint, and a new power struggle could undo some of the progress the North African oil producer has made recently.
Oun versus Sanalla
Libyan Oil Minister Mohamed Oun dismissed long-standing NOC Chairman Mustafa Sanalla Aug. 29 on grounds he was traveling on a business trip without the ministry’s approval.
But Sanalla defied Oun’s order and is continuing to operate as chairman of the state-owned company despite a growing chorus of opposition.
This dispute creates a number of legal and logistical challenges for local and international oil companies, according to Iliasse Sdiqui, an associate director at Whispering Bell, a risk management company covering North Africa.
“Given the current preelection context, the tug of war is guaranteed to involve more powerbrokers and potentially impact the country’s oil output in the next three months as key players pick sides to settle scores with the NOC chairman,” he told Platts.
Libya’s Government of National Unity Prime Minister Abdul Hamid Dbeibah will be meeting with Oun, Sanalla and deputy oil minister Refaat al-Abbar Sept. 5 to iron out the issues and resolve the dispute, ministry sources told Platts.
“There are many issues at stake, including gray administrative areas and legal uncertainties. This will be about delineating the NOC’s responsibilities vis-a-vis the oil ministry,” said Sdiqui.
Clash over duties
Rivalry between Oun and Sanalla started in March, when the GNU formed a new oil ministry, appointing the former as its head.
The clash over key oil policies is said to be the main reason for the divisions between the two heads.
Oun is keen on the ministry dominating oil policy and controlling the country’s oil and gas licenses, and wants the NOC to focus on growing oil production.
“It is plausible that the oil ministry was revived to keep the NOC in check after Sanalla refused to unfreeze oil revenues to the Central Bank of Libya late last year,” Sdiqui said.
Prior to March, the NOC, led by Sanalla, assumed a vast range of responsibilities, especially those related to exploration and production and representing the country at OPEC ministerial meetings, tasks that would normally be reserved for an oil and gas ministry.
Sanalla, an engineer by background, has been in charge of NOC for seven years now.
Despite numerous civil conflicts, Sanalla has helped the NOC maintain a large chunk of its production capacity, and has kept it largely politically neutral from the fractious political and tribal divisions present in the country.
Libyan crude production has recently been hovering near 1.2 million b/d but many expect output to be volatile in the lead up to the Dec. 24 elections.
Some of Libya’s major eastern oil fields operated by Arabian Gulf Oil Co., an NOC subsidiary, could also be shut in coming days as the country’s budget crisis once again threatens to impact the oil sector.
S&P Global Platts Analytics expects internal volatility in Libya to increase, given a lack of consensus on election processes and little progress at UN-sponsored talks.
“Sporadic blockades remain the most likely outcome, but a full ceasefire breakdown and shutdown as in 2019-20 remains possible,” it said in a recent note. “We forecast Libyan supply at 1.1 million b/d, 100,000 b/d below effective capacity, through year-end.”
NOC is still hoping to pump as much as 1.45 million b/d by the end of the year, but a lack of finance allocated for maintenance and repairs caused by years of political instability has made it difficult to maintain the assets, keeping a lid on output.
Libya exports mainly light-sweet crude grades like Es Sider, Sharara and Brega. Its main export markets are in southern Europe and China. The producer, which holds Africa’s largest reserves, is excluded from quotas limiting production by OPEC.