Kate Dourian

Bottom Line:

Libya does not have a permanent, unified government. Nor does it have a date set for overdue national elections. Yet this has not prompted a flight of foreign energy companies or deterred investment in Libya’s oil and gas sectors. 

More than a decade after Muammar Gadhafi’s ouster, the country remains fragmented and energy infrastructure has often been caught in the middle of the power struggle between east and west. 

The international energy majors, mostly European companies like Eni and TotalEnergies, have held on to their assets in Libya and plan further investments. 

Russia’s invasion of Ukraine was one of the drivers for the push by Eni as Europe sought alternatives to Russian oil and gas supplies. As a South Mediterranean country, Libya is connected to the European gas network through Italy, hence its appeal as a supplier of natural gas to Europe as the EU prepares to wean itself off Russian gas by 2030. Libya is a patchwork of political and tribal factions — some of them heavily armed and supported by external powers — that have failed to find common ground despite international mediation efforts.

The political fragmentation is also reflected in the energy sector, where the National Oil Company and the Oil Ministry are at odds over management and policy issues. 

The shutdown of the 300,000 b/d Sharara oil field by protestors on January 3 was one of the symptoms of the country’s malaise and political dysfunction. The country is home to roughly 40% of Africa’s proven oil reserves, and its low cost, high-quality crude oil remains an attractive prospect for the energy majors — even as Libya’s political future remains in limbo.

Background Facts:

  • In October 2023, the House of Representatives (HOR) in the east of the country voted on a law to govern presidential and parliamentary elections. It is not clear if this requires the endorsement of the High State Council (HSC) in Tripoli, where the internationally recognized Government of National Unity (GNU) is also based. Libya’s east is represented by the Government of National Salvation (GNS).
  • The fractious nature of government in Libya is at best ambiguous, and none of the main players in the east or west seem prepared to upset the status quo and give up their power bases. The HOR wants to replace the GNU with another interim government before elections are held, a move that is likely to face resistance from the Tripoli government. 
  • The devastating floods that struck eastern Libya in September killing more than 3,300 people and the poor response by the authorities sparked public anger against Khalifa Hifter, the militia leader who wields power in the east, and against the HOR and its speaker, Aguila Saleh, author of the latest version of the amended election law. However, the protests did not pose a serious political challenge. 
  • Hifter’s forces have in the past blockaded oil export terminals as part of a pressure campaign against Tripoli. This forced the National Oil Company (NOC) to declare force majeure on oil exports and shut down all but a fraction of oil production. 
  • The announced reunification of the two branches of the central bank into one entity in August was welcomed by the International Monetary Fund (IMF), which said after a staff visit in November that it would help to move the reform agenda forward. It assessed Libya’s medium-term economic outlook as positive due to projected high oil prices, which are the single largest source of revenues for the state. While advising diversification away from hydrocarbons, the IMF also urged the authorities to implement structural reform and address corruption and governance concerns. 
  • Although oil and gas are the mainstays of the Libyan economy, decades of international sanctions have taken their toll on energy infrastructure, much of it requiring upgrades without which Tripoli cannot hope to boost its oil production capacity. NOC Chairman Ahmed Bengdara said in an interview with Reuters on Nov. 27, 2023, that the state-owned company needs $17 billion to increase production to 2 million barrels per day (bpd), which would be some 300,000 bpd higher than pre-conflict capacity. Bengdara put current production at 1.3 million bpd but said the higher target would require upgrades to pipelines that were built in the 1960s but not maintained. This effort would require some stability and a more adequate response to popular disaffection as manifested by the shutdown of the Sharara field, the country’s largest, by local communities demanding more social justice and economic opportunities, according to Reuters. S&P Global Platts reported that the smaller El Feel (Elephant) field was also shut down by the protests, as was the main export pipeline to the Zawiya oil terminal. 
  • Oil prices, which have posted gains since the end of December 2023 due to concerns over the security of Middle Eastern oil supplies as tensions rose in the Red Sea, moved higher on the reported shutdowns. But the increase was somewhat muted in a well-supplied market and traditionally weak demand in the first quarter of the year. 
  • Securing the necessary investment from the central bank is key. This would require more coordination between the NOC and the Ministry of Oil. Bengdara, former governor of the central bank under Gadhafi, and Minister of Oil and Gas Mohamed Aoun are at odds over contract awards and a draft law presented to parliament by Bengdara that would grant the NOC more powers and financial autonomy. 
  • Among the points of contention between NOC and the ministry are recent contract awards that would bring in billions of dollars in investments.
  • In January 2023, Eni signed an $8 billion contract to develop two offshore gas fields that would produce natural gas for domestic consumption and eventually for export, a project backed strongly by Italian Prime Minister Giorgia Meloni. 
  • Another potentially large investment, estimated at $4-$5 billion, could come from a consortium of EniTotalEnergies and the UAE’s state-run Abu Dhabi National Oil Company (ADNOC), also for offshore gas development. 
  • TotalEnergiesand the United States’ ConocoPhillipsacquired the 8.16% interest held by Hess in the Waha concession, raising their stakes to 20.41% each with the NOC holding the remaining 59.18%.

Alternative Scenarios:

Scenario 1: Failure to hold elections and consolidate central power within one entity in Tripoli and provide a stable investment environment.

Such a scenario would jeopardize energy investment flows and leave the oil sector at the mercy of political rivalries. 

Aoun has rejected the contracts awarded by the NOC, alleging that GNU Prime Minister Abdel Hamid Dbeibeh and Bengdara had offered Eni concessionary terms without approval. Bengdara is seen as a compromise candidate chosen to head up the NOC under a deal struck between Dbeibeh and Hifter, so his position is precarious.

Should he be ousted as NOC chairman, there is a risk the contracts would be scrapped and handed to a Libyan operator. Excluding the foreign energy majors with their technical expertise and deep pockets would lead to stagnation of oil production and a shortage of gas that has already led to blackouts in the country, which would provoke public anger. It would also require the central bank to make the necessary funds available to the NOC, which it has been reluctant to do in the past without proper accounting protocols. 

Scenario 2: Elections are held in 2024 but results are disputed, leading to another bout of violence and civil strife. 

The oil and gas sector would once again fall prey to the chaos and the economy would take a big hit since revenues from hydrocarbon exports account for nearly all foreign income. The absence of a stable government and fiscal transparency would deter future investments in the country while exacerbating political divisions.

Tribal leaders who have established fiefdoms would consolidate their presence and pose a threat to oil and gas installations that have suffered from previous acts of sabotage since 2011. ConocoPhillips said in May that it remained committed to Libya and its low-cost oil, but any further investment would be contingent on a change to improved fiscal terms. This would imply a kind of stable government and the clearer division of roles between the NOC and the Ministry of Oil. 

Conclusion – Most Likely Scenario:

The most likely scenario is another year of delay in holding elections given the preoccupation of Washington, the UN and the European power brokers with the war in Gaza. The status quo would remain in place with relative calm prevailing as each side considers its next move.

The political stalemate would not be sustainable in the longer term, as the tussle over control of the energy sector and oil revenues would remain unresolved and lead to further friction between east and west Libya. As the foreign investors have proceeded with their investments despite the absence of a stable government, the contracts with the foreign operators will likely be implemented though there is a risk that target completion dates might not be met on schedule.


Kate DourianNon-resident fellow at the Arab Gulf States Institute


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