Charlie Mitchell
The suspension of Libyan Oil Minister Mohamed Aoun and the appointment of his well-connected deputy could unblock major hydrocarbons projects, but also demonstrates the oil and gas sector’s vulnerability to the country’s chronic political instability, analysts said.
HIGHLIGHTS
- Sadiq takes over after Aoun suspended due to ‘legal violations’
- Move will streamline ministry-NOC ties amid NC-7, Waha talks
- Libyan output stable at 1.14 mil b/d, but exposed to political rows
The suspension of Libyan Oil Minister Mohamed Aoun and the appointment of his well-connected deputy could unblock major hydrocarbons projects, but also demonstrates the oil and gas sector’s vulnerability to the country’s chronic political instability, analysts said. Aoun was suspended March 25 by the Administrative Control Agency, a government oversight body, due to “legal violations” and quickly replaced by Deputy Oil Minister Khalifa Abdul Sadiq, an associate of the nephew of Prime Minister Abdul Hamid al-Dbeiba.
Although Aoun contested the suspension, which sources said was likely politically motivated, it is unlikely to be undone. Libya has been chaotic since the NATO-backed uprising against Moammar Qadhafi in 2011 and is run by parallel governments in the east and west. The oil sector, which accounts for 95% of government revenue, is the primary arena for political wrangling. Hamish Kinnear, senior Middle East and North Africa analyst at Verisk Maplecroft, said Aoun’s dismissal was “a mixed bag for Libya’s oil sector and IOCs.”
“On the one hand, the suspension could unblock progress on major oil projects — Aoun was behind a halt to the development of the NC7 Hamada field on the basis that it granted excessive concessions to foreign operators,” said Kinnear. “On the other hand, Aoun retains the support of parties with the ability to disrupt Libya’s oil and gas production.” Aoun did not respond to a request for comment.
IOC negotiations
The health of Libya’s oil sector depends on relationships between key industry participants, including the oil minister, Prime Minister Dbeiba, National Oil Company Chairman Farhat Bengdara and the powerful Central Bank Chairman, Siddiq al-Kabir. Meanwhile, Khalifa Haftar, head of the self-styled Libyan National Army, dominates the eastern Benghazi-based government and has in the past disrupted oil production. A 2022 LNA oil blockade caused production to sink to 650,000 b/d.
Output has since recovered to 1.14 million b/d, according to the Platts OPEC Survey from S&P Global Commodity Insights, but remains well short of the 1.6 million b/d pre-2011. Rows between Aoun and other stakeholders in recent months have left investors jittery. The suspended minister accused international oil companies of stalling development plans and attempting to squeeze better contractual terms out of the government.
TotalEnergies and ConocoPhillips are hoping to renegotiate their terms at Waha, which produces more than 300,000 b/d, while Italy’s ENI, the UAE’s ADNOC and TotalEnergies are negotiating with NOC over the large NC-7 Hamada gas field. Aoun questioned the costs and investor selection process for Hamada. The departing minister also criticized the $8 billion A&E Structures gas deal with Eni, arguing that the cost recovery provisions were too generous and said the NOC had exceeded its mandate in taking decisions meant for the ministry.
Under his successor, opposition from the oil and gas ministry will likely be reduced, said Jessica Leyland, a senior S&P Global analyst. “Abdul Sadiq will probably seek to withdraw complaints which were launched by Aoun, against various deals, including the Waha and Hamada projects, indicating Abdul Sadiq’s appetite to work alongside NOC rather than against it,” she said. More broadly, Aoun’s departure “will most likely streamline oil policy between the NOC and the oil ministry, reducing barriers to enacting exploration deals,” and giving investors more certainty, said Leyland.
“Abdul Sadiq was formerly a chairman of Zallaf Oil Company, a subsidiary of NOC, and is likely to support Dbeiba and Bengdara’s aspirations to open up exploration deals.” The rift between the ministry and NOC appears to be an important factor in holding up “a lot of the promised FDI.” Dbeiba has already formed a committee to negotiate with TotalEnergies and ConocoPhillips on the Waha field, headed by Sadiq. Nevertheless, corruption remains a challenge, particularly within the NOC, which has taken greater control over its budget and Libyan oil revenues under Bengdara. Libya’s fuel subsidy and crude for fuel swaps have opened new avenues for corruption, with Libyan fuel even smuggled into Sudan, as reported by S&P Global.
NOC is targeting 2 million b/d of production within five years, buoyed by a year of stable production in 2023 and the recent lifting of force majeures by IOCs. Libya holds Africa’s largest proven oil reserves and significant gas deposits. Its light, sweet Sharara and Es Sider export crudes yield a large proportion of middle distillates and gasoline, making them popular with refiners in the Mediterranean and Northwest Europe. With insufficient refining capacity, Libya imported 184,000 b/d of refined products in the first quarter, according to S&P Global Commodities at Sea data.
Political chaos
Friction in the oil sector comes amid parallel political processes that have sought to unify its rival governments. A UN-backed process is hoping to steer Libya toward long-delayed elections, while the Arab League hosted talks between the eastern House of Representatives speaker Aguila Saleh and western Libyan officials in Cairo March 10. The parties agreed to establish a single government body to oversee the electoral process. Meanwhile, analysts point to a reorientation of Libyan politics around Dbeiba, Haftar and Bengdara, which could usher in a period of economic, political and oil sector stability, but would fall short of a reunification.
Still, the two-week closure by protesters of the 300,000 b/d Sharara oil field in January showed the ability of political actors to hinder crude output. Aoun’s suspension, which Saleh called unconstitutional and politically motivated, could also result in protests. “The Libyan General Syndicate of Oil has expressed support for Aoun – and has in the past threatened disruptive protests and strikes at Libya’s oil and gas facilities,” said Kinnear. Meanwhile, Kabir, who like Aoun expressed concern at the growing NOC authority, has overseen the devaluation of the Libyan dinar, reducing revenue flows to NOC and straining his tense relationship with Bengdara.
As a result, disagreements between key parties risk derailing Libya’s slow oil sector revival just as IOCs are reengaging with the conflict-plagued country. “[Aoun’s suspension] speaks to the ongoing vulnerability of Libya’s oil and gas sector to the country’s endemic political instability,” said Kinnear. “Until there is, at a minimum, a re-unification of Libya’s competing governments, political uncertainty will continue to complicate the operating landscape for IOCs.”
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