Simon Watkins
- Libya’s oil production, which was cut in half due to a blockade in August, has recovered to around 1.2 million barrels per day.
- International oil companies, including Italy’s ENI and France’s TotalEnergies, are actively investing in Libya, with plans for both oil production and renewable energy projects.
- Libya’s fractured political landscape, especially the unresolved issue of equitable oil revenue distribution, continues to threaten the stability of its oil sector. ***
Libya’s oil production was cut roughly in half when a blockade of major fields and ports began at the end of August. With the shutdown having ended on 3 October, output has bounced back to around 1.2 million barrels per day (bpd) again. According to subsequent statements from its National Oil Corporation (NOC), the move is now on to significantly boost its crude production.
Theoretically, Libya could achieve this. Prior to the removal of its long-time leader, Muammar Gaddafi, in 2011, it had easily been able to produce around 1.65 million bpd of predominantly high-quality light, sweet crude oil. Production had been on a rising production trend at that point, up from about 1.4 million bpd in 2000, and the country still had around 48 billion barrels of proved crude oil reserves – the largest in Africa. Although this output level was well below the peak levels of more than 3 million bpd achieved in the late 1960s, the NOC had plans in place at that point in 2011 to roll out enhanced oil recovery (EOR) techniques to increase crude oil production at maturing oil fields.
These projects were put on hold due to an increase in sectarian hostilities across the country, but they were resuscitated even before the most recent comments from the NOC alongside its creation of a new ‘Strategic Programs Office’ (SPO). The aim of this is precisely to orchestrate a rise in Libya’s production capacity to 2 million bpd in the next three to five years.
During Gaddafi’s 42 years as leader, numerous international oil companies (IOCs) operated in Libya or desired to do so. Several of these retained an active presence in the country since his removal and the onset of a rolling civil war between various factions centred on controlling the country’s only major source of income – its oil and gas sector. Italy’s ENI is one such firm, signing an agreement towards the end of 2023 with the NOC that envisioned investment of around US$8 billion to produce about 850 million cubic feet per day (Mmcf/d) from two offshore gas fields in the Mediterranean Sea.
ENI still produces gas in Libya from its Wafa and Bahr Essalam fields operated by Mellitah Oil & Gas, a joint venture between the Italian company and the NOC. Gas from the fields is transported to Italy through the 520 kilometre 8 billion cubic metres per year (Bcm/y) Green Stream pipeline that crosses the Mediterranean Sea and lands in Gela in Sicily. Negotiations are also ongoing between ENI and the NOC for the launch of several major renewable energy projects too.
Like France’s TotalEnergies and the UK’s BP and Shell, ENI has been at the forefront of developing alternative energy flows for Europe to compensate for those lost from Russia since it invaded Ukraine on 24 February 2022. Moreover, the Italian government has additionally unilaterally pledged to eliminate all Russian gas from its supply network by 2025.
ENI and BP both feature in the exploration and production sharing agreement (EPSA) that the two firms signed in October 2018 to resume exploration activities in the country. The EPSA – originally awarded in 2007 but suspended from 2014 to 2018 — includes three contract areas, two in the onshore Ghadames basin and one in the offshore Sirt basin, covering a total area of around 54,000 square kilometres.
Plans were also afoot at the NOC before the latest oil production shutdown in August/September for a series of offshore and onshore drilling programmes to begin within the coming months, under the leadership of France’s TotalEnergies. April 2021 had seen an agreement between its chief executive officer Patrick Pouyanne and the then-NOC chairman, Mustafa Sanalla, for the firm to continue with its efforts to increase oil production from the giant Waha, Sharara, Mabruk and Al Jurf oil fields by at least 175,000 bpd. It had also agreed to make the development of the Waha-concession North Gialo and NC-98 oil fields a priority, according to the NOC.
The Waha concessions – in which the then-Total took a minority stake in 2019 – have the capacity to produce at least 350,000 bpd together, according to the NOC. The NOC added that the French firm would also “contribute to the maintenance of decaying equipment and crude oil transport lines that need replacing.”
Having said all this, the outlook for a meaningful sustained rise in oil Libya’s oil production remains extremely clouded by its fractious political situation. At the core of this remains the failure since 18 September 2020 to create a properly functioning systems whereby revenues from its oil and gas sector can be equitably processed in a manner acceptable to the key warring factions in the east and west of the country.
The date is significant because it was at that point that a deal was struck between Khalifa Haftar, the commander of the rebel Libyan National Army (LNA), and elements of the United Nations (U.N.)-recognised Government of National Accord (GNA) to end the oil blockade that had been running for nine months by that point.
In the deal, Haftar made it clear that the resultant lifting of the shutdown would not last unless a precise framework was agreed about exactly how oil revenues would be divided up between the various groups from then on. From that moment until September 2020, Libya experienced several further blockades of its oil sector of various magnitudes until a draft framework was agreed between Haftar and Ahmed Maiteeq, the then-Deputy Prime Minister of the GNA.
Key to this agreement was the proposed formation of a joint technical committee — between the LNA and GNA principally — to deal with overseeing oil revenues and then ensuring the fair distribution of resources. In order to address the fact that the GNA effectively held sway over the NOC and, by extension, the Central Bank of Libya (in which the revenues are physically held), the committee would also “prepare a unified budget that meets the needs of each party… and the reconciliation of any dispute over budget allocations… and will require the Central Bank [in Tripoli] to cover the monthly or quarterly payments approved in the budget without any delay, and as soon as the joint technical committee requests the transfer.”
Due to the influence of several domestic and international disruptive elements since that idea was mooted – notably Russia – it has never been properly implemented and has been replaced instead by at time ludicrous events on both sides. However, hopes were high from several quarters – including the U.S. and U.N. – that such a deal could work well, and indeed that it might still be able to solve the ongoing impasse over the country’s oil and gas revenues. In the meantime, it looks highly likely that Libya will remain subject to further similar shutdowns for variously ludicrous reasons based on the whims of various of its warring factions.
In the run-up to the August/September shutdown (resulting from efforts to remove the then-Governor of the Central Bank of Libya), for example, a smaller one began in the first half of August caused by the arrest of Saddam Haftar, the son of General Haftar. The younger Haftar had been briefly detained at Naples airport after his name appeared on a European Union database over an arrest warrant issued in Spain for alleged weapons smuggling.
This followed comments from former U.N. special envoy to Libya, Abdoulaye Bathily, that the country was becoming a mafia state dominated by gangs involved in smuggling operations, especially for arms. This in turn followed General Haftar’s visit last September to Moscow for talks with Russian President Vladimir Putin, whose Wagner mercenary soldiers provide support for LNA forces in Libya. Early July also saw Italian authorities seize two Chinese-made military drones that were destined for Libya and disguised as wind turbine equipment.
***
Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for Credit Lyonnais, and later Director of Forex at Bank of Montreal.
_______________
