Libya at 65: Oil sector recovery under threat again - African Business Magazine
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Libya at 65: Oil sector recovery under threat again

Libya at 65: Oil sector recovery under threat again

An expected jump in Libyan oil exports has come under threat from renewed fighting around Libya’s oil ports. The four ports were seized by forces loyal to the Tobruk government in September and the security situation improved over the subsequent three months.

However, opposition militia have sought to take them back just as key pipelines are about to come back into use. On 14 December, oil production resumed on the El Feel and Sharara fields after 19 and 24 months respectively. The pipelines connecting the fields with the Zawiya refinery have now been repaired, allowing Libya to resume exporting refined petroleum products from its biggest export terminal, Es Sider, which is operated by Waha Oil.

However, the Libyan National Army (LNA) fighting on behalf of the Tobruk government is having to hold off fighters from the Petroleum Facilities Guard (PFG) and the Benghazi Defense Brigades, which are allied to the rival government in Tripoli and who have launched an offensive to regain the oil terminals. The National Oil Company (NOC) evacuated some staff but there have been no reports that any loadings have been halted.

Ongoing Civil Unrest

The political and security situation in Libya remains rather complicated. There are two rival centres of power: the UN- and Western-backed Government of National Accord (GNA) based in Tripoli, and the House of Representatives, centred on Tobruk in the east.

In addition, there are countless militia that control parcels of territory of varying size and value. Many have formed alliances with one of the two competing governments, often on a temporary basis.

There are several causes for Libya’s low oil output but all are connected with the ongoing conflict: fields and pipelines have been damaged, export terminals attacked, and foreign oil companies have withdrawn their staff from the country. Perhaps the biggest problem has been that fields, pipelines and oil terminals have been controlled by different factions that often refuse to cooperate with each other.

Until September, national oil production stood at just 300,000 barrels per day (bpd). However, production doubled in September when the LNA took the ports, effectively putting the country’s entire onshore oil industry in the hands of Tobruk. Output should reach 1.06m bpd once El Feel and Sharara come fully into production, putting Libya within reach of attaining the NOC production target for 2017 of 1.1m bpd. This would still be well short of the 1.6m bpd it produced before the civil war.

The oil terminals were previously protected by the Petroleum Facilities Guards (PFG) , which is affiliated with the Tripoli government. The PFG had previously claimed that the LNA was associated with Islamic State, an assertion that seems very unlikely, given that it has led the fight against IS in the east. Militia loyal to the GNA have suffered a string of defeats since the start of the year. The GNA denies ordering the current assault on the terminals.

Oil Deal

The success or otherwise of the LNA’s efforts to boost oil production will have a profound impact on Libyan politics and the economy. The revenue generated by oil exports will be of obvious benefit to the Tobruk government and the LNA.

NGO Crisis Group reported that the: “takeover of the oil fields has also allowed a 50% rise in Libya’s oil exports at a time where Libya’s foreign cash reserves are growing dangerously depleted” and “raises the question of whether an already weak [Tripoli government], facing increasing challenges in its own camp, has lost control of its defence ministry”.

The Libyan situation will have profound implications for Organization of the Petroleum Exporting Countries (OPEC) and member states, including Algeria, Angola and Nigeria. The oil cartel has spent the entire year negotiating a deal with leading non-OPEC oil exporters, such as Russia, to curtail output in order to increase prices. That deal was only concluded on 30 November but could easily be undone by the injection of 460,000 bpd of new production from El Feel and Sharara into the international market.

Neil Ford

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Written by Neil Ford

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