Libyan oil protection force an illicit oil trade
Tripoli threatens military action against any tanker lifting illegal cargoes
The shut-down of oil-export terminals in Libya is part of an attempt by armed groups protecting the facilities to sell oil directly from the country without the state oil company’s approval, according to well-placed sources familiar with the matter.
Ali Zeidan, Libya’s prime minister, has moved to prevent members of the oil-installation protection force selling oil independently of National Oil Company (NOC), threatening military action against any unscheduled tanker entering its waters near the ports of Ras Lanuf and Sidra.
The first illegal sale was to involve a shipment of up to 2.2 million barrels, sources said.
Following Zeidan’s warning, several vessels that were scheduled with NOC to load crude in the ports have withdrawn from Libyan waters as a precaution. A source said the Libyan airforce had already carried out sorties to check for suspicious vessels.
NOC, which by law has the sole right to export Libyan crude, has declared force majeure on scheduled shipments from the terminals. International oil companies (IOCs) were not told why force majeure was declared, though rumours of illicit oil trade have been surfacing in recent days.
A well-placed source said the group that shut the terminals was offering 7.5m barrels of oil on the open market. It has contacted several brokers and IOCs offering the oil, the source said. Some of these parties informed NOC, prompting the government’s reaction.
The Liberia-registered A Whale, a very large crude carrier, which was destined to dock at Sidra, has attracted particular attention from the Libyan government. It is capable of carrying more than 2m barrels of crude. The source said it had been chartered by the son of a senior Muammar Qadhafi-era figure. He could not be contacted by Petroleum Economist, which has withheld his name.
The oil being offered for sale is stored in the Sidra tank farm, Libya’s largest. The crude is from the Waha oilfields, in the Sirte basin. NOC’s partners in Waha are US firms Conoco, Hess and Marathon.
Senior Libyan oil industry sources believe the guards at the Sidra and Ras Lanuf terminals used labour disputes with NOC as a pretext to shut the terminals so they could load the oil they hoped to sell directly.
The guards have also accused NOC of corruption. Ibrahim Jadhran, who commands the protection force, publicly proposed direct oil sales recently, saying the oil belonged to the east. He further pledged to use the income from sales to beef up the protection force.
Zeidan is understood to have directly blamed Jadhran and Siddiq Oraidy, the former deputy defence minister who also has authority over the oil-protection force, of using their position in control of export facilities to launch an independent sales effort.
The price at which they hoped to sell the oil is unknown. The trade would likely have carried a significant discount. At market prices, the stored oil would be worth more than $750m.
Zeidan says disruptions to oil exports in recent weeks has cost the Libya $1.6bn in lost revenue. Zueitina and Brega ports have also been shut because of unrest.
Problems with metering at oilfields supplying Sidra, which would measure the volume of oil flowing to the terminal, have caused some confusion about the volumes of oil being sent for export, opening the opportunity to sell the oil unchecked, said a source.
The news that former revolutionary fighters ostensibly working to protect Libya’s two biggest export terminals are seeking to sell crude directly on the market will trouble foreign investors, which are already nervous about the deterioration in the country’s security and the government’s inability to control its oil sector.
It follows attempts by Benghazi-based oil producers to sell crude directly on the open market out of the Tobruk terminal, in Libya’s east, also independently of NOC. Those efforts were assumed to be part of a wider political battle between east and west Libya.
International oil firms have so far refused to buy the oil without NOC’s approval. “No IOC will touch this oil with a barge poll,” said a diplomat. “They’d be screwed in Libya if they did.”
Libya surprised many analysts after the war by restoring pre-conflict oil output of 1.6m barrels a day (b/d) within months of Qadhafi’s fall. But production has plunged in recent months.
Opec said output averaged just over 1m b/d in July, though local sources put the number much lower. It is thought to be as low as 400,000 b/d now, choked by a spate of strikes across the country in recent months.
Arabian Gulf Oil Company (Agoco), the Benghazi-based NOC unit responsible for the bulk of the east’s production, has reduced its output to around 60,000 b/d. Its big fields in the southeast, Misla and Sarir, have capacity of around 400,000 b/d. Fields in the west and centre of the country are also well below capacity.
Workers at Agoco have also threatened to keep oil offline unless the company is given greater autonomy from NOC. The oil ministry previously said it could split NOC and base some of its operations in Benghazi, although there are doubts that the move will go ahead.
Western governments recently tried to offer Libya help in beefing up its oil-protection force, which was originally established to restore order in the sector and prevent armed militias from disrupting infrastructure. The force has been involved with skirmishes against militias in recent months.
However, a law passed in the country’s General National Council in May, which excludes anyone who held a senior post in the Qadhafi regime from holding office, has since removed the officials who were in contact with the Western governments. “Libya’s falling apart,” said a diplomat. “The political exclusion law really threw a spanner in the works. The UK and EU were looking to help in security sector reform. But the people we were looking to do it with have all been pulled out.”