Will rising Libyan oil production ruin the Opec deal?
Exempt from the cuts, the country could still help decide their success or failure
Libyan oil production has tripled since September, when the Tobruk government's forces captured key oil ports in the Sirte basin. Exempt from the Opec cuts agreed in November, Libya could add much more supply in the coming months - but growth will depend on the country's civil conflict. Further disruptions are possible too.
Output in early January was around 0.7m barrels a day, compared with just 290,000 b/d in August. The sharp rise was possible only after the Libyan National Army (LNA) ousted the Petroleum Facilities Guards from the key Sirte basin oil ports of Es-Sider (with a capacity of 447,000 b/d), Ras Lanuf (220,000 b/d) and Zueitina (200,000 b/d).
The PFG, ostensibly allied with the UN-appointed government in Tripoli, had demanded cash payments to open the ports. The LNA's swift expulsion of the PFG changed all that. Its leader, Khalifa Hafter, handed control of the infrastructure to National Oil Company, the state firm, enabling the restart of much Sirte production. (Brega, another port, but that was not held by the PFG, is now also under NOC's control.)
Further output growth will be vital for Libya's shattered economy. NOC says the country's technical production capacity is now 1.2m b/d - 400,000 b/d less than Libya was producing before the Arab Spring in 2011. But further growth to reach even that lower level will be more difficult to sustain than the recent surge.
Mustafa Sanallah, NOC's chairman, said recently that output of 0.8m b/d is possible soon, but depends on getting $2.5bn to repair pumps, pipelines, storage tanks and other equipment damaged by war and neglect. Without that investment, he cautions that production could fall back to 0.52m b/d as facilities wear out. But Sanallah has also talked of pumping more than 1m b/d in the coming months.
Opec - and the oil market - will watch all this carefully. Libya produces light, sweet crude oil, so its fluctuating output has an effect on Brent prices that is disproportionate to its volume. Another 0.5m b/d from the country would account for almost half of the cuts agreed by the group's other members.
Another 0.5m b/d of output from Libya would account for almost half of the cuts agreed by other members of Opec
Late December brought good news for Libya, but not for Opec. Production in the country's southwest, which had been blocked for more than a year, came online after militias from Zintan ended their blockade of pipelines exporting oil from the Sharara and El Feel to ports west of Tripoli. Zintan supports Tobruk. Other militias controlling the fields themselves agreed to re-open them (despite still fighting one another).
The extra oil from the 360,000-b/d-capacity Sharara so far amounts to about 120,000 b/d, but should keep rising. El Feel's restart is imminent, but will take some time to reach its capacity of 100,000 b/d. Neither field has suffered the kind of war damage affecting some assets in the Sirte basin.
However, even in the Sirte basin, production has enjoyed a healthy revival. Germany's Wintershall is now producing about 35,000 b/d from its eight fields at concessions 96 and 97. Production at Waha, a joint venture between NOC and US companies ConocoPhilips, Hess and Marathon Oil that was also shut until September, has reached 50,000 b/d at its five fields. The consortium expects to produce 75,000 b/d by March.
The bigger recent gains have come from NOC's subsidiary Agoco, which had been hamstrung in recent months by power failures, among other problems. Production at its Sarir field has more than doubled in recent months, from 150,000 b/d to 320,000 b/d.
But bottlenecks remain. Wintershall has diverted shipments to Ras Lanuf, primarily a refinery, because of a shortage of storage tanks at nearby Es-Sider - 17 of its tanks were destroyed or damaged in fighting in December 2014 and by IS a year later. NOC says total throughput capacity from the two main ports in the Sirte basin will remain around 200,000 b/d, until the tanks are repaired.
The biggest threat to growth is further conflict. The Tobruk parliament has its own government, and has refused to accept the authority of the Government of National Accord (GNA), which was appointed by the UN in December 2015. The GNA, unelected and largely unloved by any of Libya's myriad groups, is in chaos: three of its nine-strong presidency recently quit. The GNA hangs on, just, in Tripoli, but only at the rapidly eroding grace of several Islamist militias that control the capital.
Control of oil and gas, which accounts for 95% of Libya's export earnings, has become the key military objective of the war. "The civil war is guided by the war for the oil," Sanallah told Petroleum Economist in August. "Everyone wants to govern the oil."
That kind of uncertainty will affect longer-term plans for more exploration and fresh upstream development. "There's a difference between upstream companies and service companies," says Stuart Amor, managing director of FTI Consulting. "The service companies can be more proactive, they can get in and out relatively quickly as the political and security situation changes. It's different for the majors. They have to take a longer-term view and are generally less willing to take the risk with capital investment."
For now, at least NOC has stayed above the political fray, officially beholden to both warring governments while in practice self-governing. But that may not last. The civil war is asymmetric, with Tobruk controlling the bulk of oil production while the GNA, by dint of international recognition, has title to oil revenues. General Hafter and his LNA are trying to extend their reach over Libyan territory, especially its oil infrastructure; and his enemies, not least powerful Misratan militias, have already sought to break his hold on the Sirte basin and on key strategic areas of Libya's south and west.
All this leaves analysts cautious about betting on sustainable production growth. "Libya is lifting output more quickly than we had expected," says Giovanni Staunovo, commodity analyst at UBS. "However, to see production marching sharply higher from current levels, tribal agreements need to hold. We remain cautious on the outlook for Libyan production over the coming months."
While divided government is not fatal to Libya's production gains, continuing civil war may well be. "A political settlement is not necessarily a precondition for an increase of oil production, but a sufficient level of security certainly is," says Wolfgang Pusztai, of the National Council on US-Libya Relations and Austria's former Libya defence attaché.
Vulnerable pipes: :Libya's key oil infrastructure. Source: Petroleum Economist
This article is part of a report series on Opec. Next article: Expect the unexpected from Sudan and South Sudan