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Libya's unending oil war

As the latest battle in the Sirte basin shows, Libya's output recovery remains hostage to the country's politics

Following the recapture after 11 days of fighting of Libya's largest oil-export terminal, Es-Sider, and its third largest, Ras Lanuf, by forces allied to the Tobruk government, oil officials have begun sorting out how much of the country's oil-recovery plan remains intact.

That plan, published in November on the website of the National Oil Corporation (NOC), the state firm, envisions war-battered production rising to 0.8m barrels a day by end-2017, generating revenues of $15.84bn.

That plan, drawn up by NOC chairman Mustafa Sanallah, only came after Khalifa Hafter's Libyan National Army (LNA) captured the prolific central Sirte basin last September, ending a two-year militia blockade that had shut the four ports serving the basin. Their reopening saw production jump from 260,000 b/d in August to 0.7m b/d by late February. The 11-day interlude in March, when Islamist forces pushed the LNA back from the ports, threatened to interrupt that recovery.

In January, Sanallah announced a moratorium on foreign investment in new oil projects introduced with the start of civil war in 2014 would be lifted. On 22 February, he signed an outline exploration and production deal with Russian state oil giant Rosneft in London. He also said output would rise to 2.1m b/d by 2022.

As long as two sides in Libya's conflict claim its oil assets, that seems a long way off. Although Es-Sider and Ras Lanuf were undamaged by the March attack by the Benghazi Defence Brigades (BDB), the area remains contested. Still, NOC expected the two ports, shut in March by the fighting, to have reopened by the end of the month (when Petroleum Economist went to press). On 19 March, Sanallah told Reuters that production would rise to 0.8m b/d in April, and said a medium-term target of 1.25m b/d by the year's end was still achievable.

Increasing output above 1.2m b/d, as NOC plans, will depend as much on investment as on security

The largest Sirte Basin joint venture, Waha Oil, a partnership between NOC and US companies ConocoPhillips, Hess and Marathon Oil, closed during the fighting but reopened after it. Waha should soon recover its February output of 80,000 b/d (capacity was once 300,000 b/d).

Also in the Sirte Basin, Germany's Wintershall, Libya's largest wholly owned foreign producer, announced in an email that its 35,000 b/d from fields including As Sarah (Concession 96) was unaffected. It is aided by a 55km pipeline spur, built in 2013, allowing it to avoid congested bottlenecks and pump oil to Ras Lanuf alongside crude from Harouge Oil's Amal field, and the nearby Nafoora field, operated by NOC's Benghazi-based unit Arabian Gulf Oil Company (Agoco).

The east of the Sirte Basin was also unaffected by the latest battles. Agoco's Sarir and nearby Mesla fields are still shipping 230,000 b/d out of a 420,000 b/d capacity through a pipeline to Tobruk's Hariga port. Sarir's output remains constrained by power problems that will only be permanently fixed with repairs to turbines.

Untroubled by events onshore are two western offshore fields, producing about 80,000 b/d, and the two large fields in Libya's southwest. Sharara (an NOC joint venture with Spain's Repsol) is now pumping 221,000 b/d, two thirds of its capacity. El Feel, a joint venture with Italy's Eni, is still not producing, its 90,000 b/d of capacity held back by disputes with field workers.

Show NOC the money

Increasing output above 1.2m b/d, as NOC plans, will depend as much on investment as on security. NOC says it needs $2.5bn straightaway. Much remedial work is necessary and basic maintenance, like well workovers, has been scant in the past two years.

But getting money from the Central Bank will depend on budgetary order—difficult, if not impossible, while no less than three governments claim authority in the country and tensions between them have sharpened because of the fight over oil assets in the Sirte basin. Funds are also tight. Libya's foreign reserves, its principle source of income, were more than $108bn in 2013 but by the end of 2016 had dropped to $44bn.

Although Es-Sider and Ras Lanuf escaped destruction in the latest bout of fighting for their control, previous bouts have damaged 20 of 32 storage tanks. Throughput at the two ports was once 0.66m b/d, but NOC says is now only around 200,000 b/d, capping the volumes that the Sirte basin can produce and export.

Cash is also needed to fix pipes and pumps at 11 western Sirte basin fields with a capacity of 123,000 b/d. Surface facilities at the Mabruk field, a joint venture between NOC and France's Total, were also wrecked by Islamic State (IS) in 2015.

But poor security will inevitably affect NOC's ability to repair pumps, pipelines and power generation facilities—and deter potential foreign partners for joining in. Three BDB attacks to try to wrest control of the Sirte basin from the LNA have now been repulsed in recent months. But unless Hafter dislodges the group from its desert base at Waddan, a fourth attack cannot be ruled out.

IS, expelled from its main base of Sirte last December, also continues to operate in Libya's south, putting pipes and fields at risk. In the southwest, production at Sharara (and eventually El Feel) rests on the willingness of Zintan, allied to the LNA, to keep open pipes it had formerly blocked for political reasons because they feed two terminals, Mellitah and Zawiya, controlled by forces opposed to the LNA. In the aftermath of the ports battle, Sanallah has floated the idea of oil facilities being put off limits in the civil war, in the national interest. There are suggestions NOC be given its own neutral force to guard the infrastructure.

It's an attractive idea. But the plan ignores the point made last summer by Sanallah himself in an interview with Petroleum Economist. Oil remains the principal objective of the civil war. Until that conflict is settled, Libya's oil must continue navigating through front lines every bit as tangled as its pipeline network.

Under siege: Libya’s key oil infrastructure Source: Petroleum Economist

What is Rosneft doing in Libya?

The announcement on 21 February that Rosneft, Russia's state-run producer, had signed an upstream deal with Libya's National Oil Corporation (NOC) surprised many in the market. Most majors have watched the civil war from a distance. Few details on Rosneft's future work in Libya, or whether the conflict must end before it commits itself, were forthcoming when NOC chairman Mustafa Sanallah and Rosneft boss Igor Sechin signed the deal in London. The Russian company has no previous involvement in Libya, although it has spent recent months sewing up other deals in the region. It recently bought a stake in Eni's Zohr field, offshore Egypt and sank its first exploration well in southern Iraq. In December, Qatari investors bought a stake in the Russian company too.

Sanallah said he hopes Rosneft's interest will spur other oil majors to return to Libya. "We need the assistance and investment of major international oil companies to reach our production goals and stabilise our economy," he said. "Russia can play an important and constructive role in Libya."

But Sanallah on his own has no formal authority to sign strategic upstream deals. Only governments can do that—and three now claim authority in Libya. Russia recognises the one in Tobruk, the House of Representatives (HoR). NOC has cooperated with both the UN-appointed Government of National Accord, in Tripoli, and the HoR. Russia has become more involved diplomatically and militarily in support of Tobruk. Now it may be seeking some say in Libya's future energy sector too.

This article is part of a report series on Libya. Next article: Libya's east ups the ante

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