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Conflict cripples Libya's oil sector

The latest battle for Libya’s key oil ports—the fourth in as many years—leaves vital infrastructure destroyed and the country’s production recovery in jeopardy

Fighting began on 14 June when warlord Ibrahim Jathran led his grandly named but poorly equipped militia, the Petroleum Facilities Guard (PFG), in an attack that seized Es Sider, Libya's largest export terminal, and nearby Ras Lanuf, its largest refinery.

Jathran's militia were originally formed to guard the ports, which take exports from the Sirte Basin, home to two-thirds of Libya's production. But from 2013, they blockaded the terminals demanding huge payments. The blockade ended in September 2016 when Khalifa Hafter's Libya National Army (LNA) seized them, opening them for business. Since that capture, Libya's oil production has jumped from 220,000 barrels a day to hit 1m b/d in June last year, with Es Sider now exporting 260,000 b/d and Ras Lanuf another 130,000 b/d.

The attack prompted Libya's National Oil Corporation (NOC) to divert incoming tankers, declare force majeure on both ports and announce a drop in exports of 440,000 b/d. On 29 June, it also declared force majeure on loadings from Zueitina and Hariga ports, taking the total to 850,000 bpd of supplies that are disrupted.

Last month's attack was a carbon copy of Jathran's offensive in March last year, in which he held the ports for 10 days before the LNA took them back. This time, Jathran calculated things would be different because Hafter's LNA is deployed to the east, battling Islamist militias in the coastal town of Derna.

He hoped also that tribal politics would prove crucial. The ports are in the territory of Jathran's Maghraba tribe, and their decision to switch support from him to Hafter was key to the LNA's nearly bloodless capture of the ports in 2016. Now Jathran calculated the Maghraba felt unrewarded by Hafter and would change sides. He may also have been encouraged by another PFG unit which, since February, has been blockading production at the 70,000-b/d El Feel field in south west Libya, a joint venture between NOC and Italy's Eni. There, the NOC says, the PFG is demanding wages for hundreds of people who're not on staff.

Counter-offensive

But Jathran's calculations were misplaced. Either the Maghraba refused to back him, or their views counted for less than Hafter's trump card—LNA air power, which spent seven days hammering Jathran's forces. On 21 June, the LNA launched a counter-offensive, and a day of pell-mell skirmishes ended with Jathran's forces, reportedly aided by the Islamist Benghazi Defence Brigades, on the run through the desert.

Mustafa Sanalla, NOC chairman, told journalists at Opec's Vienna meeting on 20 June that with the LNA back in charge, exports would resume shortly.

But those exports will suffer because three of Ras Lanuf's storage tanks were destroyed in the fighting, their black smoke plumes visible from space. Their loss means only nine of 32 storage tanks are available at both ports, with Ras Lanuf's storage capacity cut from 950,000 barrels to 550,000. Just how much that will crimp exports is hard for the moment to judge. With limited storage, and tanker arrivals often episodic, field managers across the Sirte Basin may need to halt pumping operations, cutting daily output.

IOC jitters

Less easy to fix is the loss of confidence among international oil companies. Libya badly needs their support. NOC's plans to push production to 1.3m b/d were quietly shelved last year, with Sanalla complaining that the UN-backed Government of National Accord in Tripoli was giving him less than half the money he needs for restoration work. Libya has yet to return to the 1.6m-b/d production it enjoyed prior to the 2011 Arab Spring revolution.

Source: Petroleum Economist

International confidence is already wobbling on a second front. In March, France's Total announced a $450m purchase of the 16.33% stake of the US's Marathon Oil in Waha Oil, the biggest joint venture in the Sirte Basin. Waha—its other partners are US companies ConocoPhillips and Hess—produces 300,000 b/d.

But in May, six weeks after Total's announcement, the NOC abruptly announced it hadn't approved the deal. The NOC's move came after debate in the GNA about whether Libya should itself buy Marathon's stake. Total's chairman Patrick Pouyanne dug in his heels, insisting the deal was done, and that Libya had been informed months in advance. Less important than arguments over the rights and wrongs of the deal was Libya's six-week delay before dismissing it.

"The delay in announcing the so-called 'right of refusal' by the NOC makes Libya's investment environment look capricious,"said Geoff Porter, head of US-based North Africa Risk Consulting. "Even in the best of times the oil sector in Libya was nasty and fickle."

Balancing act

For IOCs, the delayed refusal has brought back memories of their often problematic relationship with Libya. In the 1970s, former dictator Muammar Qaddafi nationalised assets of BP, Chevron and Texaco. In the 1980s, international sanctions saw IOCs quit the country. When they returned two decades later to snap up exploration concessions many, including Chevon, ExxonMobil and Shell, found little oil in the blocks purchased.

Sanalla, meanwhile, is obliged to play a political balancing act between the GNA and its rival government, the House of Representatives parliament in Tobruk. The GNA has issued Decree 203, giving it the authority to snatch contract and sales powers from the NOC. Tobruk, meanwhile, periodically hints it will sell oil independently of the NOC, taking advantage of its control, via the LNA, of the Sirte Basin. To date, neither government has triggered its threat, in part after international pressure to preserve the NOC.

Long term, Sanalla needs political stability. At Paris talks in May hosted by France's president Emmanuel Macron, Libyan leaders agreed to hold elections in December to form a united government and end the civil war. But few in Libya, in the wake of the recent oil ports battle, believe voting is possible, or that armed factions will put down their guns if a new government is elected.

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