NOC is struggling amid another crisis in Libya
Libya is in chaos. Can its state oil firm survive intact?
Handling about a third of Libya’s oil-export capacity, the ports of Ras Lanuf and Sidra are critical to National Oil Company (NOC) and the country’s economy. But protesters shut down the facilities in August, leading the state firm to declare force majeure on exports and warn buyers that its September loading programme would be disrupted.
Worse still, a unit of the group charged with protecting the facilities, the Petroleum Facilities Guard (PFG), had begun efforts to find international buyers for oil held in one of Sidra’s storage tanks. It was a direct challenge to NOC’s authority. The state company has the sole legal right to sell Libyan oil. “It’s smuggling plain and simple,” one exasperated advisor to NOC said. When Libya’s prime minister, Ali Zeidan, got wind of the scheme he threatened to bomb any unauthorised tankers approaching the ports.
The sorry episode (still unresolved as Petroleum Economist went to press) says much about Libya’s oil sector and NOC’s grip on it. The Tripoli government has lost control. Militias roam the country. Violence and insecurity have frightened the investors Libya craves and forced some countries to withdraw diplomats. Protesters now routinely shut down oil installations until their demands are met; the government routinely doles out the money so the valves are switched on again. When the guards that were supposed to be defending the country’s energy industry start siphoning off oil for themselves – going so far as to arrange for a very large crude carrier to pick up the oil – it’s a sign that things have reached a nadir.
The lows are also being plumbed in production. Having brought output back up to pre-war levels of around 1.6 million barrels a day (b/d) within months of Muammar Qadhafi’s fall, the turnaround has been abrupt. Through the first half of the 2013, the oil flowed at around 1.4m b/d. By mid-August it was down to 400,000 b/d or less -- removing up to 1m b/d of light, sweet crude from global markets already rattled by unrest in neighbouring Egypt. It amounts to about $100m in lost revenue for Libya each day.
The deterioration has many sources. The indecision of the National Transitional Council, which ruled Libya after Qadhafi’s fall and before a popular vote brought in the General National Council (GNC), left many veterans of the conflict disgruntled. Different groups, with different grievances (some simply demanding the government do its job of improving things), began organising protests at oil installations. The government could have nipped this in the bud cheaply and early by offering employment in the oil sector, says one insider. Instead, the problem has festered. The PFG was supposed to be another solution. But it is now a splintered body, responding to different authorities. The group trying to sell crude out of Sidra, for example, is said to have aligned itself with federalists in Benghazi demanding greater autonomy for the east.
That is another problem for NOC. Arabian Gulf Oil Company (Agoco), its Benghazi-based unit, has also tried to sell its oil independently of the mother company through Tobruk, say sources. It failed, but workers at Agoco have also threatened to keep its output offline unless Tripoli gives the firm more autonomy. Agoco accounts for much of the east’s production, including the 400,000 b/d Sarir and Misla fields.
In response to the east’s demands, the government earlier this year proposed splitting NOC between Benghazi and NOC. But the plan has yet to get off the ground. Sporadic violence in Benghazi hardly makes it an attractive destination for the IOCs that would have to negotiate with NOC, either.
In any case, foreign investors remain wary. The US partners in the Waha complex, in the country’s centre, are understood to be frustrated at the repeated interruptions to their projects. BP, which signed one of the big Qadhafi-era upstream contracts, has not yet begun work and remains reluctant to send its people back. Some, like Italy’s Eni, are so deeply embedded in Libya’s upstream that leaving is impractical (Italy imports gas through the Greenstream pipeline and Eni has big producing assets in the southwest).
Attracting new investment, however, is increasingly difficult, because the politics is confusing to outsiders. So risks are perceived to be high. Militiamen shut down some government institutions earlier this year, including the ministry of foreign affairs. Some countries withdrew their diplomats. A political exclusion law passed by the GNC in May excludes anyone who held a senior post in the Qadhafi regime from holding one now. But that has removed many of the interlocutors foreign parties were talking to, says one diplomat, hampering projects such as a European initiative to help improve oil security.
Meanwhile, the oil ministry’s plans to increase production capacity to 2m b/d in the short term, boost reserves by 10bn barrels to 58bn barrels and launch an upstream bidding round to bring in the developers to do it all are going nowhere. NOC has not even executed all its original Qadhafi-era contracts yet, notes one senior Libyan oilman, so how can talk of new licensing be taken seriously? The ministry now talks of 2014 as a possible date for an auction.
Libya is thought to have considerable undiscovered oil, especially offshore. Yet while Malta is pressing ahead with a drilling campaign, Libya has not even properly demarcated its maritime boundaries, let alone commissioned the kind of seismic surveying needed to assess the potential. Few well workovers, essential to keeping output ticking along, are even being completed.
Some of the problems are institutional. Critics of the oil ministry say its power has been divided between oil minister Abdulbari Al Arusi and his deputy Omar Shakmak; and many decisions fall between them and the prime minster’s office. Arusi is allied with the Muslim Brotherhood faction in the GNC, which probably makes his position secure. But he is the third Libyan oil minister in two years. Pointing to the instability, some oilmen who supported the revolution now talk nostalgically of the late Shukri Ghanem, Qadhafi’s last oil minister, who at least knew how to talk to foreign companies and keep the sector in order.
The pessimism could eventually lift. NOC still controls Africa’s biggest oil reserves and the high quality of its oil means IOCs will remain interested. The state company is rich in human capital, too, including the engineers who so speedily restored output after the war. But reviving the sector will take time. NOC must assert its authority. It must also come up with a realistic programme to expand production. But first the blockades must be fixed and full oil production restored. That may involve the use of force, says the government, starting with the rogue guards stationed in Ras Lanuf and Sidra. Things could get worse before they get better.