How much longer can Libya's NOC defy political gravity?
Output has soared and the state firm is targeting another 30% increase by year-end. Politics remains the big obstacle
National Oil Corporation (NOC) deserves the plaudits. Libya's oil production, hovering around 1m barrels a day in July and August, is about four times greater than a year ago. Mustafa Sanallah, the company's chairman, wants yet more, hoping to lift output to 1.3m b/d by end-2017. Civil war, political chaos and the ever-present risk of disruptions remain headwinds.
As if to remind everyone of the delicate balance achieved by NOC in recent months, on 6 August gunmen stormed the control room at Zawiya, a port in northwest Libya that is the terminus for a pipeline from Sharara, Libya's largest producing oilfield.
The disruption, the result of rivalry between militias at the port, looked like it would be short-lived. But Sharara, a joint venture involving NOC, Repsol, Total and Statoil, which had been producing 270,000 b/d, has been vulnerable in the past. So has El Feel, a nearby oilfield that ships to Mellitah, another terminal close to Zawiyah. Both fields only came back online in December.
Despite this latest setback, Libya's oil sector has enjoyed a fruitful few months—defying the gloom elsewhere in the country. Production gains continue to be registered in the Sirte Basin, a collection of fields across central and eastern Libya that contain approximately two thirds of Libya's production. Since last September, the area has been under the protection of the Khalifa Hafter's Libyan National Army (LNA), which is allied to the House of Representatives in Tobruk. The LNA has gradually extended its military control over the region in recent months—including capturing the strategic military base of Waddan and fighting off militias ostensibly allied to the UN-backed government in Tripoli—allowing NOC to work in the area.
Waha Oil Company, a joint venture between the NOC and US firms ConocoPhillips, Hess and Marathon, with a capacity of 300,000 b/d, is producing 80,000 b/d after shutting down in March due to militia battles around Es-Sider. In May, al-Bayda field, operated by NOC subsidiary Arabian Gulf Oil Company (Agoco) resumed production of 10,000 b/d after a four-year closure. In June, Abu Attifel, operated by Melittah, a joint venture between the NOC and Eni, began production and expects to reach 50,000 b/d this summer.
Also in June, Germany's Wintershall resumed production of 35,000 b/d from its fields in the Sirte Basin, after it accepted a renegotiation of its expired concession.
Eastern Libya's largest field, Sarir, is pumping approximately 280,000 b/d of its 420,000 b/d capacity. Its operator, Agoco, has begun engineering work with oilfield-services firm Schlumberger to increase capacity. Sarir and nearby Misla have needed surface work to repair power facilities.
Production pipe dreams?
But growth in supply towards NOC's 1.3m-b/d target-still beneath 2011 capacity of 1.6m b/d-may be more difficult to achieve than the recent big leap in output. IOCs remain reluctant to commit to long-term projects, wary of another surge in militia violence and insecurity.
A key production bottleneck is lack of storage capacity at Ras Lanuf and Es-Sider, the two Sirte Basin ports that once handled around 0.6m b/d of exports. Militia attacks on the two ports in the past two years have left 21 of 33 storage tanks at out of action. NOC has said throughput capacity from both ports is down to 200,000 b/d until the tanks are repaired. In the meantime, workarounds are sending crude oil to other smaller export terminals, like Zueitina.
Libya's factional politics are another threat. Some eastern Libyan politicians itch for the east to hold greater power and control its own oil-export revenue, and have tried to sign export deals independent of NOC. Some in the east object to NOC's contract with Glencore, which gives the Swiss trader the right to lift all oil from the Hariga port near Tobruk (the terminus for Sarir and Misla output). Qatar is a shareholder in Glencore and so profits from the east's oil, they argue—and Qatar is also the key international funder of militias fighting against the LNA. So far, the east's threat to shut the Tobruk terminal has not been carried out.
NOC also faces problems in Tripoli, with the UN-backed Government of National Accord (GNA). Its executive branch, the Presidency Council (PC), issued a decree in April claiming for itself all NOC's contractual and sales powers. NOC challenged the ruling and won a judgment against it in a Benghazi court. But the PC also controls the money that is paid to NOC—and NOC's Sanallah has complained for months that it is not releasing sufficient funds. He remains adamant that NOC must be kept out of the political scrapping between east and west.
Much now waits on the progress of a new peace initiative launched by France's President Emmanuel Macron. He brought Hafter and Fayez Serraj, head of the GNA, to Paris in late July to sign a deal. It called for a ceasefire, the disbanding of militias, a unity government and elections. No timescale was set for implementation and for now fighting continues and the militias have resisted calls to disarm. To keep output growing, NOC will have to keep defying the chaotic political backdrop.