Libya's meddling militias
Violence and political disputes are preventing Libya's oil production settling back to pre-conflict levels
The chairman of Libya's National Oil Corporation (NOC), Mustafa Sanallah, has called for criminal charges against militias blocking oil infrastructure, with a series of armed seizures threatening to derail his production recovery plan. Sanallah has earned plaudits for hiking production up to near 1m barrels a day, a four-fold increase in a year, in the teeth of civil war and chaos. But his plan to hit 1.25m b/d by the end of 2017, short of the pre-war 1.6m b/d figure, risks being derailed by Libya's ubiquitous militias as well as lack of investment.
Sanallah made his call for prosecutions after the militia guarding the largest field, Sharara, shut it down on 30 September demanding back-wages and jobs, a move that slashed Libya's output by 230,000 b/d. NOC officials negotiated the re-opening of Sharara, in Libya's southwest, four days later, without apparent concessions; but the shutdown was only the latest of many militia actions, which have seen the field closed and production oscillate wildly.
Sanallah has long railed against militias, many formed during Libya's 2011 Arab Spring uprising, holding oil infrastructure to ransom. Last year, he complained that "everybody who can muster a militia (seeks) to shut down a pipeline, an oilfield or port to see what they can extort".
In September last year, Sanallah hoped his militia problems were over, after Khalifa Hafter's Libyan National Army (LNA), allied to the House of Representatives in Tobruk, captured four central oil ports from the self-styled Petroleum Facilities Guard militia, which had blockaded them, demanding payment. Freeing the ports opened up the giant Sirte Basin—home to two-thirds of Libya's production—and since then, Libya's oil recovery has become a tale of two cities.
The Sirte Basin in east Libya has seen incremental progress accounting for the bulk of the country's oil recovery. Tripoli's UN-backed Government of National Accord (GNA), a rival government to the Tobruk parliament, has given $675m to pay for the NOC's oil infrastructure repairs. That is well short of the $2.5bn Sanallah requested to fix fields, pipelines and power stations, but has allowed some remedial work and the return of foreign contractors, including Schlumberger.
On the sidelines of a conference in the UK's Windsor Castle in early October, Sanallah said that it was not only militias, but also the lack of cash, that threatens his 1.25m b/d production target. With only 25% of his budget request met, he said key repairs would be limited, foreseeing this target will be "very difficult" to achieve.
Sanallah knows that while the civil war continues, militia stoppages will continue too
There's cautious optimism from the Sirte Basin's largest joint venture, Waha, an NOC partnership with US firms ConocoPhillips, Hess and Marathon, that its current production of 80,000 b/d can be nudged up towards its 300,000 b/d capacity.
But the situation in west Libya, where militias dominate, is different. Sharara, a joint venture involving NOC, Repsol, Total and Statoil, can produce 270,000 b/d, but has suffered continual blockades by militias holding, variously, the field, pipeline and export terminal at Zawiya.
Sanallah's call for criminal prosecutions will fall on deaf ears because the region has neither police nor a functioning legal system, with the militias all powerful.
The Central Bank of Libya reported in October that stoppages will see this year's oil revenues slip from a hoped-for $11.9bn to $8.8bn. This, in turn, impacts on state revenues: unless oil recovers, gaps in state spending are made up by fast-diminishing foreign reserves, which the World Bank estimated fell from $108bn to $44bn between 2013 and 2016.
Adding to the NOC's problems, tanker operators demand risk premiums for serving Libyan ports. On 29 September, insurance group Gard warned ships operating to and from Libya to "proceed with extreme caution". Sanallah knows that while the civil war, which began in July 2014, continues, militia stoppages will continue too. His best hope may be a peace process begun in September by a new UN envoy, Ghassan Salame. Salame convened talks between the GNA and Tobruk on forming a unity government, but faces the same hurdles as previous failed peace efforts.
Tobruk, thanks to Hafter's military victories, holds two-thirds of the country, together with the Sirte Basin, and is in bullish mood. Its MPs are likely to demand the dissolution of the militias and the installation of Hafter as commander-in-chief before agreeing a unity deal. But the militia coalition that holds Tripoli, Libya Dawn, sees Hafter as its implacable foe and is almost certain to refuse.
Meanwhile, some in Tobruk continue to flirt with the idea of selling the Sirte Basin's oil independently of the NOC. That move would enrich the east, which has one-third of Libya's population and two-thirds of its oil, but spell disaster for Tripoli and likely see the breakup of the NOC.
Source: Petroleum Economist