Militant conflict to constrain Libya's oil resurgence
The oil recovery will continue, if the civil war and political spats allow it
Two men hold the key to whether Libya's oil recovery continues through 2019, or crashes amid worsening civil war. The first of them is Mustafa Sanallah, chief of the National Oil Corporation (NOC).
Left to his own devices, Sanallah will oversee further gains in production that has jumped five-fold in two years. His deft political footwork will continue to navigate a path between the country's two warring governments, in Tripoli and Tobruk. Oil production, currently 1.3mn bl/d will inch upwards to the 1.6mn b/d mark it enjoyed prior to the 2011 revolution.
Next year will also see the return of exploration, abandoned in the revolution, with Italy's Eni partnering BP in sinking rigs into giant concessions in the south-west's Ghadames Basin. If Eni's rigs avoid militia attack, other companies eyeing a return to exploration, including Repsol and Wintershall, may bring in rigs of their own.
Sanallah will also chip away at petrol smuggling, a huge industry among western Libyan militias. Much of Libya's petrol is imported from Italy, and much of that is stolen from Zawiya port by militias and smuggled back to Italian black-market traders. The smugglers have a fleet of 31 small ships guarded by their own private navy of armed speed boats. Sanallah's lobbying has seen the UN sanction key smugglers, and next year Italian and Maltese police will expand arrests of those on the European end of the smuggling operation.
Expect another militia offensive against the oil ports in 2019
Meanwhile the nuts and bolts of Libya's oil recovery will be led by improvements in three giant fields.
Sharara, a joint venture between Repsol and the NOC, will work on pushing production from 300,000 bl/d towards 400,000 bl/d. Waha, the largest joint venture in the Sirte Basin, will make a similar push, from 300,000 bl/d to 400,000 bl/d. Here, Total will likely resolve a dispute with NOC that saw its acquisition of the 16.33pc owned by America's Marathon Oil blocked. The NOC wants investment and Total has promised to deliver. Oil services company Schlumberger will continue work on restoring pumps and power supply to the Sirte Basin's Sarir fields, owned by NOC subsidiary Agoco, pushing production from 260,000 bl/d to its 425,000-bl/d capacity.
If Libya finds peace, or at least no rise in its level of violence, Sanallah will hope to move beyond emergency repairs to major development of the oil infrastructure. A detailed hydrocarbons law, setting out legal powers of the NOC, has been on the books since 2010; but Libya's chaotic governments have failed to implement it. If they do, the door may be open to longer-term foreign investment. This would allow major capital projects to proceed, most importantly the repair of storage tanks smashed by fighting at Es Sider, Libya's largest oil port.
But all this will depend on the actions of the other key individual, General Khalifa Haftar, head of the Libyan National Army (LNA). The LNA is Libya's most powerful army and Haftar, rather than the Tobruk government, is the de facto ruler of eastern Libya. That gives him control of the Sirte Basin, home to two-thirds of the country's oil production.
Haftar has risen to power with the single-minded aim of ridding Libya of its militias, and has crushed them in eastern Libya. He, not the militias, has the initiative. What he does with it in 2019 will likely determine whether Sanallah's oil recovery continues.
The two men could hardly be more different. Sanallah, an engineer by training, is professorial in manner, and enjoys loyalty among the 65,000-strong staffers, arguably Libya's only cohesive institution. Haftar's fiery pronouncements against the militias have also won loyalty among the troops and nationalist militias who have flocked to his side.
Both men are popular nationwide, for very different reasons. A rare opinion poll, by USAID, gave Haftar's army 68pc, eclipsing both the Tobruk government on 40pc and the LNA on a meek 15pc. The NOC was obviously not included in the survey questions, but such is its popularity as an institution, it would likely have pipped the LNA. Oil and gas are Libya's only exports and the population are grateful that projected oil income for 2018, at $26bn, is double the previous year's take.
The most benign development for all Libyans would be elections. But such an outcome is a long shot. The UN pressed hard for a poll in December 2018, as part of its Action Plan. But that foundered, with little support among factions of any stripe. UN mediator Ghassan Salamé talks wistfully of a new polling date in June, but few believe it likely. Haftar is one of the few Libyan leaders to declare support for a vote, probably because he knows that in the country's fragmented political landscape, he has a high chance of winning. However, Tripoli militias, even if they allowed a poll, would refuse to recognise the result.
A united diplomatic front from outside powers might just push Libya's factions into agreeing a poll, but outside powers are divided. Italy backs Tripoli and France supports Tobruk, and the two powers will continue to squabble over competing zones of influence. Gulf rivalry will also play a part in widening Libya's tensions. Saudi Arabia, UAE and Egypt, which are blockading Qatar, all support Haftar, as does Russia. Qatar and ally Turkey both support the Islamists, who dominate Tripoli. The US, which under Barack Obama provided support for the Tripoli government, has quit the diplomatic stage, with Donald Trump declaring he has "no interest" in Libya. All of which gives the UN little leverage.
1.3mn bl/d—Libya's oil production
In the absence of elections, Haftar's preference is for a final offensive on Tripoli. He has several times threatened such an attack and will do so again in 2019. But he faces a uniquely Libyan obstacle. His army is rooted in the eastern province of Cyrenaica, and in an intensely tribal country, an offensive by the east on the capital risks widespread opposition in western Libya.
A third option for Haftar is to trigger Libya's break-up, with Cyrenaica declaring independence. This has long been a popular idea in the east, because the province has two-thirds of Libya's oil and just a third of the population. It would be a disaster for western Libya, and for the NOC. Sanallah has long argued that splitting the NOC would destroy it and he may be proved right.
Haftar tried the break-up option in 2018, announcing last summer that the Sirte Basin oil ports were being switched from the NOC to a parallel self-declared NOC in Tobruk. The move came after Tripoli militias, funded by oil receipts, attacked the ports for the fourth time in as many years. Haftar's army, using air power as its trump card, pushed back the incursion; but many in the east were furious that oil income was being given to the militias.
Haftar's attempt at break-up was frustrated by the UN Security Council, which blocked eastern efforts to sell oil independently. Haftar later relented-on condition that the Central Bank of Libya stopped funding militias attacking oil ports.
Sanallah has been urging transparency, publishing accounts of the NOC, but the central bank has refused to open its books. Most Tripoli militias are paid through the central bank, a former British ambassador saying this is often engineered by the practice of militia leaders holding guns to the heads of the bankers. Certainly the bankers fear the consequences if they suddenly cease payments to warlords. Expect another militia offensive against the oil ports in 2019.
An added factor is the Islamic State (IS) group. IS saw its attempt to install a caliphate in Libya destroyed two years ago, but continues to operate. In the summer it staged a suicide attack on the NOC headquarters, with Sanallah escaping the building. IS thrives amid Libya's chaos, and the worse it becomes, the more openings it will find for attacks.
This year will see Haftar and Sanallah continue what is a testy relationship. Two years ago, Haftar captured the central oil ports from a militia that was blockading them, then handed them to the NOC. That drew Sanallah's praise. Last summer, when Haftar took the ports away, Sanallah complained: "Mr Haftar has abandoned any claim to custodianship of the Libyan national interest."
Expect more of the same in 2019, as Sanallah tries to keep Libya's oil show on the road, and Haftar continues trying to win the war.
Chris Stephen is a Tunis-based North Africa Correspondent for the Guardian and Petroleum Economist