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Libyan fields could resume production after negotiations

Libyan oil production could almost double, pouring more light oil into an oversupplied global market

The 100,000 barrels a day (b/d) Eni-operated Feel and 350,000 b/d Repsol-operated Sharara fields, deep in Libya’s southwest, could resume production quickly following negotiations with Zintani militia leaders, who shut down the fields in 2014. The pipelines taking those fields’ production to Mellitah and Zawiyah, on the coast of Tripoli, pass through Zintani territory. A pipeline diversion briefly allowed for shipments from Feel earlier this year.

Less likely, despite claims from National Oil Corporation (NOC) earlier in June, is a swift resumption of oil through Ras Lanuf and Es-Sider, two oil export terminals in the central oil crescent. These ports have been under force majeure since an attack in December by Fajr (Dawn) forces allied with the Tripoli-based General National Congress (GNC). In March, Islamic State (IS) terrorists attacked some of the fields that feed the ports, including the Total-operated Mabruk, prompting NOC to declare force majeure at these installations too.

Technically, exports through the 350,000 b/d Es-Sider terminal, target of the December attack, could be resumed swiftly at a slightly reduced rate. Damage to the facility was limited to five storage tanks in a farm of 19 that lies south of the coastal road. The jetties and loading facilities in the port itself were undamaged. 

But first the oilfields have to start exporting to Es-Sider. In mid-June, Mustafa Sanallah, NOC’s chairman, told journalists in London that the Waha complex of fields, operated by Hess, ConocoPhillips and Marathon, would start pumping 200,000 b/d to the port. 

This is doubtful. Despite its expulsion from the eastern town of Derna on 10 June, IS now controls a 200-km stretch in the centre of Libya, giving it access to energy infrastructure across the region, as well as to Jufra in the south. From its base in Sirte -- which it now controls entirely following the retreat of Misrata’s 166th Brigade on 9 June -- IS has expanded to Nawfaliya and on 6 June also captured Harawa. Its fighters reportedly told elders in Harawa that their town would be used to launch renewed attacks on Libya’s oil installations. 

For now that makes Sharara and Feel more probable sources of fresh output. There, strikes by guards and workers on the fields have kept them offline since November. The situation is complicated by the role of Zintan. The city and its militias, which shut down the pipelines from the fields, are ostensibly aligned with the Libyan National Army, General Khalifa Hafter’s Karama (Dignity) movement and the Tobruk-based House of Representatives (HoR) against the General National Congress and its Fajr militias. Karama has been planning for months to “liberate” the capital from the GNC and shortages of fuel -- because the nearby Zawiyah refinery lacks feedstock from the southwest -- have helped squeeze the city in preparation. An end to the embargo on Sharara could restore throughput at Zawiyah. The refinery is processing only a fraction of its 120,000 b/d capacity at present.

Nonetheless, a deal is thought to be imminent. NOC, which has remained neutral in the conflict between Libya’s rival governments, has begun trucking diesel and gasoline to Zintan. Repsol and Eni are understood to have been proactive and pragmatic in negotiations with workers demanding better pay. The overtures, part of broader deals being made between tribes in the west, seem to be working.

Libya needs the oil. After shrinking by 13.6% and 24% in 2013 and 2014, its economy is expected to lose another 6.4% this year, according to the EIU, hurt by the loss of crude-export volumes and the collapse of international prices for the oil it does export. Since October 2014, when oil production averaged 870,000 b/d, or just over half of its pre-civil war level, the dinar has fallen by 15% against the dollar. At present rates of oil output at around $60 a barrel, Libya would earn less than $10bn for its crude, barely a fifth its oil income in 2012 and a fraction of its budgetary needs. Import costs are rising as the dinar loses value. The deficit had already reached $15bn earlier this year, but Libya still needs to spend up to $48bn/year rebuilding the country, pointed out Florence Gaub and José Luengo-Cabrera in a recent study for the EU’s Institute for Security Studies.

For now, oil production of 430,000 b/d comes almost entirely from Agoco, NOC’s Benghazi-based unit, and the Eni-operated Bouri (60,000 b/d) and Total-operated Jurf (40,000 b/d) fields offshore Libya’s west. Agoco’s Sarir and Misla fields are understood to be producing 260,000-280,000 b/d. The remainder, it is thought, comes from smaller fields in Libya’s east supplying Brega. Occidental, said to be producing some oil, did not respond to requests for comment. 

While the re-opening of Sharara and Feel will boost these numbers significantly, a medium-term revival to pre-war levels is unlikely as long as security in the once-prolific oil crescent cannot be guaranteed. Across the country, a sustainable longer-term recovery will also have to wait until companies start committing again to well workovers and the crucial maintenance that has been lacking since 2011.   

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