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The oil world's most difficult job

NOC’s chairman fears a disaster if his company is dragged into the war for Libya’s oil

Many oilmen are under pressure around the world, but none more than Mustafa Sanallah, chairman of Libya's National Oil Company (NOC) and, given the two-year-old conflict that has left rival governments and their allied militias fighting for control, the country's de facto oil minister.

Sanallah's job ought to be straightforward, keeping Libya's high-quality oil flowing out and money flowing in. Instead, since 2014, Libya's post-Qadhafi chaos has only deepened and the NOC chief 's task has become steadily harder.

In 2011, Libya produced about 1.6m barrels a day. Now it is struggling to keep output above 200,000 b/d. Most fields are idle; some, in the once-prolific Sirte basin, were severely damaged by Islamic State (IS) attacks in 2015; the ports of Ras Lanuf, Es-Sider and Zueitina were still under force majeure as we went to press; those at Zawiyah and Mellitah are also out of action; and, as militias and armies from the two sides in Libya's civil conflict amass in the Sirte basin, a new scramble is on for the country's commanding heights. Oil dominates Libya's economy. If one side wins control of the infrastructure, it will be in charge of the country.

"I'm afraid there will be a battle," said Sanallah on 10 August. "I sent a very clear message, asking all parties to keep oil out of this conflict."

Yet even as Sanallah was saying this, in a lengthy interview with Petroleum Economist, forces from the Libyan National Army (LNA)-allied to the Tobruk-based House of Representatives (HoR), one of two bodies claiming to be the country's government-were arriving in Zueitina. They were preparing to wrest control of the town and its port from the Petroleum Facilities Guard (PFG) militia, allied to the UN-appointed Government of National Accord (GNA) in Tripoli.

Western international powers had already voiced their concerns about the tensions around Zueitina, and Sanallah echoed them. "If these facilities are subjected to war it will be a disaster for the country and be bad for all Libyans."

International attention has focused on the battle to defeat Islamic State (IS) in Sirte. But a bigger battle, that for the Sirte basin's once-prolific energy industry, may be nearing.

That oil is driving the conflict has not been openly acknowledged by Libyan leaders before. But Sanallah was blunt. "The war now is about who is governing the oil. The civil war is guided by the war for the oil. Everyone wants to govern the oil."

Operating in adversity

That makes for a desperate environment in which NOC and its chairman must operate, and Sanallah has been fighting political fires relentlessly. A few months ago, the eastern politicians sought to carve out their own autonomous oil sector. The Sarir and Misla fields, in HoR-loyal territory, are responsible for the bulk of onshore production and exports, through the eastern port of Hariga-yet the revenue goes to the central bank in Tripoli, controlled by the GNA, the east's rival.

So the east established both their own central bank-it even printed some notes-and their own NOC, and threatened to cease exports unless lifters paid into a new bank account. The move failed, but was still a sign of Libya's potential to disintegrate. And Sanallah prevailed. In July, he and the head of eastern NOC, Naji el-Maghrabi, signed a (re)unification deal. It means NOC's board now reports to both governments. A deal Sanallah signed with Glencore to lift all crude out of Hariga remains controversial in Libya, but a full split has for now at least been staved off.

But other political battles are still flaring. Sanallah was enraged when in late July Martin Kobler, head of the UN's mission in Libya, negotiated a deal with Ibrahim Jadhran, the head of the PFG, under which his militia would be paid to reopen the ports of Ras Lanuf, Es-Sider and Zueitina.

Kobler had given recognition to a "criminal", Sanallah said in his interview, doubling down on criticisms he had made in a letter to the diplomat seen by Petroleum Economist. Jadhran had previously captured energy assets and even tried in the past to export oil independently. His control of the ports has to many looked no more than another shake down. His PFG is thought to have been paid more than $40m following the deal.

Kobler's deal would "contaminate" the UN's reputation in Libya, said Sanallah. It would also set a precedent for other groups to hijack other energy installations. Sanallah says, for example, that he has been in "continuous dialogue" with groups blocking Sharara and Elephant, two big fields in southwest Libya-but now he worries that further obstacles will arise. "Up to now, people at the terminals have been no problem," he said, referring to groups protecting Mellitah and Zawiyah ports, to which Sharara and Elephant's oil would flow. "But now, who knows?"

Worse still, the practical significance of the Jadhran deal was nil. Aside from some stored oil in the terminals, the PFG controls none of the fields that supply them-they are in the hands of the LNA or tribes sympathetic to the HoR. Storage facilities at Ras Lanuf and Es-Sider have been so badly damaged-by IS but also in attacks by Libyan Dawn, whose militias are now allied with the GNA-that the ports could shift just 200,000 b/d of oil, a third of their capacity in 2011.

NOC has also not lifted force majeure over the basin's ports or several fields that have been damaged-some profoundly-in the past two years. Sanallah won't lift the measure until he knows the area is safe for NOC's technicians to return. That could be some time.

Give peace a chance

Yet from a technical perspective, Sanallah remains optimistic about the near-term potential for Libyan oil production. Given peace, some stability and the means to make repairs and carry out basic remedial work, NOC could increase output to 0.9m b/b by the end of this year and add another 300,000 b/d in 2017, says Sanallah. (The conflict has reduced the country's technical maximum capacity by 400,000 b/d, he says.)

That would be a major boon for Libya's oil-dependent economy, which has been crippled by the collapse in exports. For the first seven months of 2016, oil revenue has been just $2.3bn. As things stand it will hit only $4.5bn for the full year. To cover a proposed budget from the GNA of $37bn, Libya will have to drain its cash reserves. By contrast, at current oil prices, a recovery in production to 0.9m b/d would increase Libya's monthly income by about $1bn.

That ought to concentrate minds in both Tripoli and Tobruk. But to begin the recovery, says Sanallah, NOC needs the GNA's executive arm, the Presidency Council (PC), to release money it has pledged to the state firm. It hasn't.

This is yet another source of exasperation for the NOC chief. "If you give me one penny, I will give you 10-we can generate money. Why are they blocking the money for NOC?"

Opposition within the PC to Sanallah himself may be a reason. The persistent rumour is that moves are afoot to replace the chairman with someone more acceptable to the Misratan interests that hold much sway in the GNA.

For Sanallah, this is all part of a dangerous game that aims to politicise the state firm, which he has sought to keep neutral throughout the conflict. "Some people" in the PC were "trying to re-engineer NOC for their own interests", he said.

Yet NOC's neutrality would be crucial for Libya, Sanallah insisted. The company has "six million shares"-Libya's populace. "If NOC is put in this chaos and conflict, it will be a disaster for the country." NOC, Sanallah believes, is "the only institution that is keeping the country united".

As the interview ended, Sanallah remained bright about Libya's chances. Soon, he said, he would try to "bring all tribes, municipalities, leaders of militias and maybe also invite some people from the PC, some from the UN" to a meeting to establish a new accord to preserve the oil sector. "Maybe in a few weeks you will see something like this."

It's a noble aim; one that most Libyans, who to a person seem ever conscious of oil's significance to their country's identity and prospects, would endorse. But events on the ground, where the war for oil seems to be gathering momentum, do not look as hopeful as NOC's chairman.

This article is part of a report series on Libya. Next article: Does Libya still hold opportunities for IOCs?

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