Political unrest highlights vulnerability of Libya’s planned oil boom

After a largely peaceful 2023, Libya’s oil sector appears to be as stable as a puff adder on Benzedrine.

With crude oil production averaging around 1.1-1.2 million barrels per day (bpd) for much of the past year and a half, the country appeared unusually well-positioned to begin the process of increasing its output to 2 million bpd within the next three to five years as planned. After all, the country still holds the largest proven oil reserves in Africa, with around 48 billion barrels. However, last week saw an extraordinary shutdown, even by Libyan standards, of the 300,000 bpd Sharara oil field, one of the largest and most reliable performers.

The apparent trigger for the field closure was the arrest of Saddam Haftar, the son of General Khalifa Haftar, the head of the Libyan National Army (LNA) which controls much of eastern and southern Libya, where many of the country’s major oil fields are located. The younger Haftar had been briefly detained at Naples airport after his name appeared on a European Union database on an arrest warrant issued in Spain for alleged arms smuggling. This follows comments by former United Nations (UN) special envoy for Libya, Abdoulaye Bathily, that the country was becoming a mafia state dominated by gangs involved in smuggling operations, particularly for arms. Last September, General Haftar travelled to Moscow for talks with Russian President Vladimir Putin, whose Wagner mercenaries are supporting LNA forces in Libya. In early July, Italian authorities also seized two Chinese-made military drones destined for Libya and disguised as wind turbine equipment.

The bizarre reason behind this latest Libyan oil field closure once again underscores the uneasy relationship between the main rival factions since the ouster of long-time leader Muammar Gaddafi in 2011. Prior to this, Libya had been able to comfortably produce around 1.65 million bpd of mostly high-quality light, sweet crude oil, with production also trending upward from around 1.4 million bpd in 2000. While this production was well below the peak levels of over 3 million bpd reached in the late 1960s, Libya’s National Oil Corporation (NOC) had plans in place prior to 2011 to roll out improved oil recovery techniques to increase crude output from maturing oil fields. Given this, there appeared to be scope to increase crude production to the 2.1 million bpd targeted by then Libyan oil and gas minister Mohamed Aoun, and to meet an informal interim target of 1.6 million bpd by the end of 2023. After an absence of about two months due to a suspension by the Administrative Control Agency for a possible unspecified legal violation, Aoun returned to his post on May 28 this year. He had been replaced by his deputy, Khalifa Abdul Sadiq, who is seen by many in the oil market as a more progressive figure when it comes to accelerating deals between Libya and international companies that would lead to significant increases in the country’s oil and gas production. In yet another twist, Sadiq himself was arrested on August 9 on corruption charges.

That said, several international oil deals are still in effect in reality or in theory, despite the political chaos that has plagued the country. Relatively recently, it was announced from Libya that Italy’s Eni had signed an agreement with the NOC, in which it would invest around $8 billion to produce around 850 million cubic feet per day (mmcf/d) from two offshore gas fields in the Mediterranean. Eni still produces gas in Libya from its Wafa and Bahr Essalam fields, which are operated by Mellitah Oil & Gas, a joint venture between the Italian company and the NOC. Prior to this, several Libyan political figures had also stated that they expected a separate program of offshore and onshore drilling to begin within the coming months, led not only by Eni, but also by BP and TotalEnergies. Furthermore, in April 2021, during a meeting between then NOC Chairman Mustafa Sanalla and TotalEnergies CEO Patrick Pouyanne, the French company agreed to continue efforts to increase oil production from the giant Waha, Sharara, Mabruk and Al Jurf oil fields by at least 175,000 barrels per day.

It was also agreed to make the development of the Waha North Gialo concession and NC-98 oil fields a priority, the NOC said. The Waha concessions – in which then-Total took a minority stake in 2019 – have the capacity to produce at least 350,000 bpd together, the NOC said.

The NOC added that the French company would also “contribute to the maintenance of rotten equipment and crude oil transport lines that need to be replaced.”

The broader optimism about Libya’s future oil production reached a new high on September 18, 2020, when General Haftar agreed that his LNA forces would agree to elements of the UN-recognized Government of National Accord (GNA) to end the countrywide blockade of key oil installations at that time. Haftar had made it clear at the time that the lifting of the blockade would not last unless a precise framework was agreed on how exactly oil revenues would be divided between various warring parties from that point on.

But with the oil field closures from January 18 to September 18 having already cost Libya at least $9.8 billion in lost oil revenues, senior GNA officials assured that a detailed action plan would be drawn up to resolve the issue. Shortly after September 18, 2020, it was then-GNA Deputy Prime Minister Ahmed Maiteeq who said that an agreement in principle had been reached to set up a committee to determine how Libya’s oil revenues should be distributed in the future and to consider the implementation of various measures designed to stabilize the country’s perilous financial position. According to the official statement in 2020 on the creation of the committee, it would: “Monitor the oil revenues and ensure a fair distribution of resources… and monitor the implementation of the terms of the agreement over the next three months, provided that the work is evaluated at the end of 2020 and a plan is drawn up for the following year.”

To address the fact that the GNA effectively controls the NOC and, by extension, the Central Bank of Libya (where the revenues are physically held), the committee was also tasked with “drawing up a unified budget that meets the needs of each party… and the reconciliation of any dispute over budget allocations… and will require the Central Bank (in Tripoli) to cover the monthly or quarterly payments approved in the budget without any delay, and as soon as the Joint Technical Committee requests the transfer.” According to a Washington legal source who works closely with the presidential administration on energy matters, who was contacted by OilPrice.com at the time, the NOC was working on “alternative banking arrangements for the oil revenues that may or may not include input into the final distribution of more players.” However, the details of these were never worked out, and no replacement ideas have emerged since. Consequently, there remains every chance that the latest Sharara closure will precede similar closures in the near future.