Africa’s oil and gas: Instability casts gloom over industry

The rise of unconventional hydrocarbon technologies has greatly boosted North American oil and gas production, depressing international oil prices, although they are still high by historic standards. This in turn depresses African oil revenues and could eventually slow exploration efforts in more marginal and untested parts of the continent. But a more urgent problem looms – this is the spread of violent instability in some of the most promising sites and a rise in claims made by various groups for ownership of these resource sites. We also look at the possible conflict between areas of natural beauty and the demands of the industry. However, oil refining on the continent appears set for a major expansion. Report by Neil Ford

Despite the general improvement in security levels that has been achieved across the continent over the past decade, instability remains a problem in several key oil producing areas. As we discuss later, security concerns are undermining efforts to build the South Sudanese oil industry, but the same applies to one of the oldest oil producers on the continent, Libya.

The country’s oil industry initially recovered well after the civil war that resulted in the overthrow of President Muammar Ghaddafi, but output is now falling, with different rebel groups controlling different parts of the country and the government in Tripoli broadly failing to regain control over many areas.

The central government estimated that it had already lost about $9bn in oil industry income by the end of last year, with various armed groups retaining control of the oil fields, pipelines and coastal oil terminals that they took during the civil war. In particular, militia from the Al Magharba ethnic group continue to control three oil export ports in the east of the country: Al Sedra, Ras Lanouf and Zueitina, which usually exported about 600,000 b/d between them before the conflict. The militia have blockaded the ports for several months; threatening to attack any tanker that attempts to dock at the oil terminals involved; and has refused to hand them back to the government.

Eastern Libya is given far greater control over its own political and economic affairs and the regional government in Benghazi receives a guaranteed share of oil revenues. Benghazi and the east have millennia of history as different political entities; have been sidelined for most of Libya’s post-colonial history; and led the fight to overthrow Ghaddafi, with Benghazi acting as the opposition headquarters for many months. There is therefore a strong feeling among much of its population that they have earned the right for greater self determination.

Speaking in mid-December, the effective head of the three ports, Ibrahim Jodhrane, said: “We have failed to reach a deal on these conditions with this government. I therefore confirm that we will not reopen the ports for this corrupt government.”

The group’s self declared Prime Minister, Abd Rabbo Al Barassi, told journalists: “If they agree on our demands, then the ports will reopen on Sunday. If they don’t agree, then we’ll insist on selling the oil without government coordination.”

The great fear is that the dispute could trigger open fighting between the two sides and fuel enthusiasm for full independence for the east. This could result in a re-run of the situation in Sudan; with oil pipelines crossing new borders and two sides fighting for control of oil industry assets.

Libyan output stood at just 250,000 b/d in December, well below its usual 1.4m b/d, which in turn is far less than the country’s potential production capacity. With vast untapped reserves, generally low production costs and unexplored acreage, Libya has the potential to challenge Nigeria as Africa’s biggest oil producer.

Oil industry executives regularly talked up the opportunities that were missed when Ghaddafi was in power but remained active on Libyan oil and gas fields for fear of losing out in the future. There was a slight improvement in the situation at the end of December, when production on the Sarir and Messla oil fields resumed, although their export route – through the Port of Hariga – remained closed as African Business went to press.