The Libyan oil sector has struggled to cope with political division and localised fighting since the overthrow of President Muammar Gaddafi in 2011.
Output was depressed to just a fraction of the 1.6m b/d produced before the civil war, as various factions took control of different oil fields, pipelines and export terminals. The Libyan National Army (LNA) has now taken control of most oil industry infrastructure, allowing more production to be brought back on stream, yet there are numerous threats to the sector, not least from a clash between the two rival governments.
It is impossible to untangle the situation in the oil industry from Libyan national politics. The two governments jockeying for position are the Government of National Accord (GNA), with its capital in Tripoli in the west, and the House of Representatives, centred on Tobruk in the east.
The Tripoli administration is recognised by some Western governments and the United Nations, while its Tobruk rival is backed by Russia and the LNA, and so is now in command of the bulk of the oil sector. Some of the forces fighting for the two sides launch their own offensives, sometimes apparently against the wishes of the governments that they claim to represent.
There are also dozens of local militia with a patchwork of alliances, some of which are allied to one of the two governments. Finally, so-called Islamic State is present in the country. Its forces were repeatedly defeated by the LNA in the east but there are reports that they may try to regroup and they have already attacked oil industry targets in the south of the country.
Oil production increased from just 300,000 b/d in September to 700,000 b/d by mid-January, the highest level since October 2014. This was the result of two main developments. Firstly, repairs to upstream and pipeline infrastructure allowed several fields to come back into production. The Rayana pipeline, which had been closed by fighting between local militia in the south of the country, is now back in operation.
Secondly, the LNA, led by Marshal Khalifa Haftar, seized four oil terminals in September on behalf of the Tobruk government. The El Feel and Sharara fields were brought back into production in mid-December after pipelines connecting the fields with the Zawiya refinery were repaired.
As a result, refined petroleum products can once again be shipped out of the Sidra terminal. However, there have been continued security challenges. Power supplies were cut to some fields by militia in mid-January, forcing the suspension of production on some western fields for a few days.
Mustafa Sanalla, the chairman of the National Oil Company (NOC), has announced that his company has set a target of boosting oil production to 900,000 b/d in the first part of 2017 and 1.2m b/d by the end of the year. Higher oil production can be sustained if fields, pipelines and oil terminals remain in the same hands, as presently with the LNA.
Apart from fragmented control of the country, the oil industry has been affected by physical damage in the civil war and afterwards, plus the withdrawal of workers by foreign oil companies.
Implications for other producers
Libyan output averaged 1.6m b/d before the war but the country is widely regarded as being capable of producing a great deal more. Foreign relations with the Gaddafi government were often difficult and the investment regime for foreign firms was rather complicated.
Yet the country has the biggest proven oil reserves in Africa at 48.3bn barrels and some of the lowest production costs in the world because of the nature of the oil-bearing geology. While good news for Libya, rising output has implications for other African oil producers.
The oil price has rebounded over the past four months, partly because of production cuts agreed by OPEC and Russia in November, but the addition of hundreds of thousands of barrels a day of Libyan oil could depress prices again for Nigeria, Angola and the continent’s other big oil producers. Libya is currently not required to abide by any quota restrictions. The impact of higher Libyan oil production could be exacerbated by a recovery in Nigerian output.
While recent developments are welcome news for the Libyan oil industry and national economy, they may sow the seeds of renewed conflict. While Tobruk controls most of the oil industry, export revenues are paid to the Central Bank of Libya, which is controlled by Tripoli.
This situation is likely to result in friction in the future, whether political or military. An oil industry executive who worked in Libya until the war says that the LNA’s decision to facilitate oil exports that financially benefit its rival in Tripoli “is unlikely to continue for too long.”
There was some fighting between the two sides over the Sidra oil terminal in December. The Benghazi Defence Brigades and the Petroleum Facilities Guard, which are allied to the Tripoli government, launched an offensive to regain control of the terminal but were fought off by the LNA.
Tripoli denies ordering them to attack Sidra, but the International Crisis Group stated that the fighting “raises the question of whether an already weak [Tripoli government], facing increasing challenges in its own camp, has lost control of its defence ministry.” In January, Tripoli announced that it would create a new military force, the Presidential Guard, to protect it, apparently tired of the lack of discipline among the various militia that ostensibly fight on its behalf.
The NOC may seek to bring more fields back on stream but it needs the support of other companies, as – in common with most state oil firms – it lacks sufficient in-house expertise in many areas. Even if foreign upstream companies do return to more onshore fields, they need ancillary companies, such as Schlumberger and Halliburton, to accompany them.
Foreign investors may be reluctant to return at present but they will be monitoring the situation carefully. The rewards of oil production are massive but Libya’s security risks are also incredibly high.