Political Turmoil Highlights the Fragility of Libya’s Planned Oil Boom

Following a broadly peaceful 2023, Libya’s oil sector once again looks as stable as a puff adder on Benzedrine.

Having averaged crude oil production of around 1.1-1.2 million barrels per day (bpd) for much of the last year and a half, the country had appeared unusually well placed to begin the process of increasing its output to 2 million bpd within the next three to five years as planned. After all, it still sits atop the largest proved oil reserves in Africa, at about 48 billion barrels. However, last week saw an extraordinary shutdown even by Libyan standards of the 300,000 bpd-producing Sharara oil field, one of its biggest and most reliable performers.

The apparent cause of the field’s closure was the arrest of Saddam Haftar, the son of General Khalifa Haftar, the head of the Libyan National Army (LNA) that controls much of east and south Libya where many of the major oilfields are located. The younger Haftar had been briefly detained at Naples airport after his name appeared on a European Union database over an arrest warrant issued in Spain for alleged weapons smuggling. This follows comments from former United Nations (U.N.) special envoy to Libya, Abdoulaye Bathily, that the country was becoming a mafia state dominated by gangs involved in smuggling operations, especially for arms. Last September, General Haftar traveled to Moscow for talks with Russian President Vladimir Putin, whose Wagner mercenary soldiers provide support for LNA forces in Libya. Early July also saw Italian authorities seize two Chinese-made military drones that were destined for Libya and disguised as wind turbine equipment.

The bizarre reason behind this latest Libyan oil field closure once again underlines the uneasy relationship between its principal rival factions since the removal of long-time leader Muammar Gaddafi in 2011. Before that, Libya had easily been able to produce around 1.65 million bpd of mostly high-quality light, sweet crude oil with output also on a rising trend, up from about 1.4 million bpd in 2000. Although this production was well below the peak levels of more than 3 million bpd achieved in the late 1960s, Libya’s National Oil Corporation (NOC) had plans in place before 2011 to roll out enhanced oil recovery techniques to increase crude oil production at maturing oil fields. Given this, there appeared scope to increase crude oil production up to the 2.1 million bpd targeted by Libya’s then-minister of gas and oil, Mohamed Aoun, and to hit the informal interim target of 1.6 million bpd by the end of 2023. Having been absent for around two months due to a suspension by the Administrative Control Agency for a possible unspecified legal violation, Aoun returned to his post on 28 May this year. He had been replaced by his deputy, Khalifa Abdul Sadiq, who many in the oil market see as a more progressive figure when it comes to expediting deals between Libya and international companies that would lead to significant increases in oil and gas production in the country. In yet another new twist, Sadiq was himself detained on 9 August on corruption charges.

That said, several of the international oil deals still remain in place in reality or in theory, despite the political chaos that characterises the country. Relatively recently there was an announcement from Libya that Italy’s Eni had signed an agreement with the NOC that would see it invest around US$8 billion to produce about 850 million cubic feet per day (mmcf/d) from two offshore gas fields in the Mediterranean Sea. Eni still produces gas in Libya from its Wafa and Bahr Essalam fields operated by Mellitah Oil & Gas, a joint venture between the Italian company and the NOC. Prior to this, various Libyan political figures had also stated that they expected a separate program of offshore and onshore drilling to start within the coming months, under the leadership not just of Eni but BP and TotalEnergies too. Additionally, back in April 2021, at a meeting between then-NOC chairman, Mustafa Sanalla, and the chief executive officer of TotalEnergies, Patrick Pouyanne, the French firm agreed to continue with its efforts to increase oil production from the giant Waha, Sharara, Mabruk and Al Jurf oil fields by at least 175,000 bpd.

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

The NOC added that the French firm would also “contribute to the maintenance of decaying equipment and crude oil transport lines that need replacing.”

Broader optimism for future Libya oil production reached a renewed peak on 18 September 2020 when General Haftar agreed that his LNA forces would agree with elements of the U.N.-recognised Government of National Accord (GNA) to end the nationwide blockade of key oil installations at that point. Haftar had made it clear at that point that the lifting of the blockade would not last unless a precise framework was agreed on how precisely oil revenues would be divided up between various warring factions from then on.

However, as the oil field shutdowns that had run from 18 January to 18 September had already cost Libya at least US$9.8 billion in lost oil revenues, assurances were made by senior GNA officials that a detailed action plan to resolve the problem would be put into place. Shortly after 18 September 2020, it was then-GNA Deputy Prime Minister Ahmed Maiteeq who said that an in-principle agreement had been made to establish a commission to determine how oil revenues across Libya were to be distributed in the future and to consider the implementation of several measures designed to stabilize the country’s perilous financial position. According to the official statement in 2020 on the formation of the committee, it would: “Oversee oil revenues and ensure the fair distribution of resources… and control the implementation of the terms of the agreement during the next three months, provided that its work is evaluated at the end of the 2020 and a plan is defined for the next year.”

To address the fact that the GNA effectively holds sway over the NOC and, by extension, the Central Bank of Libya (in which the revenues are physically held), the committee was also tasked to “prepare 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-based legal source who works closely with the Presidential Administration on energy matters spoken to by OilPrice.com at the time, the NOC had been working on “alternative banking arrangements for the oil revenues that may or may not involve the input on final dispersal of more players.” However, the details of this were never worked through and no replacement ideas have been forthcoming since then. Consequently, there remains every prospect that the latest Sharara shutdown precedes similar closures in the near future.