Oil cartel OPEC saw production spike in December, as Libya’s energy sector came back to life following a ceasefire agreement in the war-torn country.
Sitting atop Africa’s largest proven crude oil reserves, Libya has been ravaged by conflict since a NATO-backed uprising in 2011 that overthrew and killed longtime dictator Muammar Gaddafi.
As global oil prices remain volatile amid the novel coronavirus pandemic, which rocked the global economy, and new rounds of UN-backed peace talks to build on the ceasefire October and resolve the long conflict in Libya, what are the prospects for the production country?
– Will Libya come back at full capacity? –
Libya currently produces 1,224 million barrels per day (b / d) – a ten-fold increase from an average of 121,000 b / d in the third quarter of 2020, before the ceasefire was agreed.
But it is still below the levels of the Gaddafi era, said Francis Perrin, head of research at the Paris-based Institute of International and Strategic Affairs.
Libya was then producing between 1.5 million and 1.6 million barrels per day, he told AFP.
Demand for crude fell under the impact of Covid-19 and producing countries adjusted their production to support prices.
Libya’s surge brought the Organization of the Petroleum Exporting Countries’ output to 25.36 million bpd in December, an increase of 278,000 bpd from the previous month.
Libya is exempt from OPEC production quotas, so the cartel must keep an eye on its production.
However, Libyan oil engineer Al-Mahdi Omar said his country’s industry was “still struggling” despite the peak.
“It is a miracle that the oil sector continues to function despite the dilapidation and damage of infrastructure due to war, neglect or sabotage,” he said.
The oil and gas sector accounts for around 60% of Libya’s GDP.
– Are some installations still out of service? –
In January last year, armed groups loyal to eastern strongman Khalifa Haftar blocked production and exports from Libya’s major oil fields and terminals.
They demanded a “fairer” distribution of income, which is managed by the government of national accord recognized by the UN in Tripoli.
The GNA is supported by Turkey, while Haftar is supported by Russia, the United Arab Emirates and Egypt.
Haftar agreed in September to lift the blockade, several months after the failure of an offensive by his fighters to take the capital.
The blockade resulted in a loss of revenue of nearly $ 10 billion, the National Oil Corporation estimated.
On October 26, just days after the ceasefire was agreed, the NOC said it had lifted force majeure – unforeseen externalities that prevent one party from fulfilling a contract – on the last oil installation from the country.
And while all of Libya’s oil fields are back on line, the NOC announced earlier this month that a pipeline has been shut down for maintenance, causing production to drop by around 200,000 bpd, a Bloomberg reported.
“This gives you an indication that the infrastructure in Libya is really in bad shape,” said NOC chief Mustafa Sanalla, quoted by Bloomberg.
– Room for increased production? –
Perrin said Libyan oil production could improve further “but not immediately”.
“In the short term, if he can manage to maintain his current levels, that would be great,” he said.
“The main uncertainty is political.”
The lifting of the blockade has allowed production and exports to increase since September, but “it’s part of a temporary deal, of a truce – it’s not a peace deal,” Perrin warned.
The country is also seeking support from foreign oil companies to help repair its infrastructure, according to Bloomberg.
“We are currently discussing with our partners how to finance and how they can help us,” the NOC chief said, quoting the newspaper.
Libyan economist Nouri al-Hammi said the country’s oil recovery remained “fragile”.
“Only a fair distribution of income and the creation of real development opportunities can solve the problems of the sector,” he said.
– Oil revenues on the negotiating table? –
The distribution of oil revenues in Libya is a thorny and crucial issue for the settlement of the conflict.
After a decade of war, the October ceasefire paved the way for elections later this year.
The sharing of resources between Tripoli and the east is “a key part of the discussions between the two sides … It could make or break the emerging truce,” Perrin said.
It is “a sword of Damocles hanging over Libya’s oil production”.
Blockages of important sites will remain a constant threat to production “if discussions on revenue sharing fail to reach a compromise,” he warned.
For engineer Omar, oil in Libya has been key since the discovery in the late 1950s of its reserves, the most important in Africa.
“It is at the heart of the negotiations between the Libyan adversaries, but also between their foreign supporters,” he said.
bur-hme-rb / lg / hc / sw