With or without foreign help, Libya’s 2m-barrel goal looks tough

July 2, 2024, 6:15 AM

Oil workers on a rig in Libya's Sirte basin. The country's energy infrastructure needs large-scale investment, say analysts

Aims to raise output from 1.25m bpd
Lack of investment threatens target
Western partners quit over unpaid bills

Libya is hoping to double its crude oil production over the next three to five years, but analysts have warned that a lack of investment and the political crisis that has led to the country having two rival governments are jeopardising those plans.

The country’s National Oil Corporation (LNOC) announced in June that it would drill more than 120 oil and gas wells this year, and carry out maintenance on over 1,300 more. It is aiming to raise output from 1.25 million barrels per day to 1.5 million bpd by the end of this year and about 2 million bpd in the longer term.

However, in the same week, oil services company SLB told LNOC it was suspending its operations in Libya on July 1 because of unpaid bills.

Newsletter
Get the Best of AGBI delivered straight to your inbox every week

The letter announcing the US company’s decision – addressed to Farhat Bengdara, LNOC’s chairman, and leaked to the press – said it was owed more than $242 million.

SLB, formerly Schlumberger, is working on various projects in Libya including the large but troubled Hamada oil and gas field. Its partners in the country include Italy’s Eni, the UAE’s Adnoc, France’s TotalEnergies and Turkish Energy Corporation, as well as LNOC subsidiaries.

The US company told AGBI that it reaffirmed “its commitment to support LNOC efforts to develop the Libyan energy sector”.

SLB is not the first Western business to have difficulty securing payment from the national oil company. SGS, a Swiss testing and certification company, exited Libya last year for the same reason.

The challenges of operating in the North African country were highlighted again in March, when energy minister Mohamed Oun was suspended. He was reinstated two months later, after an investigation cleared him of corruption.

Despite this, interest by foreign majors remains high. Eni, BP of the UK and Algeria’s Sonatrach are all resuming operations in Libya after a 10-year absence.

What impact, then, will SLB’s decision have? “The goal to raise production would be certainly jeopardised if SLB leaves the country. Yet it will be challenging even with SLB,” says Francesco Sassi, a researcher at Ricerche Industriali ed Energetiche in Bologna.

Oil and gas represents about 90 percent of Libya’s economic activity and Tripoli is eager to be considered a reliable supplier to Europe.

It exported 432 million barrels of oil last year, earning nearly $36 billion, according to LNOC. It was also the fifth biggest gas exporter to Europe, sending the fuel mainly to Italy through the trans-Mediterranean GreenStream pipeline.

Eni produces gas at the Wafa and Bahr Essalam fields, which it sends to Italy. Last year the major committed to invest $8 billion in another gas project.

Libya has the largest crude reserves in Africa, but experts say its energy infrastructure is old and needs large-scale investment. Frequent blockages of ports and fields are also a concern.

Farhat Bengdara, LNOC chairman. SLB says Libya's state oil company owes it more than $242m — Farhat Bengdara, LNOC chairman (left). SLB says the oil company owes it $242m. Mohamed Oun, Libya’s energy minister (right), was suspended earlier this year but is now back in post

Mohamed Oun, Libya's energy minister, was suspended earlier this year but is now back in post — Farhat Bengdara, LNOC chairman (left). SLB says the oil company owes it $242m. Mohamed Oun, Libya’s energy minister (right), was suspended earlier this year but is now back in post

“Pipeline corrosion, leaks and well integrity issues present ongoing maintenance challenges,” according to a 2023 report by energy consultancy Wood Mackenzie.

Salem Maiar, a Libya expert and AGBI columnist, says $10 billion to $15 billion of investment is needed.

But Wood Mackenzie says investment has averaged less than $1 billion a year, hamstrung by LNOC’s 50 percent share in most projects and its inability to attract funding.

Petrol prices for Libyan consumers are among the cheapest in the world and do not cover the cost of production.

“Where do you get the money from to pay for this ambitious provision [of 2 million bpd] when you can’t even get the money to pay for the work that is currently happening to produce 1.25 million bpd,” asks Anas El Gomati, founder of the Sadeq Institute, a think tank in Tripoli.

“The key Libyan players are almost suffocating the LNOC vision to move forward because they stifle the ability for LNOC to have a clear mandate and budget. They also want dividends from what the LNOC produces,” El Gomati says.

Libya’s factions often threaten to shut oil and gas operations, says Sassi. But it is the energy industry that is allowing the country’s two governments – the UN-backed administration in Tripoli and the rival authority in the east – to co-exist, he adds.

“Yet not without troubles.”