Analysis Oil & Gas Oil production in Libya returns, but full recovery is uncertain By Eva Levesque September 17, 2024, 8:29 AM Libyan National Army/Reuters El Sharara oilfield was shut down in August by Khalifa Haftar, commander of the Libyan National Army Output up by 200,000 bpd Exports down 81% in September Political instability deters investment Oil production in politically divided Libya is slowly recovering, after a tumultuous August when fields across the country were shut down. But crude exports remain disrupted, and government revenues are still dampened, amid concerns over prolonged instability. Libyan factions failed last week to resolve crises over the central bank’s powers and oil revenues. Crude output has increased by 200,000 barrels per day (bpd) since the beginning of the month. Analysts at Facts Global Energy (FGE) in London estimate that production rose to around 650,000 to 700,000 bpd. But oil exports plunged by 81 percent at the beginning of September, according to Kpler, another global data provider. Although loadings have resumed at some eastern ports, force majeure continues at western Libya’s two major fields, El Sharara and El Feel, which together produce 340,000 bpd, according to FGE. Exports are expected to drop by at least 300,000 bpd this month to less than 700,000 bpd from above 1 million bpd in August. “For the larger fields like El Sharara, the situation remains more complex due to independent political factors, which could prolong outages,” Patricio Valdivieso, vice-president at Rystad Energy, told AGBI. October presents Opec+ with a quandary A mixed prognosis for Libya’s oil sector With or without foreign help, Libya’s 2m-barrel goal looks tough El Sharara was taken offline in early August by Khalifa Haftar, leader of the Libyan National Army which controls the east of the country, after the issuing of a Spanish arrest warrant for his son. The Spanish major Repsol has an interest in the field. Sources close to Haftar denied the attempted closure of El Sharara was linked, but said the site was suffering from recurring problems, according to The Guardian. But the real standoff started when Abdul Hamid Dbeibeh’s internationally-recognised government in western Libya tried to replace Sadiq Al-Kabir, the long-standing head of the central bank. The central bank is responsible for managing and distributing income generated from oil exports. The move prompted the eastern regime to impose a blockade of most oil fields and exports, “resulting in the worst oil production decline since 2022,” FGE said. The crisis has cut off Libya’s central bank from the international financial system and stymied limited progress on re-unification. Many ordinary transactions have become impossible, and many state salaries are unpaid. Hodgson said that the move to appoint a new central bank leader is thought to be part of a broader strategy by Dbeibeh to take control of the country’s energy sector. Francesco Sassi, a researcher at Ricerche Industriali ed Energetiche in Bologna, said that energy is the most useful instrument to advance political objectives in Libyan politics, and beyond its borders. “Benghazi controls the vast majority of Libyan oil production, the country’s most important industry, and secures hard currency for the severely strained state’s finances,” Sassi said. Carole Nakhle, CEO of Crystol EnergyOil, a UK-based energy consultancy, said that oil accounts for 98 percent of government revenues. But Haftar’s regime based in Tobruk usually accounts for 75 percent of Libya’s total exports, via the main terminals at Es Sider and Gas Lanuf. Foreign majors return Libya is home to Africa’s largest oil reserves and wants to double its crude oil production over the next three to five years. To that end, foreign majors have returned. Italy’s Eni, BP of the UK and Algeria’s Sonatrach resumed operations in Libya after a 10-year absence. However, Libya’s oil and gas industry still suffers from a lack of investment, making achieving its goal unlikely, according to analysts. Although the outages had only a limited impact on Eni’s operations, the Italian major “continues to monitor and manage the situation,” a spokesperson told AGBI. Robin Mills, CEO of Qamar Energy, said: “The arrangement with [Farhat] Bengdara at National Oil Company, his relationship with Haftar, and the ready availability of funds to Haftar via the understanding with Kabir, had been working reasonably well, but it still hadn’t yielded much in terms of improved oil sector investments.” Rystad Energy’s Valdivieso says the political instability could make big Western oil companies– known as IOCs – cautious about further investment. Although companies such as Eni seem relatively unfazed at the moment, “there is a broader concern that uncertainty in governance and sporadic disruptions will make other IOCs hesitant, particularly those with smaller stakes,” he said. Companies like Repsol of Spain may reconsider future investment, especially if challenges persist, Valdivieso said. At the same time Libya’s state-owner oil company’s ambitious plans “could face headwinds if investor confidence doesn’t fully recover.”
