A mixed prognosis for Libya’s oil sector

Reuters/Aidan Lewis

Since the ousting in 2022 of Mustafa Sanalla, long-standing chairman of the Libyan National Oil Corporation (LNOC), the organisation has battled challenges on many fronts.

Political disputes, lagging infrastructure investment and the threat of foreign companies quitting the country are just some of the issues plaguing the sector. 

In another setback this month, LNOC declared it was gradually reducing production at the Sharara field, one of Libya’s largest, citing force majeure – an event for which no party can be held accountable – because of protests in the area.

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At the same time there are huge but latent opportunities for Libyan oil, the nation’s main revenue provider. 

Libya exported 432 million barrels of oil in 2023, earning $36 billion. But this figure pales compared to the country’s zenith in 1970 where production reached nearly 3.4 million barrels per day (bpd), making it the second largest global producer after Saudi Arabia. 

The country now aspires to achieve an output of 1.5 million bpd by 2025 and two million bpd by 2030. LNOC announced in June that it would drill more than 120 oil and gas wells this year, and carry out maintenance on more than 1,300 wells.

However, if Libya is to achieve these goals, it will need to reassure jittery international oil companies of its stability, and introduce significant measures to improve productivity and corporate governance.

Multiple global companies have threatened to suspend activities in the country over non-payment of bills. SLB, the giant oil services company formerly known as Schlumberger, and based in Houston, Texas, told LNOC it was suspending its operations in Libya on July 1 because of unpaid dues. It has since resumed its activities.

In addition, if LNOC is to go even some way to reaching its productivity goals, it needs to develop its human resources pool, currently 65,000 personnel. 

The rollout of training courses for employees and managers is imperative in order to update and enhance administrative, technical, legal, logistical and health and safety capabilities.

Political turmoil

In a surprise development, Mohamed Aoun, Libya’s minister of oil and gas, temporarily sidelined himself in a televised statement in July, having only been reinstated in May after two months of suspension.

Aoun’s suspension was provoked by his opposition to the so-called NC7 oil exploration agreement, which placed him in direct conflict with Farhat Bengadara, LNOC’s chairman. 

The award of the contract to develop this field in the Ghadames basin is the subject of investigation by the attorney general. This unfortunate development and resultant vacuum only serves to highlight LNOC’s paper-thin governance and transparency policies.

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This setback is unlikely to soothe international investor concerns before the start of LNOC’s impending major licensing round, its first since 2005. The round will offer blocks in the Sirte, Murzuq and Ghadames basins.

Investment in the Libyan oil and gas sectors total around $1 billion a year. However, Bengadara says LNOC will need $17 billion to achieve its stated production targets.

According to Opec, the development of a single new barrel of production costs roughly $15,000, which covers the development of existing well fields, regular maintenance, further well drilling and vital oil infrastructure.

So far, neither of the country’s two governments nor the Central Bank of Libya have approved a new budget. Whether the funds materialise remains to be seen.

Vast potential

In a positive development, a 155-mile pipeline from the North Hamada oil field to the oil port of Mellitah is expected to produce 10,000 bpd by August.

Elsewhere, Libya’s Mellitah Oil and Gas Company awarded Rosetti Marino, an Italian company, a contract in June of around $440 million. 

The project mandates the delivery of 6,000 tonnes of wellhead platform to be completed during the summer of 2027. This deal builds on Rosetti Marino’s successful bid for an engineering procurement and construction contract worth $300 million in November 2023.

While these projects offer a glimmer of hope, the bigger picture of Libya’s challenges is fraught with complexity. 

Unless the country cleans up its domestic institutional affairs and presents as a well-regulated unity, the international community and oil companies will remain rightfully wary.

Salem Maiar is a consultant in Libyan natural resources, finances and geopolitics