Libya nears collapse as oil production founders
Kawai Wong
12-Jun-2015
LONDON
(ICIS)–Libya’s oil production stands at the edge of
collapse, and the entire country is close to becoming a
failed state, according to Bernardino Leon, the UN’s envoy to
Libya.
Libya was producing around 400,000-500,000 bbl/day of crude
oil as of 4 June, according to Libya’s National Oil
Corporation (NOC), a far cry from the 1.60m bbl/day when
Libya was still under the harsh rule of Muammar
Gaddafi.
It is also below the post-civil war peak, which was achieved in September and October 2012 when oil production in the country increased to around 1.50m bbl/day, according to data from the US Energy Information Administration (EIA).
The NOC also claims that it expects to lift the force majeure on exports from the ports Ras Lanuf and Es Sider in the north of the country in July or August of this year, bringing oil production to around 1m bbl/day within a few weeks of the resumption of production. The ports were closed after violent clashes in the area in December last year.
Although the claims from the NOC are promising, Libya’s
political stability and that of its crucial oil industry
remain fractured, Leon said on 3 June in
Algeria.
“Oil production had declined [in Libya],
but even if it were to recover, the current budget deficit
could not be overcome and public finances would remain
degraded,” he said.
With under-funded public infrastructure and support systems, the Libyan government could struggle to continue to pay for the Petroleum Facilities Guard (PFG), which was set up in 2012 to protect Libya’s vital oil installations.
The oil industry contributes around 50% of Libya’s gross domestic product (GDP), according to data from the International Monetary Fund (IMF), and the centrality and of the industry to Libya’s economy and the extent of its reserves make it a prize for the numerous groups vying for ultimate control of Libya.
At present there are two rival governments and
parliaments in the country, with an
internationally-recognised administration that has fled from
Tripoli to Tobruk, following the takeover of the capital by a
self-declared government.
There are also several military factions: the Libyan National
Army, the fractured revolutionary factions of the Misrata
Brigades forming a coalition known as Libya Dawn, and several
and Benghazi Islamic groups forming a coalition known the
Shura Revolutionary Council. The influence of Islamic State
is also increasing in the country.
The diversity of Libya is immense, and the North African
country houses around 150 tribes, some minor and others
major, with common and conflicting interests.
The country is home to Arabs, the Berbers in the west who
were marginalised by Gaddafi, and the nomadic sub-Saharan
Tuareg tribes, which were backers of his regime; and the
Tubu, an indigenous tribe who were also repressed by the
previous regime.
Despite all this, Libya managed to keep its oil flowing to a
degree, but in 2014 oil production averaged at around 515,000
bbl/day, lower than the 985,000 bbl/day achieved in 2013 and
also lower than 2012 where production averaged at just under
1.50m bbl/day, according to data from the EIA.
Source: EIA
Libya’s oil reserves comprise a range of crude oils. Although the majority of the grades are light-sweet and rich in gasoline, the country also houses some very light crude such as Mellitah, which not only has a high gasoline and naphtha yield, but is also useful for blending with heavier crudes which cannot be refined on their own.
Libya’s most popular and sought-after crude grade is the Repsol-operated Es Sharara, located in the Murzuq Desert, in the south of the country. Its popularity is due to the high gasoil, heating oil, diesel and kerosene content, and refining such crude brings about the highest margins for the refiner.
Although there have been numerous shutdowns across the
land, the ENI-operated Bouri and Total-operated Al Jurf
grades have largely escaped the turmoil because they are
located offshore and therefore not easily accessible by
protesters.
Both crudes are heavier and more sour than the majority of
Libyan crudes, and are priced against Russia’s medium-sour
Urals rather than the Dated benchmark.
Reduced oil production levels across the country have
been due in part to PFG protective forces going on strike
several times, leading to revenue losses and causing a drop
in confidence in Libya’s most important
industry.
The PFG group at the ENI and NOC’s joint-operated El
Feel or Elephant oil field went on strike most recently,
closing the 100,000 bbl/day oil field. An NOC spokesperson
said workers went on strike because they have not been paid
for months.
Before this incident, the Marsa El Hariga port was
temporarily shut due to non-payment of salaries. The PFG was
also accused of selling Libyan oil themselves to fund
salaries.
The numerous militias in the country have also caused
stoppages, including blocking oil fields and export terminals
while demanding that the government provide jobs.
Power struggles between the two governments have exacerbated
issues in the country, with the country’s two largest ports
two largest ports shut down in December 2014 when the rival
Tripoli-based attempted to seize the assets from the official
government, causing widespread damage.
The inability of the two governments to reach a consensus has
led the official government to establish a new National Oil
Corporation and a new bank account for oil payments to be
routed via Dubai.
However, the traditional NOC that is based in Tripoli opened
its books to allow both governments and the international
community to see that it remains impartial and oil companies
have reportedly not paid into the new Dubai-based account in
fear that it would be illegal.
Support has been growing for Islamic State (IS) since
late last year, with the in-fighting between governments and
other factions aiding the militant group’s developing
foothold in the country.
The group has since taken several towns, Gaddafi’s hometown
of Sirte, and the airport. IS also claims to have taken
control of the Great Man-Made River (GMR) irrigation project,
which supplies fresh water to many of Libya’s towns and
cities.
Libya’s geopolitical strife has quelled international oil buyer appetite, due to fear of non-delivery, or of being attacked before berthing at the port.
Total, ENI, Saras, OMV and a handful of others have purchased Libyan crude in the past year, but the majority of independents and smaller refiners claim the risk is too high despite some heavily discounted prices.
The humanitarian crisis from Libya’s ongoing collapse
continues to grow, with thousands fleeing the conflict.
In 2014 alone, more than 3,400 people died crossing the
Mediterranean, according to the group,
Medecins Sans Frontieres, with president
Loris De Filippi describing described the situation as “a
mass grave… being created in the Mediterranean Sea.”
Focus article by Kawai Wong
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