INSIGHT: Libya’s crude output hurt by low investment, rather than disruptions

LONDON (ICIS)–Libya’s oil production is under threat more from a lack of investment than from sporadic disruptions, according to the CEO of Libya’s National Oil Corporation (NOC) Mustafa Sanalla.

Libya’s oil output has been facing many hurdles since the beginning of the civil war in 2011, but the NOC will have to increase investment if it is to keep up with the production volumes, currently estimated at about 1m bbl/day.

And the premise to stable output is physical security, a big topic which has received little attention from the international community so far, Sanalla said, speaking at a conference in London at the end of January.

Although the extent of the current infrastructure damages is difficult to assess, there is little doubt that Libya will not be able to return to the pre-war production levels of 1.65m bbl/day without a stronger involvement of international investors.

There is a lack of investment in the country, the NOC’s CEO said, adding that Libya had hydrocarbon potential to develop but was missing on production opportunities because of a dearth of investment.

Libya holds the largest proven reserves of crude oil in Africa, at an estimated 48bn barrels according to the Oil and Gas Journal.

While Libya’s oil export revenue was about $48bn in 2012, it fell to about $9bn in 2014. Reliable, updated figures have since been hard to come by.

The country’s GDP fell by an estimated 62% as the result of the civil war, before rebounding in 2012 thanks to higher oil prices, and contracting again by nearly 14% in 2013 and by 24% in 2014.

Before a serious crisis hit the economy in 2013, the Libyan government had made several official announcements regarding an increase of crude oil production capacity, initially to 1.7m bbl/day by the end of 2013 and to 2m bbl/day in the following years.

However, the country has fallen short of adequate capital expenditure in its oil sector.

Libya is also in dire need of coordination and the NOC’s CEO remains convinced that for Libya to survive, the state-owned company must be protected and its oil continue to flow.

In October 2017, representatives of the NOC, the Central Bank of Libya, tribal and municipal representatives, the UN, the International Monetary Fund (IMF), major international oil companies, diplomats from the UK, the US, Russia, the EU, Italy and Spain, as well as specialist advisors, agreed a set of principles aimed at reinforcing existing legal protections for the NOC, and known as the Windsor Principles.

Sanalla reasserted that these principles should not only remain the pillars of the international community’s support for Libya, but also the guiding principles of his own country’s policy towards the NOC.

In particular, he said that the Central Bank should be more transparent about how the petroleum rent is being redistributed.

The NOC’s oil revenue is handed over the Libyan Central Bank, before being reallocated by the Libyan government in its annual budget.

However, the NOC received only 50% of its budget for fiscal year 2017, with both capital and operating expenditures suffering as a result, with some NOC staff remaining without salaries for five months.

“Before the revolution in 2011, we were ruled by a man who claimed not to be in charge; now, we are ruled by men who all claim to be in charge”, Sanalla told the audience, half-jokingly.

He added that insecurity, state capture, secrecy and resentment have characterised Libyan politics since the outbreak of the civil war in 2011.

Maybe despite himself, the NOC’s chief executive has embodied Libya’s government in the absence of a government, and perhaps its most steadfast shuttle diplomat too, acting as a fireman between the warring parties threatening to disrupt oil production.

Militants, and in particular the Petroleum Facilities Guards (PFG), have been described in no uncertain terms.

The latter are thought to be involved in the smuggling of Libyan oil to the black market – some of which was later tracked in Italy, where it had never been sold by the NOC in the first place, Sanalla said.

The Libyan National Army (LNA), he said, had allowed the NOC to sell oil the oil that it re-captured from the militia forces of Ibrahim Jathran.

Sanalla remains hopeful that the LNA will deter any further blockades in the east of the country, where many disruptions happened over the past years.

Pictured: Oil canisters in Libya in the 2000s
Source: Guenter Fischer/imageBROKER/REX/Shutterstock

By Julien Mathonniere