Libya’s Biggest Oil Field Shut Down As Tensions Rise

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By Cyril Widdershoven, Oilprice.com

The shutdown of Libya’s Sharara oilfield, the country’s largest field, has once again shown that expected production growth of several OPEC countries should not be taken for granted.

Even though several media sources have been publishing overwhelmingly optimistic reports about the security situation in the country, especially after the unexpected production boost of Libya’s battered oil and gas sector, the perceived ‘peace’ between General Khalifa Haftar’s LNA and the East Libyan government (HoR), remains shaky at best.

A pipeline blockade by an armed group has hindered the loading of Sharara crude from the Zawya oil terminal since Sunday. Libya’s national oil company, NOC, has already declared a force majeure. The Sharara oil field, run by a JV of Libya’s NOC and international oil companies Repsol, Total, OMV and Statoil, is crucial to the revival of Libyan oil production, as it is currently producing around 280,000 bpd. In the past several weeks, production has been shut down several times, due to protests by oil workers and armed guards. Currently, the location of the blockade, as well as the demands of the protesters remain unknown.

Analysts are still optimistic about the future of Libya’s oil sector, but given the ongoing battle for power within the country, this could be wishful thinking. The security situation has drastically improved, and the NOC, in cooperation with national security forces and the oil guards, have been able to deal with continuing strikes and disruptions effectively. NOC CEO Mustafa Sanalla’s efforts to get operations running, even visiting conflict areas in person, has made a substantial difference in the region. The NOC CEO has also attempted to woo international oil companies to resume investment in the country’s oil sector, while ending blockades of ports and reopening attractive fields. Additionally, the primary complaints of oil workers have been addressed, as outstanding salary payments and security issues were previously not met.

Libya’s oil production is now officially above 1 million bpd, which is almost 4 times more than the year prior. Back in 2011, Libya produced around 1.6 million bpd, but the civil war following the removal of Libya’s dictator Muammar Khaddaffi saw oil production plunge. Libyan oil experts expect a steady 1.2 million bpd production by the end of 2017.

Despite the NOC’s best efforts to boost output, recent developments on the ground are very worrying. After a short thaw between the main players in the conflict, the Libyan government (HoR) and the Libyan general Haftar’s LNA, tensions are once again on the rise. The deal between the HoR and LNA now is seen by others as a threat to their own positions. A real political solution will not only lead to power clashes with the other armed militias and IS affiliates, but could also have direct negative repercussions on oil and gas production. For all players, access to the oil and gas sector is essential. The revenues from oil and gas production are not only the main lifeline for the country but are also funding the armed militias in the conflict.

At the same time, international pressure on both sides could lead to increased insecurity. The arrest by the LNA of the commander of its elite forces unit, Mahmoud Al-Werfalli, as demanded by the International Criminal Court (ICC), may lead to a possible internal conflict. Al-Werfalli is wanted by the ICC for allegedly executing dozens of prisoners. The LNA has arrested him to be investigated by a military prosecutor. Werfalli’s Special Forces is seen as a powerful elite unit under LNA control which joined the Benghazi campaign in its early stages. It is unclear at present if the LNA will hand over Al-Werfalli to the ICC in due course. The group also holds the control of most of Libya’s oil and gas fields.

A potential power struggle within this group could once again lead to blockades, outages and falling exports.

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