If I called 2020 a terrible year for the oil industry, no one would take exception. Demand collapsed in the spring, during the first wave of the Coronavirus Disease crisis, and it has yet to recover fully. Prices then collapsed in April as Organisation of the Petroleum Exporting Countries and Russia walked away from production curbs and flooded the market with crude that no one wanted or needed, and once again, they have yet to regain all of the ground they have lost.
There have been a few bright spots, though. One of those is Libya, which has managed to overcome some very daunting challenges. I’d like to tell you the story of how that happened.
Starting near rock bottom
When the African Energy Chamber started drawing up our 2021 Africa Energy Outlook, which was released on November 10, Libya’s oil industry was still struggling in the face of persistent civil conflict.
At that time, the country was still producing less than 100,000 barrels per day of crude, down from more than 900,000bpd at the start of 2020. Its refineries, pipelines and Mediterranean export terminals were almost entirely idle because of the blockade mounted by the Libyan National Army, a militia headed by Field Marshal Khalifa Haftar, during a major offensive campaign that began in mid-January. As a result, most of its oil fields were also idle. The National Oil Corporation, which was determined to remain neutral in the conflict, made several attempts to lift force majeure declarations and recommence production over the summer, but without success.
These struggles are addressed in our 2021 forecast, “Libya struggles to maintain (its) sustainable oil production capacity (of) around one million bpd. In the latest ongoing struggle for power between GNA, a UN-recognised body (set up) to govern Libya, and LNA forces, (an) army of rebels led by General Khalifa Haftar (supported by Russia, Egypt and UAE), force majeure has been imposed on oil exports in the country from January 2020. Due to this, currently, Libya’s oil production has plummeted to almost 10 per cent of its capacity.”
Because of all these challenges, Libya has languished. It has had no way of monetising its primary export commodity and source of cash. It has lost billions of dollars. It hasn’t even been able to extract or refine enough crude to cover domestic demand for fuel.
And it certainly hasn’t succeeded in resolving the disputes over regional distribution of oil revenue that helped drive the LNA’s attacks on the Government of National Accord, an interim government based in Tripoli and backed by the United Nations. Nor has Libya been able to find a way to rid tank farms and other oil infrastructure of the foreign soldiers and mercenaries deployed by Turkey and the other third parties with an interest in the country.
But things began to change in mid-September, when the LNA and its allies sat down with the GNA for yet another round of UN-brokered peace talks.
Month of progress
Initially, there didn’t seem to be much reason for optimism. After all, the two sides had failed to come to terms so many times before!
This time, though, was different. The GNA and the LNA struck a deal.
They didn’t go so far as to sign a peace agreement. Instead, they announced a one-month cease-fire deal on September 18. The parties indicated they hoped to draw up a final agreement within the next month. They also made clear that Haftar had agreed to lift the oil blockade while the temporary deal remained in force.
Immediately after the cease-fire was declared, the NOC got right to work. It started bringing coastal terminals back online, so that Libya could export oil again. Its regional production units began lifting force majeure declarations on one oil field after another. It started bringing refineries back into production. It started the process of inspecting infrastructure facilities to determine whether they were “safe” – that is, not occupied by foreign troops – and therefore eligible to resume regular business operations.
By the time the one-month cease-fire expired on October 18, the NOC had already managed to bring oil production back up to 500,000bpd.
This was a huge achievement. Think of it! In just a few weeks, Libya managed to increase output by more than 400,000bpd, thereby regaining about half of the ground it lost as a result of the LNA blockade, despite the extensive damage inflicted on oil infrastructure during the blockade.
There was a problem, though.
Big breakthroughs
When the cease-fire ended on October 18, the GNA and the LNA hadn’t yet achieved their goal of signing a final agreement. Fortunately, though, they had agreed to extend talks for another six days. As a result, the LNA did not impose another blockade, and the NOC and its subsidiaries continued to put fields, pipelines, terminals and refineries back into action.
Then on October 23 – a day ahead of the new deadline – there was another breakthrough during talks in Geneva. On that day, the UN Support Mission in Libya declared that the parties had finalised a more comprehensive cease-fire agreement. It described the deal as permanent and applicable to the entire country.
What’s more, the agreement also removed one of the biggest problems facing the Libyan oil industry – the challenge posed by the foreign soldiers and mercenaries still occupying oil fields and infrastructure. According to the UN’s Acting Special Representative for Libya, Stephanie Williams, the deal made provision for all such troops to leave Libya within three months.
As a result, the NOC has been able to push forward with its campaign to restart the oil industry.
On October 26, the company stated that it was in a position to “(declare) the end of the blockades at all Libyan fields and ports.”
Then on November 9, it announced that output had reached 1,036,035bpd.
This is another huge achievement. Again, think of it! In less than two months, Libya has managed to go from producing just a fraction of its usual volume to more than one million bpd. It has pushed crude oil output up more than 10-fold, bringing major fields such as Sharara and El Feel back into action. It has also succeeded in reactivating the export terminals on the Mediterranean coast and is working to ramp up processing operations at its refineries.
Challenges and lessons
All of these successes make for a good story, don’t they? Even better, the story is true. (I’d like to think it also reflects well on the AEC, which did predict in our Africa Energy Outlook that Libyan crude oil production was set to recover as civil conflict simmered down.)
But is the story really over? Probably not.
First, we have to wait and see whether the cease-fire holds. All of the parties involved seem optimistic, but they haven’t yet revealed whether they’ve managed to resolve quarrels about how to distribute oil revenues. The LNA, which controls most of southern and eastern Libya, has often claimed that the GNA, which holds the northwestern part of the country, keeps an unfairly large portion of these revenues for itself. In turn, their conflict has negatively affected NOC, despite the company’s attempts to remain neutral, so that it could continue operating (and bringing in money) despite the civil conflict. Those challenges likely will continue if the question of oil revenue distribution isn’t answered to the satisfaction of all concerned parties.
Next, if Libya manages to hold together and keep output up, it will have to come to terms with OPEC, which is still working with Russia and other countries to support oil prices with a regime of production quotas. Libya hasn’t been subject to those quotas this year because of the blockade, but it’s now extracting more than one million bpd. What’s more, it expects to bring production up to 1.3m bpd within the next few months, and the head of the NOC, Mustafa Sanalla, said that Libya would fall into line with the quota system until it could stabilise yields at 1.7mbpd. OPEC may not agree with that proposition, especially since world crude prices have fallen in response to reports of renewed development activity in Libya.
Whatever the case, there are at least two lessons to be learnt from Libya’s recent victories.
One is persistence. Despite the repeated failure of attempts to work out an agreement between the LNA and the GNA, the UN and other parties did not give up. This should be a lesson for other African countries that count civil conflict as one of the obstacles to the development of oil and gas resources. Certainly, this approach appears to have benefited South Sudan, which has been embroiled in civil war for most of the time since it attained independence in 2011. The country has been under the rule of a unity government since the finalisation of a peace agreement between President Salva Kiir Mayardit and his long-time rival, Riek Machar Teny Dhurgon, earlier this year.
The other is the necessity of paying attention to regional issues. The conflict between the GNA and the LNA wasn’t just a battle for supremacy; it was also a quarrel over how best to distribute revenues between the central government and the regions that were home to most of the oil fields and other infrastructure that generated those revenues. This is definitely one of the lessons that Nigeria has had to learn. The West African country’s federal government has seen over and over again that the residents of oil-bearing regions such as Ogoni are willing to fight if they believe they are being denied a fair share of the money that comes from the places where they make their homes.
Neither of these lessons is easy to absorb. It’s easy to give up on negotiations when you’ve already failed repeatedly, and it’s easy to ignore the periphery if you’re one of the lucky people at the centre. But I’d like to see other African producers think about them as they watch Libyan production continue to ramp up.
*Ayuk is Executive Chairman of African Energy Chamber
