When asked about whether he wanted to push American companies out of Libya in 1973, Muammar Gaddafi answered that although he would have been undoubtedly pleased, the oil they were pumping was very much needed for Libyan economy relied on oil revenues. Almost fifty years later, while the former leader is long gone, the country is still desperate for that oil to be pumped and revenues to be kept on-stream. Preferably, without disruptions. However, since 2011, Libya is entangled into civil war and its energy sector, once a source of stability, is currently undermined.
OPEC estimates Libya’s oil proved reserves – which means readily processable resources – amount to some 48 million barrels which make it the largest oil producer in Africa and the 9th worldwide. In particular, the fact that Libyan crude-oil is mostly high-quality light (high API gravity) and sweet (low sulphur content), makes it extremely easy to refine for many Western/European refineries, e.g. Italians. Furthermore, Libya’s endowment comprises twenty-one ‘giant fields’, each one containing, at least, 500 million barrels of recoverable reserves. These account for more than 80% of total Libyan production. However, the bulk of it is concentrated in the Oil Crescent of the Sirte Basin in the eastern region of Cyrenaica: Khalifa Haftar’s Libyan National Army (LNA) stronghold. Since 2015, the LNA is contending with the internationally recognised Tripoli-based Government of National Accord (GNA) of Fayez al-Serraj for control over oil installations and ports in order to deflect oil revenues eastwards.
The Libyan energy sector inherited a high level of centralisation from Gaddafi’s era. That is one condition players currently involved in the Libyan crisis believe they could turn control over oil and gas facilities and infrastructure into enough leverage to win the tie. Indeed, the flow of oil revenues does not differ from what it used to be during Gaddafi’s Jamahiriya. The National Oil Corporation (NOC) regulates crude oil production and exports, while revenues are redistributed and managed by the Central Bank of Libya (CBL). Both of them are based in Tripoli. The NOC comprises a list of companies charged with the practical functioning of production sites and infrastructures. As one may expect, the Libyan economy largely depends on its oil-and-gas sector. Notably, oil revenues make up seventy per cent of the state’s budget and serve government’s vast scheme of subsidies and to pay a ‘total of 2.5 million state-sector salaries in a nation of 7.5 Libyan citizens’ (Bey, 2020).
On many occasions, since the outbreak of the political crisis in 2014, the international community has stressed the NOC to be the sole independent and legitimate oil company (see UNSCR 2259(2015) and UNSCR 2241(2018)) in Libya. However, Libya has faced several disruptions caused by external activities ever since. Between 2013 and 2016, blockades were led by the Petroleum Facilities Guard (PFG), ironically enough, an armed body which was instituted by Gaddafi to look after oil installations. In 2016, however, LNA armed-groups drove PFG troops out of the Sirte basin and partly incorporated it in its ranks. In early 2018 Haftar managed to extend his control over Al-Sharara and El-Feel ‘giant fields’ in the southern region of Fezzan, causing further disruptions. In April of the last year, as a consequence of the LNA-led offensive against the GNA in Tripoli, several sites were damaged. However, Libyan oil output did not drop consistently, as the NOC managed somehow to keep it on-stream. As a result, Libya’s crude oil production averaged 1.1 billion b/d up until the end of 2019 (CEIDATA, 2020).
Khalifa Haftar has been building his propaganda machine round the idea that oil revenues are badly redistributed by authorities in the West. Accordingly, in 2017, he set up parallel Central Bank and NOC branches in Cyrenaica in an attempt to circumvent the NOC and strike sale contracts autonomously. However, the initiative did not succeed as the international community made sure that Libya’s oil exports will remain under the ‘direct control of the NOC’. In September 2019, France, Germany, Italy, the UAE, UK, and the USA issued a joint statement supporting Libya’s NOC (Zaptia, 2019).
As tensions rose again this year, though actively involving foreign powers such as Russia (backing General Haftar) and even more Turkey (supporting Fayez al-Serraj’s GNA), oil-and-gas installations and infrastructures have been turned into military targets. Since January 18, the LNA has been keeping virtually all of the nation’s oil fields shut. As a consequence, the NOC had to declare force majoure at five of its eastern oil ports of Brega, Ras Lanuf, Hariga, Zueitina and Sidra ports, thus putting a halt to oil exports (Zaptia 2020). Also, according to several analysts, both Al-Sharara and El-Feel oil-fields have been shut due to intense military actions nearby.
Notably, thee blockades occurred just ahead of the much-awaited Berlin Conference which gathered actors and interested nations in order to yield a durable and reliable solution to the crisis. The conference once again remarked that ‘all parties shall guarantee the security of [oil] installations and refrain from any hostilities against them’. However, it fell short of producing viable conclusions and, as a result, Libya’s oil production remains paralysed.
On January 21, Libyan NOC confirmed shutdowns of oil ports and installations caused crude oil production to plumb to a lowest 72.000 b/d – the lowest ever output since August 2011- and ‘daily financial losses of approximately $77 million’ (NOC, 2020). Over the six days since it declared force majeure, about 3.9 million b/d were lost, the NOC further confirmed. Besides, blockades are expected to put further strain on Libyan authorities since annual revenues decreased by around 8.4% on 2018, though mostly reflecting a drop in the oil price (CBL, 2020).
Following up NOC concerns, the European Commission issued a statement condemning blockades and inviting Libyan officials to guarantee a ‘transparent, accountable, fair and equitable distribution of Libya’s wealth and resources, including oil revenues (EC 22/01/2020). Many analysts believe these are policy-related disruptions; hence there could be a quick turnaround if a political solution is to be found (Caretto, 2020). However, vested interests are rapidly turning the Libyan conflict into a proxy war, thus making stability even more difficult to reach. In particular, Turkey’s alignment with the GNA reflects Erdogan’s response to Russian involvement alongside the LNA. Furthermore, in November of last year, Ankara and Tripoli agreed on redrawing their EEZs (Exclusive Economic Zones) in the Mediterranean amid international criticism.
As things stand, many fear that the situation will not normalise as long as there is uncertainty. Looking forward, the best chances for Libya to stabilise its energy sector lie upon the NOC, for it to retain as much transparency and independence as possible in order to set up the right conditions to attract badly needed foreign investments and consolidate production. Prior the recent escalation, NOC had estimated oil output would reach 1.5 million b/d by the end of 2020 and some 2.1 million b/d in 2024 (Cousins, 2020). Since physical control over oil-and-gas installations has so far proved very limited, for the LNA did not gain the upper hand in the conflict, the international community headed by the UN shall keep on working on the implementation of viable solutions as those agreed on by parties in Berlin.
REFERENCES
- Bey H., Op-Ed: Libya at war: “FX Surcharges Vs Petrodollars” – the reality, Libya Herald, Milan 28 January 2020. Available at: https://www.libyaherald.com/2020/01/29/op-ed-libya-at-war-fx-surcharges-vs-petrodollars-the-reality/
- Caretto G., Libia, Eni, Total e non solo. Erdogan abbaia ma non morderà. Parola di Sapelli, StartMag, 16 January 2020. Available at: https://www.startmag.it/energia/libia-eni-total-e-non-solo-erdogan-abbaia-ma-non-mordera-parola-di-sapelli/
- CBL, Central Bank of Libya Statement concerning Revenues and Expenditures for the period 1 January to 31 December 2019, along with the foreign currency sales for commercial banks (in USD) for the same period, Tripoli 14 January 2020. Available at: https://cbl.gov.ly/en/2020/01/14/central-bank-of-libya-statement-concerning-revenues-and-expenditures-for-the-period-1-january-to-31-december-2019-along-with-the-foreign-currency-sales-for-commercial-banks-in-usd-for-the-same-peri/
- Cousins M., NOC aims for 1.5 M barrels a day in 2020 and 2.1 M in 2024, Libya Herald, Tunis 21 November 2019. Available at: https://www.libyaherald.com/2019/11/21/noc-aims-for-1-5-m-barrels-a-day-in-2020-and-2-1-m-in-2024/
- El Wardany S., Libya’s Oil Output Plunges as Cease-Fire Talks Come Up Short, Bloomberg, 19 January 2020. Available at: https://www.bloomberg.com/news/articles/2020-01-19/oil-pipe-from-libya-s-biggest-field-halted-ahead-of-peace-talks
- European Union, EU Local Statement on the blockade of Libyan oil facilities, Bruxelles 22 January 2020. Available at: https://eeas.europa.eu/delegations/libya/73335/eu-local-statement-blockade-libyan-oil-facilities_en
- NOC, NOC declares force majeure after LNA blockades oil exports from Brega, Ras Lanuf, Hariga, Zueitina and Sidra ports, Tripoli 18 January 2020. Available at: https://noc.ly/index.php/en/new-4/5534-noc-declares-force-majeure-after-lna-blockades-oil-exports-from-brega,-ras-lanuf,-hariga,-zueitina-and-sidra-ports
- Zaptia S., NOC calls for oil blockade to be ended, updates production and revenue losses, Libya Herald, London 26 January 2020. Available at: https://www.libyaherald.com/2020/01/26/noc-calls-for-oil-blockade-to-be-ended-updates-production-and-revenue-losses/
- Zaptia S., The Berlin Conference on Libya: CONFERENCE CONCLUSIONS, Libya Herald , London 19 January 2020. Available at: https://www.libyaherald.com/2020/01/20/the-berlin-conference-on-libya-conference-conclusions/
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