{"id":9414,"date":"2020-11-16T09:23:25","date_gmt":"2020-11-16T09:23:25","guid":{"rendered":"http:\/\/oilnewskenya.com\/?p=9414"},"modified":"2020-11-16T09:23:25","modified_gmt":"2020-11-16T09:23:25","slug":"the-libyan-oil-industrys-story-of-recovery-and-what-it-means-for-the-rest-of-africa","status":"publish","type":"post","link":"https:\/\/www.oilnewskenya.com\/index.php\/the-libyan-oil-industrys-story-of-recovery-and-what-it-means-for-the-rest-of-africa\/","title":{"rendered":"The Libyan Oil Industry\u2019s Story of Recovery – And What it Means for the Rest of Africa"},"content":{"rendered":"

By NJ Ayuk, Executive Chairman, African Energy Chamber<\/em><\/p>\n

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 COVID-19 pandemic, and it has yet to recover fully. Prices then collapsed in April as OPEC 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.<\/p>\n

There have been a few bright spots, though. One of those is Libya, which has managed to overcome some very daunting challenges. I\u2019d like to tell you the story of how that happened.<\/p>\n

Starting Near Rock Bottom<\/strong><\/p>\n

When the African Energy Chamber (AEC) started drawing up our 2021 Africa Energy Outlook, which was released on Nov. 10, Libya\u2019s oil industry was still struggling in the face of persistent civil conflict.<\/p>\n

At that time, the country was still producing less than 100,000 barrels per day (bpd) of crude, down from more than 900,000 bpd 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 (LNA), 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 (NOC), 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.<\/p>\n

These struggles are addressed in our 2021 forecast: \u201cLibya struggles to maintain (its) sustainable oil production capacity (of) around 1 million bpd. In the latest ongoing struggle for power between GNA, an UN-recognized 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\u2019s oil production has plummeted to almost 10% of its capacity.\u201d<\/p>\n

Because of all these challenges, Libya has languished. It has had no way of monetizing its primary export commodity and source of cash. It has lost many billions of dollars. It hasn\u2019t even been able to extract or refine enough crude to cover domestic demand for fuel.<\/p>\n

And it certainly hasn\u2019t succeeded in resolving the disputes over regional distribution of oil revenue that helped drive the LNA\u2019s attacks on the Government of National Accord (GNA), 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.<\/p>\n

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.<\/p>\n

A Month of Progress<\/strong><\/p>\n

Initially, there didn\u2019t seem to be much reason for optimism. After all, the two sides had failed to come to terms so many times before!<\/p>\n

This time, though, was different.<\/p>\n

This time, the GNA and the LNA struck a deal.<\/p>\n

They didn\u2019t go so far as to sign a peace agreement. Instead, they announced a one-month cease-fire deal on Sept. 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.<\/p>\n

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 \u201csafe\u201d \u2014 that is, not occupied by foreign troops \u2014 and therefore eligible to resume regular business operations.<\/p>\n

And by the time the one-month cease-fire expired on Oct. 18, the NOC had already managed to bring oil production back up to 500,000 bpd.<\/p>\n

This was a huge achievement. Think of it! In just a few short weeks, Libya managed to increase output by more than 400,000 bpd, thereby regaining about half of the ground it lost as a result of the LNA blockade. And it did so despite the extensive damage inflicted on oil infrastructure during the blockade.<\/p>\n

There was a problem, though.<\/p>\n

Big Breakthroughs<\/strong><\/p>\n

When the cease-fire ended on Oct.18, the GNA and the LNA hadn\u2019t 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.<\/p>\n

Then on Oct. 23 \u2014 one day ahead of the new deadline \u2014 \u00a0there was another breakthrough during talks in Geneva.<\/p>\n

On that day, the UN Support Mission in Libya (UNSMIL) declared that the parties had finalized a more comprehensive cease-fire agreement. It described the deal as permanent and applicable to the entire country.<\/p>\n

What\u2019s more, the agreement also removed one of the biggest problems facing the Libyan oil industry \u2014 the challenge posed by the foreign soldiers and mercenaries still occupying oil fields and infrastructure facilities. According to Stephanie Williams, the UN\u2019s Acting Special Representative for Libya, the deal made provisions for all such troops to leave Libya within three months.<\/p>\n

As a result, the NOC has been able to push forward with its campaign to restart the oil industry.<\/p>\n

On Oct. 26, the company said in a statement that it was in a position to \u201c(declare) the end of the blockades at all Libyan fields and ports.\u201d<\/p>\n

Then on Nov. 9, it announced that it had brought production up to more than 1 million bpd. (To be exact, it reported that oil output had reached the level of 1,036,035 bpd.)<\/p>\n

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 1 million bpd. It has pushed crude oil output up more than tenfold, 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.<\/p>\n

Challenges and Lessons<\/strong><\/p>\n

All of these successes make for a good story, don\u2019t they? Even better, the story is true.<\/p>\n

(I\u2019d 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.)<\/p>\n

But is the story really over? Probably not.<\/p>\n

First, we have to wait and see whether the cease-fire holds. All of the parties involved seem optimistic, but they haven\u2019t yet revealed whether they\u2019ve 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\u2019s 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\u2019t answered to the satisfaction of all concerned parties.<\/p>\n

Next, if Libya does manage 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\u2019t been subject to those quotas this year because of the blockade, but it\u2019s now extracting more than 1 million bpd. What\u2019s more, it expects to bring production up to 1.3 million bpd within the next few months, and Mustafa Sanalla, the head of the NOC, has said that Libya won\u2019t fall into line with the quota system until it can stabilize yields at 1.7 million bpd. OPEC may not agree with that proposition, especially since world crude prices have fallen in response to reports of renewed development activity in Libya.<\/p>\n

Whatever the case, there are at least two lessons to be learned from Libya\u2019s recent victories.<\/p>\n

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 finalization of a peace agreement between President Salva Kiir Mayardit and his long-time rival Riek Machar Teny Dhurgon earlier this year.<\/p>\n

The other is the necessity of paying attention to regional issues. The conflict between the GNA and the LNA wasn\u2019t 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\u2019s federal government has seen over and over again that the residents of oil-bearing regions such as Ogoniland 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.<\/p>\n

Neither of these lessons is easy to absorb. It\u2019s easy to give up on negotiations when you\u2019ve already failed repeatedly, and it\u2019s easy to ignore the periphery if you\u2019re one of the lucky people in the center. But I\u2019d like to see other African producers think about them as they watch Libyan production continue to ramp up.<\/p>\n","protected":false},"excerpt":{"rendered":"

By NJ Ayuk, Executive Chairman, African Energy Chamber If I called 2020 a terrible year for the oil industry, no one would take exception. Demand collapsed in the spring, during … Read More<\/a><\/p>\n","protected":false},"author":24,"featured_media":8293,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[1],"tags":[6986,709,8653,1406,8652,1689,1827,2082,2206,7805],"class_list":["post-9414","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-african-energy-chamber","tag-egypt","tag-khalifa-haftar","tag-libya","tag-libyan-national-army","tag-national-oil-corporation","tag-oil","tag-production","tag-russia","tag-uae","entry"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/www.oilnewskenya.com\/wp-content\/uploads\/2020\/06\/Sharara-field-libya.jpg?fit=769%2C515&ssl=1","jetpack_shortlink":"https:\/\/wp.me\/p5JWkQ-2rQ","jetpack-related-posts":[{"id":8481,"url":"https:\/\/www.oilnewskenya.com\/index.php\/libya-noc-hopeful-regional-countries-behind-oil-blockade-will-lift-it-after-weeks-of-negotiations\/","url_meta":{"origin":9414,"position":0},"title":"LIBYA: NOC Hopeful Regional Countries Behind Oil Blockade Will Lift It After Weeks Of Negotiations","author":"","date":"July 1, 2020","format":false,"excerpt":"NOC has confirmed there have been ongoing negotiations to resume oil production over the past several weeks with the between the GNA, NOC and regional countries, under the supervision of the UN and the US. The corporation adds that is hopeful that those regional countries will lift the blockade allowing\u2026","rel":"","context":"In "Countries"","block_context":{"text":"Countries","link":"https:\/\/www.oilnewskenya.com\/index.php\/category\/countries\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.oilnewskenya.com\/wp-content\/uploads\/2020\/06\/Sharara-field-libya.jpg?fit=769%2C515&ssl=1&resize=350%2C200","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.oilnewskenya.com\/wp-content\/uploads\/2020\/06\/Sharara-field-libya.jpg?fit=769%2C515&ssl=1&resize=350%2C200 1x, https:\/\/i0.wp.com\/www.oilnewskenya.com\/wp-content\/uploads\/2020\/06\/Sharara-field-libya.jpg?fit=769%2C515&ssl=1&resize=525%2C300 1.5x, https:\/\/i0.wp.com\/www.oilnewskenya.com\/wp-content\/uploads\/2020\/06\/Sharara-field-libya.jpg?fit=769%2C515&ssl=1&resize=700%2C400 2x"},"classes":[]},{"id":8563,"url":"https:\/\/www.oilnewskenya.com\/index.php\/libya-noc-condemns-renewed-blockade-of-oil-exports\/","url_meta":{"origin":9414,"position":1},"title":"LIBYA: NOC Condemns Renewed Blockade of Oil Exports","author":"","date":"July 13, 2020","format":false,"excerpt":"Libya\u2019s National Oil Corporation (NOC) has condemned\u00a0 the renewed blockade on Libyan oil exports, and called for the states responsible to be held to account by the United Nations Security Council.\u00a0 NOC has been forced to declare force majeure on all oil exports from Libya to limit its contractual liabilities.\u00a0\u2026","rel":"","context":"In "Countries"","block_context":{"text":"Countries","link":"https:\/\/www.oilnewskenya.com\/index.php\/category\/countries\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.oilnewskenya.com\/wp-content\/uploads\/2020\/07\/libya-oil-ports.jpg?fit=640%2C480&ssl=1&resize=350%2C200","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.oilnewskenya.com\/wp-content\/uploads\/2020\/07\/libya-oil-ports.jpg?fit=640%2C480&ssl=1&resize=350%2C200 1x, https:\/\/i0.wp.com\/www.oilnewskenya.com\/wp-content\/uploads\/2020\/07\/libya-oil-ports.jpg?fit=640%2C480&ssl=1&resize=525%2C300 1.5x"},"classes":[]},{"id":9038,"url":"https:\/\/www.oilnewskenya.com\/index.php\/libya-noc-eu-high-representatives-discuss-effects-of-oil-blockades\/","url_meta":{"origin":9414,"position":2},"title":"LIBYA: NOC, EU High Representatives Discuss Effects of Oil Blockades","author":"","date":"September 2, 2020","format":false,"excerpt":"National Oil Corporation (NOC) chairman Eng. 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