Can Libya Regain Its Reputation As A Reliable Oil Nation?

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Libya’s oil output is finally increasing following the political crisis that restarted earlier this year following the failed Presidential elections of December 2021. The country is now attempting to ramp up its production through the summer months.

As global demand stays strong and oil prices continue to increase, Libya has repeatedly tried to stabilize its oil production. However, a plethora of challenges has stood in the way of steady oil output in recent years. Now, Libya has the opportunity to regain its title as a major African oil producer.

Libya’s oil output reached levels not seen since the beginning of April last week, around 1.2 million bpd, according to oil and gas minister, Mohamed Oun.

Before this, production had halved due to a blockade ostensible caused by protesters, although analysts and Western governments claim it was the work of eastern commander Khalifa Hafta. The conflict was largely based on the two opposing governments in the country, with Abdul Hamid Dbeibah’s political party in the west and Fathi Bashagha’s power in the east.

Both political figures claim to be Libya’s legitimate prime minister. On 15th July, Oun lifted the force majeure on the country’s oil field and export terminals, ending the blockade that commenced in April. This was great news for a country that has been facing years of political and economic turmoil.

A boost in production is widely hoped for by both Libya and other states, as global shortages of oil and gas drive governments to find alternative sources to ensure their energy security. In addition, stabilizing Libya’s would help the North African country to improve its economy and achieve greater stability at a time of high inflation.

In July, the leader of the -owned National Oil Corporation (NOC), Farhat Bengdara, rejected challenges to his position after being appointed by Prime Minister Dbeibah in replacement of prior NOC chief Mustafa Sanalla, a decision that the eastern government object to.

Bengdara stated “I am aware that questions have been raised over the legal basis for my appointment. The Libyan government has the right to appoint the chairman and the board of NOC. I was formally appointed as chairman by the Government of National Unity.”

But Sanalla, who ran the NOC from 2014 to 2022, protested on television about his dismissal, saying that the Government of National Unity (GNU) was not the legitimate government and had no right to make the appointment. Bashagha supporters believe Bengdara was chosen due to his close ties with the prime minister, rather than his capabilities, in order to further strengthen the GNU position.

But several oil companies have welcomed the new NOC chief including, Zallaf Libya Oil and Gas, Zueitina Oil, Jowfe Oil Technology Co., Akakus Oil Co., Mellitah Oil and Gas Co., Sirte Oil Co., Ras Lanuf Co., and Brega Co.

The Arabian Gulf Oil Company (AGOCO) also welcomed the new board. This has helped the appointment to be deemed more legitimate in the oil and gas industry. 

However, despite the recent boost in oil production, Libya continues to face major political and economic challenges, which was one of the factors that spurred the protests in the first place. Many Libyans are facing poor living conditions with rising food and prices and few employment opportunities.

There are also regular power outages, despite the country producing its own energy. In terms of Libya’s oil industry, it has a lot of work ahead if it is to regain its former power.

The country’s oil infrastructure has been neglected during the decade of political power struggles since the overthrowing of Muammar al-Qaddafi in 2011. Last year, the effects of several years of failing to fund improvements in energy infrastructure became evident when pipelines began to leak, oil output dropped due to the to fix vital parts, and offshore platform deaths revealed failures.

In December 2021, four Tunisians died on an offshore platform in Libya as the platform collapsed after a metal cable snapped when workers were trying to disconnect a floating tank.

Just before this, a Mabruk Oil Operation suffered an oil spill after a safety breach. Inactivity and a continual lack of maintenance on coastal and desert facilities have made them ill-equipped for new oil operations.

As well as safety concerns, pipeline leaks in Libya are commonplace, often forcing oil firms to take production offline. In January 2021, a pipeline was shut down in the Es Sider oil port, with an output loss of around 200,000 bpd for around a week.

Although Libya has huge oil potential, its infrastructure requires significant investment to bring it up to scratch. In addition, ineffective safety procedures suggest that workers in Libya’s oil operations require greater training.

All of this is, of course, secondary to finding a long-term solution to the political divisions in the country. The change in NOC leadership brings optimism to an industry that has been plagued by political and financial challenges.

While not everyone agrees with the appointment of Bengdara, the change could potentially invigorate the sector to bring greater investment. While Libya has significant potential to boost its oil output at a time when both demand and prices are high, it desperately needs to fix its aging infrastructure if it is to maintain its oil operations without further disruption.

By Felicity Bradstock for Oilprice.com


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