At around the same time as OPEC raised its long-term oil demand forecast for the third consecutive year — now expecting global consumption to rise 19 million barrels per day (bpd), or 18%, by 2050 — Libya’s state-owned National Oil Corporation (NOC) announced that the country’s oil production is now at the highest level in 13 years. Its current 1.487 million bpd crude output is just a whisker away from the NOC’s short-term strategy of producing 1.5 million bpd of oil, which opens the way for the long-term strategic target of 2.1 million bpd to be achieved within the next three to five years. The reason underpinning OPEC’s latest increase in long-term oil demand — governments increasingly prioritising energy security, rather than aggressively transitioning away from hydrocarbons — has also been key to the rise in foreign investment and oil developments in Libya, especially from Western firms. Since the onset of the Russian war in Ukraine on 24 February 2022, they have been busily sourcing new oil and gas supplies around the world to make up for those lost due to sanctions on Russia’s energy exports. So, how realistic does Libya’s long-term 2.1 million bpd oil output target look?
From a geological standpoint, nothing stands in the way of Libya reaching much higher production levels. The country holds around 48 billion barrels of proved crude reserves — the largest in Africa — and before Muammar Gaddafi was removed in 2011, it had no difficulty sustaining output of roughly 1.65 million bpd of high?quality light, sweet crude. The flagship grades, Es Sider and Sharara, were especially prized in the Mediterranean and Northwest Europe for their strong gasoline and middle?distillate yields. Production had also been on a steady upward path, rising from about 1.4 million bpd in 2000, even if still far below the more than 3 million bpd achieved in the late 1960s. Crucially, the NOC had already laid out plans before 2011 to deploy enhanced oil recovery (EOR) techniques across maturing fields. Its estimate that EOR could add around 775,000 bpd of capacity looked entirely credible, and Western interest in new upstream developments showed no sign of fading at the time.
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In late 2021, the country’s Government of National Unity (GNU) approved the sale of the 8.16% stake in the country’s giant Waha oil concessions held by the U.S.’s Hess Corporation to the remaining stakeholders. Those were France’s TotalEnergies (with a 16.3% share), and ConocoPhillips (also 16.3%), each of which was to be offered half of Hess’s stake. This followed positive news in April last year after the meeting between NOC chairman, Mustafa Sanalla, and the chief executive officer of TotalEnergies, Patrick Pouyanne. The French firm agreed to continue with its efforts to increase oil production from the giant Waha, Sharara, Mabruk and Al Jurf oil fields by at least 175,000 bpd and to make the development of the Waha-concession North Gialo and NC-98 oil fields a priority, according to the NOC. The Waha concessions — in which TotalEnergies took a minority stake in 2019 — had the capacity to produce at least 350,000 bpd together, according to the NOC. At around the same time, news emerged that Shell was looking to return to Libya, after senior representatives of the company met with NOC chairman Mustafa Sanalla during their visit to Tripoli. Shell had ceased its operations in Libya in 2012, partly due to contract terms but mainly because of the deteriorating security situation after the removal of Gaddafi.
However, by mid-June 2022, another blockade of Libya’s oil had begun, as key elements of the landmark peace agreement negotiated on 18 September 2020 to end the previous mammoth blockade had not been implemented. At the time, Commander of the rebel Libyan National Army (LNA), General Khalifa Haftar, had made it clear to the opposing side with which the deal had been struck — Tripoli’s U.N.-recognised Government of National Accord (GNA) — that it would be an interim arrangement only while a solution was worked out on how the country’s oil revenues would be distributed over the long term. The key to this in his view, and supported by the GNA back then, would be the formation of a joint technical committee, which would: “Oversee oil revenues and ensure the fair distribution of resources… and control the implementation of the terms of the agreement during the next three months, provided that its work is evaluated at the end of 2020 and a plan is defined for the next year.” To address the fact that the then-GNA effectively held sway over the NOC and, by extension, the Central Bank of Libya (CBL) in which the revenues are held, the committee would also “prepare a unified budget that meets the needs of each party… and the reconciliation of any dispute over budget allocations… and will require the Central Bank [in Tripoli] to cover the monthly or quarterly payments approved in the budget without any delay, and as soon as the joint technical committee requests the transfer.”
None of these measures had been sufficiently put into place at that point in 2022 to avoid another major blockade following the one in 2020, and they still have not. Instead, 11 April this year saw rival factions enact a national budget for 2026, with a total value of LYD190 billion (US$29.6 billion). The budget framework also explicitly allocates a LYD12 billion ring-fenced operational budget directly to the NOC to guarantee energy production and stability. Although the budget idea was heavily supported by the recently appointed Governor of the CBL, Naji Mohammed Issa, alongside international mediation by U.S. Senior Adviser Massad Boulos, various factions see it as an elite-driven, anti-democratic carve-up. For example, independent military councils and militias in western Libya (Tripoli, Misrata, and Zawiya) characterise it as the financial baseline for a U.S.-brokered political roadmap that would leave Abdul Hamid Dbeibah as Prime Minister while elevating Saddam Haftar (one of Khalifa Haftar’s sons) to the presidency. Moreover, major institutional players within the western region’s governance structure — including the Presidential Council and High Council of State — have formally rejected the political arrangements underlying the budget, arguing that the deal bypasses the UN-led peace process. Additionally, Libya’s highly influential Grand Mufti, Sheikh Sadiq al-Gharyani, has fiercely opposed the budget on the basis that it amounts to “handing over full power” to Khalifa Haftar and his sons. He has publicly called on Western region military forces and Prime Minister Dbeibah to abandon the pact, framing it as an existential betrayal of the Western region’s autonomy. And finally, several factions maintain that instead of fixing state corruption, the budget has simply institutionalised it into a better-organised and more clearly coordinated framework for theft.
Although this backdrop looks just as possible as the previous one to result in future oil blockades in the country, Western countries and their firms appear undaunted. “There’s a basic view that it’s [Libya] been trouble since 2011 and may well continue to be, but at some point it may work itself out, and there aren’t too many other [oil and gas] options of that size available right now,” a senior source who works closely with the European Union’s (E.U.) energy security complex exclusively told OilPrice.com last week. So, as it stands, Italy’s Eni recently announced new offshore gas discoveries in Libya, near the Bahr Essalam field, Libya’s largest producing offshore gas field, with preliminary estimates being that there is more than 1 trillion cubic feet (Tcf) of gas in place. This deepwater drilling underlines Western firms’ confidence in their ability to continue their business in Libya over many years, as it requires long-term capital and security guarantees. Great Britain’s BP is also working alongside Eni in the Sirte basin’s Matsola exploration prospect in Contract Area 38/3 in the Mediterranean Sea. The joint venture is committed to drilling a further 16 wells in Libya, across onshore and offshore areas, while BP recently signed a memorandum of understanding to evaluate options for redeveloping the giant Sarir and Messla onshore fields, and to assess potential unconventional oil and gas development. Meanwhile, TotalEnergies also recently announced the restart of production at Libya’s Mabruk oil field, illustrating its “long-term commitment in Libya,” according to the firm. And U.S.-based technology and engineering giant KBR was recently awarded a contract to provide project management and technical services for the South Refinery Project (SRP) in Ubari, southwest Libya, in line with KBR’s efforts to advance key oil and gas infrastructure across the country.
By Simon Watkins for Oilprice.com
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