September 14, 2017
Libya’s Oil Recovery Over a Barrel
By Reed Blakemore and Elissa Miller
Over the course of two weeks in late August, the Rayayina Patrols Brigade (RPG) targeted oil fields and other facilities along a key pipeline corridor in western Libya, disrupting production at the Hamada el Hamra, El-Feel, and El Sharara oil fields by an estimated 360,000 bpd.
Though all three fields are scheduled to resume production this week following a negotiated settlement, the attacks underscore the challenges the Tripoli-based and internationally recognized Government of National Accord continues to face as it attempts to revamp production and stabilize the country amidst a fraught security environment.
Prior to the 2011 fall of former Libyan strongman Moammar Gadhafi, oil production reached highs of around 1.6 million bpd and accounted for as much as 98 percent of government revenue. During the civil war following Gadhafi’s ouster, oil production plummeted, falling below 300,000 bpd at several points, and has since struggled to recover. With few other alternatives for revenue, a thriving energy sector represents both a form of legitimacy for the GNA while also ultimately underwriting any development programs aimed at constructing durable peace and stability.
Only in the last year has Libya’s oil production regained some momentum, giving hope that the energy sector might be back on track. Production reached 575,000 bpd in November 2016 and surpassed 1 million bpd in July for the first time in four years. This progress informed projections made by the Libyan National Oil Company (NOC) in late June that Libyan production would surpass 1.2 million bpd by the end of 2017, followed by ambitious plans to surpass 1.5 million bpd by the end of 2018 and 2.2 million bpd by 2023. Such a surge even led some analysts to consider whether the Organization of the Petroleum Exporting Countries’ 2016 commitment to cut production could be stymied by a resurgent Libya, which was exempt from the agreement.
Yet as these attacks demonstrate, sustained medium-to-long-term oil production increases depend on local security and stability, a challenge given Libya’s divisive political climate. While Libya’s oil wealth represents the largest reserves in Africa, its infrastructure is dispersed across vast swaths of desert, crossing numerous local and tribal communities. Oil produced from the El Sharara and El Feel fields must traverse 400 miles across sparsely governed territory to reach the Zawiya Refinery and Mellitah Energy Complex, while oil produced at the Hamada el Hamra field is only 200 miles closer.
The absence of a strong central government and the fractious political landscape compounds these vulnerabilities. Energy infrastructure is an easy target in areas where the GNA’s influence is minimal, and local political groups or militia can seize or damage oil terminals for political or financial leverage.
Prior to December 2016, El Sharara (Libya’s largest oil field with a production potential of 330,000 bpd) was shut down for two years due to disputes between a local division of the Petroleum Facilities Guards (PFG), a national force formed to guard Libya’s oil facilities, and the NOC. Since then, protests have twice—in April near the Rayanya juncture of the El Sharara and El Feel pipelines and in early August in Zawiya—temporarily disrupted output. The resumption of production was enabled by a series of settlements brokered by NOC head Mustafa Sanallah with local communities and power brokers. However, since initial reports suggested the August attacks were in retaliation for poor economic conditions in Zintan, a city along the pipeline where protests have disrupted production in the past, the sustainability of agreements brokered by the NOC is unclear.
These challenges are endemic throughout Libya. The NOC must regularly negotiate among Libya’s various political actors, militias, and tribal groups as territorial control fluctuates and different groups seek to wield force as political leverage.
In addition to oil fields, local militant groups have also attacked desert pipelines or downstream chokepoints. Such an incident occurred in June when an unidentified individual attempted a car bombing near the entrance to the Es Sider terminal west of Sirte.
Internal factionalism also exists within the PFG, the national body tasked with protecting oil infrastructure, which last year blockaded terminals at the northern oil port of Ras Lanuf to protest unpaid wages. The RPG claimed to be part of the PFG in its attacks in August, an association that dates back to the closure of the Sharara field prior to December 2016. Yet in a statement following the attacks, Sanallah and the PFG declared the RPG to be “gangsters” and a “rogue militia.”
Transnational threats also abound. Illicit oil trade, enabled by the region’s weak political environment, hampers production while providing a source of revenue to local militias. In late August, Libyan naval forces seized a Filipino vessel suspected of smuggling crude near Abu Kammash on the Libyan-Tunisian border. Additionally, the continued presence of Islamic State of Iraq and al-Sham (ISIS) fighters in Libya and North Africa, even after the group was ousted from Sirte last year, is an additional security risk.
In light of these challenges, it seems clear that the unstable security environment in Libya will continue to undermine a return to pre-2011 oil production levels. Not only is this bad news for Libya in the current political context, it also creates significant uncertainty about the future of oil production.
International oil companies Total, Eni, Repsol, Statoil, and OMV each have contracts related to the El Sharara and El Feel fields. However, repeated decisions by the NOC to declare force majeure—breaking a contract due to forces beyond one of the parties’ control—on supplies from these fields undermines confidence in existing projects and deters new investment as stakeholders question the government’s ability to provide security guarantees and the rule of law. Meanwhile, the NOC’s preoccupation with bringing stalled projects back online and preventing existing projects from going offline leaves it mired in tricky local politics and hamstrings its capacity to improve the overall investment climate and develop new projects.
Ultimately, the relationship between Libyan stability and energy development remains circular and self-fulfilling. Economic growth and stability hinges on the recovery of oil production—yet long-term oil production ultimately depends on a stable security environment. Despite a summit in Paris in July, hosted by French President Emmanuel Macron, designed to facilitate dialogue between Libya’s key rivals, a political solution appears unlikely in the short term. Absent a successful negotiated settlement in Libya, the country’s prolonged security challenges will only continue to undermine a lasting recovery in oil production.
Elissa Miller is a nonresident fellow with the Atlantic Council’s Rafik Hariri Center for the Middle East. You can follow her on Twitter @elissafmiller.
Reed Blakemore is an associate director in the Atlantic Council’s Global Energy Center. You can follow him on Twitter @reed_blakemore.