In the struggle between the two rival governments fighting for territory in Libya four years after the ousting of Muammar Gaddafi, which faction controls the OPEC country's oil has emerged as a central issue. Even as the chairman of Libya's National Oil Co tries to assuage the concerns of IOCs operating in the region that its operations are transparent, the ongoing civil war will likely prevent the OPEC country from raising its oil production in the short-term.
The 2011 ouster of Muammar Gaddafi threw Libya deeper into chaos
A Long 4 Years
The North African country is struggling with fighting on several fronts as former rebels who battled to overthrow Muammar Qaddafi four years ago now fight for political power and a share of the country's oil revenues.
Libya has had two parallel governments since last August when the Fajr Libya (Libya Dawn) forces captured Tripoli, evicting the internationally recognized administration out of the capital forcing it to establish itself in the east.
The violence has increasingly come to threaten oil companies and their assets. Long-term investments by IOCs are imperiled and production is being driven down.
Listening to the majors' conference call over the last several quarters, a common refrain heard when management teams discuss their international operations is "excluding Libya."
Let's take a look at the reasons for this palpable lack of confidence in the holder of Africa's largest proved crude oil reserves, and how the internationally recognized Libyan government is trying to address the situation.
Lack Of Confidence
National Oil Company Chairman Mustafa Sanallah said Tuesday at the Platts Global Crude Oil Summit in London that Libya's current production is around 436,000 bpd (down from 1.62 M/bpd in 1Q11). He said he hopes to boost that by 200,000 bpd over the coming two months by repairing damaged infrastructure and maintaining a dialogue with forces who have blocked oilfields and pipelines, Reuters reported.
Geoff D. Porter, president of the US based North Africa Risk Consulting, told Gulfnews.com that Libya is exporting between 400,000 to 500,000 bpd. However, these exports are sourced from storage- not from the current production, which is daily disrupted amid civil discord. Oil accounts for approximately 95% of Libya's export revenue. The destination of most of the country's oil exports is Europe, with Italy as the leading recipient.
Porter added that the global oil market has disregarded Libya because no confidence exists that the country can either maintain its current production level or increase to between 800,000 to 1 M/bpd.
A Libyan rebel next to a pre-Gaddafi flag as he guards outside the Ras Lanuf refinery; Photo Source: AP/the Australian
"Not Relying Too Much On The OPEC Meeting"
Sanallah also said at the London conference that he saw no indications of global oil demand rising, nor does he see a fall in the supply of shale oil in the US.
“There is a general consensus that oil prices will recover. The worst of the market is behind us now,” he said.
“It is expected that the oil price will start to rise by the beginning of the second half of this year and continue to rise in 2016," he added.
Speaking to OPEC's upcoming meeting on June 5, Sanallah said he is focusing on raising Libyan production rather than the OPEC meeting. He said that the company forecasts production of approximately 400,000 bpd on average in 2015.
“For the last three years, the other members, not only from OPEC but the others, they get advantage of Libya being outside of the market...So my colleagues work very hard to increase our production, to make the required maintenance. I’m not relying too much on the OPEC meeting," Sanallah said.
National Oil Co. Says It's Operating Transparently
In response to this lack of confidence, the Wall Street Journal reported that the chairman of Libya's National Oil Company has met with several IOCs to assure them that the company is operating without political interference.
Sanallah told the WSJ in an interview that officials from joint ventures with ConocoPhillips, Hess, Marathon, Eni and Total have met with the Libyan company. He told the paper that he reassured them that the National Oil Co was free of political interference in Tripoli and that its revenues transparently moved through Libya's banking system.
National Oil Co officials meet with Eni representatives in January; Source: NOC
The chairman also told the WSJ that he still oversaw official selling contracts and oil export contracts and that he and Libya's central banker al-Sadiq al-Kabir informed the firms that oil payments were still being managed transparently. Sanallah told the WSJ that the IOCs were told "there are no delays to payments" for crude or fuel imports.
New State Oil Company Being Established
The assurances come as Libya's internationally recognized government, which has been headquartered in the east since fleeing Tripoli last year, said it wanted all oil exports to be paid for via a new state-run oil company it is has established in the east: the Arabian Gulf Company (AGOCO).
An AGOCO spokesman told Alarabiya on May 17 that AGOCO's production is about 270,000 bpd. Its Hariga export port and connected Messla and Sarir oilfields are operating normally, he added. Several times this year, the port located in the eastern city of Tobruk has been forced to close due to a pipeline blast and protests.
Panorama of Libya's Tobruk port; Source: wikipedia