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Libyan crucial oil sector, a tool against instability

 
Monday, 23 November 2015 15:05
 
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by Lorenzo Giuseppe Siggillino (EPOS)
EPOS Insights

 

This analysis was first published here

 

In 2014, the Libyan government split into two factions, resulting in an armed conflict between both sides and their allies. The country is now experiencing a complete lack of security and escalation of violence due to the increasing number of actors aided by their private militias. The Islamic State of Iraq and Syria (ISIS) took advantage of the resultant power vacuum and settled into certain coastal cities, posing a further threat to Libya’s stability. Escalating violence, as well as the absence of security and governance, have had a detrimental impact on the country’s oil sector, which accounts for 95 percent of export revenues and 60 percent of national Gross Domestic Product (GDP). Only a few oilfields are still operational and some of them are exposed to high levels of risk. Libya needs to secure its active oil facilities in order to avoid further descending into anarchy and to safeguard revenues that are crucial for any confrontation with subversive forces.

Libyan oil production in September was around 350,000 barrels a day, although an official figure is difficult to determine. The Sirte basin currently accounts for around 200,000 barrels, while 80,000 barrels are produced in the offshore fields close to Tripoli and the remaining barrels are produced by the Italian oil and gas company Eni’s fields in the west of the country. Hydrocarbons produced in El Sharara and El Feel are strictly dependent on the pipelines carrying oil to the Mediterranean Sea, a few kilometres away from Tripoli. These facilities pass through territories controlled by the Zintani brigade, which is aligned with Tobruq. In November 2014, this community blocked the pipeline moving oil from El Sharara to the Zawiya port, demanding forces loyal to Tripoli to abandon the area. As a result, El Sharara, Libya’s largest oilfield, is currently completely closed. Located a few kilometres away from it, El Feel (or the Elephant) has been negatively affected by an ongoing strike by security guards, who have been demanding higher salaries because of the intensive clashes involving Tebus, Tuaregs and local tribes, as well as frequent cuts in electricity.

Close to the Algerian and Tunisian borders, in the Ghadames basin, the Wafa field is active and generates 30,000-35,000 barrels a day, in addition to natural gas exported to Italy and used for domestic consumption. In the offshore fields, output remains unaffected by the escalation of violence. Al Jurf and Bouri are currently operating at full capacity, and their combined production - about 80,000 barrels a day - is exported through their offshore platforms.

In the Sirte basin, the situation is even more complicated, due to the presence of ISIS. In March, Libyan institutions declared force majeure in 11 oilfields, after violent acts committed by alleged ISIS affiliates. The group seeks to deprive the Libyan governments of oil revenues, in order to foster turmoil and ease its territorial advance. After attacks at al-Mabrouk, al-Bahi and al-Dahra oilfields, production has been halted in many fields close to Sirte, which has become the ISIS’ foothold.

Two of the most important oil terminals, Ras Lanuf and Es Sider, remain closed after militias attacked the latter in December 2014. The two ports are located in an area that sees frequent clashes between allies of the two administrations. The short distance of these key facilities from the ISIS-occupied Nofaliya (less than 100 kilometres away) further endangers security. In the Sirte basin, most of the oilfields operated by the Zueitina Oil Company, Sirte Oil Company and Waha Oil Company (three branches of Libya’s national oil company: National Oil Corporation - NOC) have been shut down because of security issues or because production could not be released to the market.

Most of the oil produced in Cyrenaica is currently generated by the Arabian Gulf Oil Company (AGOCO - one of NOC’s subsidiaries). This branch is active in the eastern part of the Sirte basin and sends products to the Marsa al Hariga port, which is close to Tobruq and controlled by its internationally recognised government. In July, AGOCO declared production of 220,000 barrels a day, mainly originating from the Sarir oilfield and other fields located in the same zone. Sarir has a capacity of more than 200,000 barrels a day, but its current output is affected by power cuts.

Many international oil companies also declared force majeure during this year, including Repsol, which operates in the El Sharara oilfield, and American oil companies, active in the areas attacked by ISIS. Eni has been the only foreign oil company able to maintain its activities, thanks to the location of the fields it operates and its advanced security systems. As far as natural gas is concerned, Eni currently produces more than 90 percent in the west of the country, thanks to the Wafa field and the offshore Bahr Essalam complex. However, many gas fields in the Sirte basin have been shut down because of strikes or lack of security. The natural gas generated by Eni is sent to the Mellitah establishment and is used both for domestic consumption and exported to Italy through the Greenstream pipeline. The gas produced in Wafa and Bahr Essalam is crucial for the country, as the exports generate important revenues and reserves provide energy to national industries and local consumers.

Armed groups, aligned with the two rival governments, do not want to hinder the output of hydrocarbons because they are aware of Libya’s economic dependency on the industry. Revenues from oil and natural gas flow into the Central Bank of Libya, which divides profits between the two administrations. The export of hydrocarbons allows both Tripoli and Tobruq to allocate services, pay salaries and provide security in the territories they control. Terrorist and criminal organisations, on the other hand, seek to undermine legitimate institutions in order to create favourable conditions for recruitment and expansion. For these factions, the absence of a state is the best possible scenario and accordingly, one of their objectives is to ensure that both governments are unable to respond to the needs of their populations and provide security. Attacks on oil production are therefore key to undermining both Tripoli and Tobruq.

Gaddafi’s administration employed the policy of saving money as contingency for future periods of low oil prices. However, since July 2013, Libya has been unable to produce oil at its maximum capacity. And in the last 12 months, oil prices have collapsed, forcing Libya to draw funds from its national reserves, which in December 2014 accounted for 76 billion dollars. An additional threat to oil production also comes from ethnic minorities within Libya seeking independence.

In August 2015, a bomb exploded in Tripoli in front of the Mellitah Oil Company’s (a NOC-Eni joint venture) headquarters. ISIS claimed responsibility for the attack, demonstrating once again its capacity for operating inside Tripoli. The company accounts for almost all natural gas exports and 30 percent of current oil production. Oilfields operated by AGOCO in Cyrenaica do not present particular risks, as Tobruq controls territories around Sarir and along the pipeline carrying oil to Marsa al Hariga and the port city is completely controlled by the internationally recognised government. Al Jurf and Bouri offshore fields enjoy high levels of security, as well as the offshore platforms used for exports.

Onshore production in the west of the country comes from Wafa and El Feel, which are located in areas occupied by ethnic minorities. These fields are close to lucrative border routes, where criminal organizations manage the smuggling of weapons, drugs and illegal migrants. Pipelines connecting Wafa and El Feel to Mellitah pass through territories inhabited by rival tribes, Berber communities as well as active criminal networks. In addition, ISIS has already demonstrated its capacity to attack Tripoli - which is only 100 kilometres away from the Mellitah establishment - on numerous occasions.

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DISCLAIMER: The views expressed in this article are the author’s own and do not necessarily reflect EPOS WorldView’s

Last modified on Monday, 23 November 2015 15:17
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