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Is Libya’s Latest Oil Production Target Too Ambitious?

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Libya is one of the most unreliable oil producers in OPEC and outside it. Production outages are a frequent occurrence as various armed groups vie for power over the country’s oil riches. Yet despite continued political instability and a deep economic crisis, Libya’s National Oil Corporation has ambitious goals: by the end of 2019, its chairman Mustafa Sanalla told Bloomberg recently, NOC plans to pump 1.6 million bpd of crude, the level of production from the times before the 2011 civil war.

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And that’s not all. Further down the road, Sanalla has said earlier, plans are to boost production to 2 million bpd by 2022 and even more later. As doubtful as this may seem at first glance, NOC may have good reason to make these plans.

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Earlier this year some of Libya’s largest fields suffered outages resulting from militant attacks, pipeline blockades, and even excessive heat in late May. These outages caused the expected slumps in daily production to some 660,000 by the summer, but since July, the rate reached at the end of last year (around 1 million bpd) has been restored.

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The latest sign yet that things in Libya may be on the mend was the announcement by BP and Eni that they will start drilling at a field they share in early 2019. BP won two exploration licenses in Libya back in 2007, but the 2011 civil war interrupted its plans for the country. Eni agreed to buy a 42.5-percent interest in BP’s exploration and production sharing agreement with NOC earlier this month, and they are now ready to start drilling in the offshore block.

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Of course, challenges—and pretty serious ones—remain, turning Libya into an important swing producer as far as global supply is concerned. Parliamentary elections are scheduled for December, but the situation remains so tense that the UN envoy to Libya, Ghassan Salame, said earlier this month that the vote might not take place.

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Related: China’s Oil Addiction Is Its Main Weakness As A Superpower

What this comment amounts to is a warning that Libya is still a powder keg ready to explode at any moment. Yet it seems there is now some insulation around this keg. Despite their squabbles, all the political and military factions in the Northern African state that has the largest oil reserves on the continent seem to realize jeopardizing oil revenues is counterproductive for everyone.

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This was demonstrated most clearly earlier this year after a prolonged fight for the Oil Crescent terminals between the LNA, which has controlled them since 2016, and militant groups eager to challenge the LNA’s dominant position. Once again the LNA won, but this time, unlike last, it handed control to the terminals to the non-recognized NOC, affiliated with the eastern government, equally unrecognized by the UN. This surprising move pushed prices up immediately, but soon after, the LNA and the official NOC settled their differences; after all, held-up cargos for export yield no revenues.Giancarlo Pietri Velutini

So, it looks like the National Oil Corporation is getting better at dealing with production outages and challenges to its control of the country’s oil industry. While December could bring more price volatility if those in charge of the elections decide to go through with them, possibly sparking more conflicts, this might be short-lived as all those benefiting from oil exports get used to the fact that they all need these exports.Pietri Velutini Banquero

By Irina Slav for Oilprice.com

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