Libya’s UN-backed govt targets production growth even as troubles linger [Gas in Transition]
Western energy companies have millions of dollars invested in Libya and have promised billions more despite the lawlessness. The country has two governments, its territory is divided between them, with Turkish troops backing one side and Wagner mercenaries supporting the other. Assistance from the UN and international organisations appears to make little impact with the multi-layered factions of opposition. Plans to hold elections cannot be fulfilled, human traffickers operate freely, tribes obstruct hydrocarbon production, and any threat to blockade oil exports sends a chill through the market. But the UN-backed government is muddling through. It intends to boost oil output, expand gas production and reduce flaring in the coming years.
Field Marshal Khalifa Haftar, head of the self-styled Libyan National Army (LNA) and commander of the armed forces loyal to the Tobruk-based Government of National Security (GNS), also known as the House of Representatives, last month threatened to blockade Libya’s oil exports once again if the government in Tripoli, the UN-backed Government of National Unity (GNU), does not agree to divide oil export revenues more equitably between the two sides.
His words sent a shudder through the oil market, which is struggling to hold its tiller steady in the face of OPEC+ production cuts, a drop in Iraqi exports, and sanctions against Russian oil due to Moscow’s invasion of Ukraine in February 2022. Haftar last blockaded Libyan oil exports in the summer of 2022 – causing Tripoli-based National Oil Corporation (NOC) to declare force majeure and exports to fall from about 1mn b/d to about 600,000 b/d and costing the Tripoli government about $9bn in the process.
The country’s oil ministry is in Tripoli, as are the headquarters for NOC and the Central Bank, which receives and distributes the oil income, Libya’s almost single source of foreign revenue. The country earned $27bn from oil and gas sales last year from domestic and foreign sales. The government in Tobruk has been demanding for its years a share of control of these institutions. In contrast, the bulk of Libya’s oil resources and export facilities are in the eastern side of the country.
Since the overthrow of Muammar Qadhafi in 2011, Libya’s oilfields, infrastructure and oil loading terminals have been periodically closed by various gangs and militias. It was not until Haftar’s LNA cleared the militia’s out of the export facilities in the east at the end of the last decade that oil operations and exports returned to near-normal.
Still, these incidents happen. In mid-July, the Zawi tribe occupied and halted production at the Sharara, Elephant and 108 fields in southwest Libya in protest over the kidnapping of former finance minister Faraj Bumatari several days before. Bumatari is a candidate to become the new governor of the Central Bank. The country’s oil authorities called for a resolution of the situation and warned that the fields’ closure could make them declare another force majeure.
Haftar’s blockade warning last month was supported by the GNS, which is led by Prime Minister Osama Hamad. Haftar, who fancies himself as Libya’s next strongman-leader, was reported to have demanded an allocation of $5bn annually that he would be able to access through NOC subsidiaries in eastern Libya. The field marshal wants an answer by the end of August.
In early July, Libya’s Presidential Council announced that the two governments had agreed to form the ‘Financial High Committee’ which will address issues of transparency, the spending of public funds, and a fair distribution of income. The last blockade, which ran from April to July 2022, ended with a deal whereby more money was promised to the GNS.
Gas increase will take some time
Libya has been averaging a crude production rate of 1.2mn b/d in recent months, and does not have to comply with OPEC+ production quotas. It is estimated to be shipping around 7mn m3/day (2.5bn m3/year) to Italy through the 520-km Green Stream gas pipeline, which has an 8bn m3/yr capacity. According to the BP Statistical Review of World Energy 2022, Libya was producing 1.2bn ft3/d in 2021, or 12.4bn m3/yr, of natural gas.
Libya is estimated to have proved gas reserves amounting to 1.4 trillion m3, according to the statistical review.
Most of the gas that Libya produces is used to fuel domestic power stations and amounts to about 2bn ft/3/d. It needs at least 4bn ft/d. The Tripoli government is planning to increase both oil and gas output in the years ahead. Oil and gas minister Mohamed Aoun said recently during an OPEC meeting in Vienna that the country hopes to increase oil production over the next five years to 2mn b/d. This would also increase gas output in the form of associated gas. The plan includes increasing the production capacity of existing fields and developing new ones onshore and offshore, plus repairing the infrastructure that has been damaged during years of fighting and constructing new.
While the capacity to increase gas exports is there via Green Stream, Aoun said it would be about five years before Libya is capable of exporting more gas. Gas production and domestic utilisation of natural gas will have to double to make an increase in exports feasible, he said.
Libya, which has the highest oil reserves in Africa, has always concentrated on oil production although at one time it did have a small LNG facility at Marsa El Brega that is no longer in operation. Libya flares a large volume of gas. According to BP statistics, Libya flared up to 12mn tonnes of CO2 in 2021.
Gas expansion with Eni
While Libya continues prioritising its oil industry, gas projects such as the Mellitah complex project, which is in partnership with Eni, are underway. Eni has worked at developing Libya’s gas potential for some time, and in a recent agreement made earlier this year, Eni pledged to invest some $8bn towards bringing two offshore fields on stream to produce some 850mn ft3/d. Eni already produces nearly 200bn ft3/d, most of it from the offshore Wafa and Bahr Essalam fields operated by a joint venture company between Eni and NOC, Melittah Oil and Gas. The project is due for completion in 2026 and is expected to result with some increase in exports to Italy through Green Stream as well as gas for domestic consumption. The project is also to include carbon capture equipment.
Libyan energy authorities are said to be keen to increase gas production in order to cover domestic electricity demand, much of which relies on liquid fuels that are imported.
Furthermore, NOC is currently in discussions with Eni, which historically is a major investor in Libya, for the development of the onshore Al-Hamada gas field, which lies some 500 km west of Tripoli in the Ghadames basin. The field is reported to be just one of many gas discoveries made in Libya, but not yet developed.
Eni has also agreed a memorandum of understanding (MoU) with Libya regarding an investment of $1bn to bring gas flaring, venting and emissions under control. The company will also examine the possibility of reducing emissions at plants where emissions are hard to abate.
While the Tripoli government is attempting to get some work done, there are those in Libya for the purpose of protecting certain interests. Most notoriously, in the wake of current events, is Russia’s mercenary Wagner Group, which is run by Yevgeni Prigozhin, whose whereabouts and state of health has yet to be confirmed following the march on Moscow by Wagner veterans of the Ukraine war in June.
The Wagner Group represents some of the assistance that Moscow decided to send to Field Marshal Haftar several years ago when the general was planning his push to take over Tripoli. Questions have arisen in recent weeks about the fate of the Wagner Group and if they will continue to have a future in Libya and other parts of Africa. It is reported that several hundred Wagner mercenaries remain in eastern Libya under the command of Haftar, along with mercenaries from a number of other countries.
Turkey has sent troops to western Libya to support the GNU with the backing of the Turkish parliament in early 2020. Turkish forces are in Libya to provide training and operational support and also air support with drones, as well as military equipment. It has provided intelligence operatives and Turkish naval vessels. Turkey’s involvement in Libya includes hiring Syrian mercenaries and transporting them to Libya to boost the size of Tripoli’s army.
Turkey’s presence in Libya is viewed primarily as an effort by Ankara to secure access to natural resources in the country and also to maintain maritime boundaries that fit in with Turkey’s Blue Homeland Doctrine in the East Mediterranean, which sees a maritime border between Turkey and Libya although the boundary is illegal in accordance with the UN Convention on the Law of the Sea (UNCLOS). The agreement has been challenged by Greece, Cyprus and Israel.