Conflict-torn Libya, divided between rival factions in the east and the west, recently reached 1 million bpd of crude oil output – for the first time since 2013.
The oil production recovery has put in the spotlight the chairman of Libya’s National Oil Corporation (NOC), Mustafa Sanalla, whom analysts see as a central figure in the oil sector, wearing the hats of both a diplomat and an oil minister. It will be Sanalla who will leadLibya’s delegation at the upcoming meeting of the Joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC) in Russia, at which he will argue his country’s position and share production plans for the immediate future.
And the monitoring committee will be eager to find out how much Libya’s plans could further offset the cartel and friends’ production cuts, from which the African nation is—for now at least—exempt.
Winning exemption at the time of the November OPEC deal wasn’t difficult for Libya, whose production was at the mercy of the civil strife and port blockades that plagued Libya over the past few years.
Libya’s production averaged 390,000 bpd throughout 2016 and 404,000 bpd in 2015, according to OPEC’s secondary sources. In the fourth quarter last year, output increased slightly to an average of 574,000 bpd.
Since then, the lifting of port seizures and blockades and the June interim deal with Germany’s Wintershall to immediately resume production in concession areas and related fields, which unblocked 160,000 bpd worth of output—has helped Libya to nearly double production.
The recovery of Libya and Nigeria’s crude oil production in the past two months has rekindled fears that rising supply from those two exempt African producers is offsetting a large part of the reductions and is depressing crude oil prices, alongside rising U.S. shale output.
Libya’s oil production recovery is the primary goal of NOC’s chairman Sanalla, who said in an opinion piece in the New York Times in June, referring to the country’s internal power struggles:
“Between 2013 and last September, these blockaded nearly all of Libya’s main oil ports and tried to leverage that chokehold into ransom money and political power. That cost the country over $120 billion in lost revenues and most of its financial reserves.”
Arguing that the country’s oil and gas resources should not be held hostage to power struggles and fractious politics, Sanalla noted:
“Caught between those rivals, we at the N.O.C. intend to remain neutral until there is a single legitimate government we can submit to.”
Geoff Porter, founder of the North Africa Risk Consulting, said in an interview with Bloomberg, commenting on Sanalla’s role in the Libyan oil sector:
“His job is to produce as much oil as possible while he can and I think that’s what he is going to continue to try to do.”
However, years of neglect and attacks on facilities have damaged the output capacity, and infrastructure needs investments if Libya were to return to producing 1.6 million bpd, its output level before the 2011 revolution that toppled Muammar Ghaddafi.
Libya may be close to its capacity, and possibly has a short-term “implicit” ceiling of just above 1 million bpd, Mattia Toaldo, senior policy fellow at the European Council on Foreign Relations, told Bloomberg.
So Libya could ‘cap’ not because OPEC asks it to, but because of infrastructure limitations.
Unlike fellow exempt producer Nigeria—which has signaled that it could cap production when its production reaches a stable 1.8 million bpd—Libya has not specified any output level for a possible ceiling.
Last week, Sanalla told Reuters in comments sent via email:
“Libya’s political, humanitarian and economic situation needs to be taken into account if we are going to talk about production caps.”
“Accurate information will remove uncertainty and help the market understand and respond to future supply levels,” NOC’s chairman noted.
The OPEC/non-OPEC monitoring committee will receive the latest updates regarding Libya’s production and plans—and get more information about expected supply from the cartel—at the OPEC meeting this weekend. Despite the fact that the monitoring committee is only making recommendations to the larger group, it may consider whether further actions are needed in view of the latest supply figures and forecasts for the coming months.