Libya's oil production could reach one million barrels per day soon

Speaking to U.K. ambassador, Peter Millett, Libyan National Oil Corporation (NOC) chair Mustafa Sanalla claimed that Libya was on course to produce one million barrels per day by the end of July.

This production level has not been reached since back in 2013. Sanalla noted though that there were repeated attempts to disrupt production. Smuggling of oil and fuel and fallout from the Qatar crisis were also problems. The death of a worker in Libya's largest oil field recently caused a brief closing down of production as workers protested. Sanalla mentioned the need to improve safety for oil workers, the protection of the environment, and providing aid for local communities dependent on oil jobs.

Sanallah hosted the Turkish ambassador to Libya, Ahme Dogan. Dogan invited Sanallah to the upcoming World Petroleum Congress meeting to be held in Turkey next month. Even though the Turkish embassy has reopened in Tripoli, Turkish oil companies have yet to resume operations but Dogan hoped that Libya would soon be stable enough for the companies to return.

The NOC, back in February, was able to strike a deal with the huge Russian firm Rosneft for cooperation on oil. The NOC has also recently settled a dispute with the German oil company Wintershall at least on a interim basis. According to an NOC statement: "The agreement with Wintershall would allow an immediate resumption of production at Wintershall's concession areas in eastern Libya, where work was suspended due to an administrative dispute after the Presidential Council had decided to split the authorities of the NOC and the oil ministry with the NOC, keeping for itself the administration of oil investments."

The dispute between Saudi Arabia and other Gulf States and Qatar may have repercussions that could cause difficulty for the NOC. The HoR government of Abdullah al-Thinni has instructed the eastern-based parallel National Oil Corporation to shut down the Tobruk Hariga oil export terminal as crude from the port is exported by the international oil trader Glencoe. The Qatari Investment Company of Qatar has a nine percent stake in the company. Qatar has been accused by Saudi Arabia, the UAE, and Egypt of supporting Islamic militants in Libya and the Muslim Brotherhood. Glencoe signed a long-term deal with the Tripoli-based NOC back in 2015 to export 160,000 barrels per day from the NOC subsidiary AGOCO. Back in July last year the two rival oil companies, one in Beida and the other in Tripoli agreed to merge but the deal appears never to have been completed, leading to a situation where the eastern company can threaten the Tripoli-based NOC's monopoly in areas where the HoR may have control.

Sanallah has warned against any interruption of existing contracts such as that with Glencoe or attempts to block exports from eastern terminals such as Harriga. He also warned the eastern company headed by Naji Maghrabi of selling any oil independently of the Tripoli-based NOC which is recognized internationally as the sole supplier of Libyan oil. There are unverified reports that the Beida-based NOC is in the process of selling a crude cargo to a Saudi trading company. Sanalla praised Haftar's LNA for handing back to the Tripoli NOC control of the four main Oil Crescent ports. We will soon see what Haftar's position is on these new developments.

Libyan National Oil Company pleads for more funding to increase production

Mustafa Sanalla, head of the Libyan National Oil Company (NOC), has used the two-day meeting in London on the economic crisis in Libya to push for access to $2.5 billion funding he claims is needed for new investment to increase production.

Every time it needs funds, the NOC has to go to the government rather than having its own funds. The system, also used during the Gadaffi era meant that at times the NOC even defaulted on international loan payments since the finance ministry did not make the necessary funds available.

Sanalla claimed that three conditions needed to be met before the NOC could reach oil production of 800,000 barrels per day and 2,750 million cu. ft. of gas per day: “First, the ports and pipelines that are currently open must stay open; second, the blockade of the Riyayna pipeline [currently interdicted by the Zintanis] must be lifted and third, NOC’s budgetary requirements must be met.” Sanalla said that the NOC had to have free access to part of the income from oil and also have the power to borrow to fund itself. Sanalla has taken the opportunity of the London meeting that started yesterday to make his point.

Sanalla claims the production he projects plus revenue from petrochemicals and oil products would generate revenue of $15.847 billion if oil is at $45 per barrel. He also claimed that the 2017 budget of $2.5 billion would return $4.125 in extra NOC revenues and this would be carried on into future years as well. He warned that if the NOC did not get the budget it needed, oil production would level off at 520,000 barrels per day generating $11.72 billion. Since four main eastern ports were seized by Field Marshal Haftar he has allowed the NOC to export from them. Production has increased from around 290,000 barrels a day to around 590,000 barrels a day now. However, this is still far below the 1.5 million barrels per day before the head of the Petroleum Facilities Guard, Ibrahim Jadhran blockaded the ports, which Sanalla claims cost Libya $100 billion.

Sanalla fails to mention that Jadhran had agreed to support the GNA and had an agreement with the government to allow exports but the deal was sabotaged when Field Marshal Haftar seized the ports. Even though Haftar does not support the GNA, as did Jadhran, he has allowed the NOC to export oil. Sanalla was quite critical of the deal with Jadhran and of UN envoy Martin Kobler who had helped broker it.

The Presidency Council(PC) headed by Faiez Serraj has had problems getting the necessary funds to allocate sufficient cash to run government operations including increased funding for the NOC. This has soured relations with the Central Bank governor Saddek Elkaber. The Italian foreign minister Paolo Gentiloni, said at the London meeting that he saw “a glimmer of hope in finding in finding a compromise to break the stalemate between the Libyan government and the Central Bank and put the necessary resources in the heads of the head of the government Faiez Serraj as he tries to consolidate economic and political stability”.

Serraj has been particularly critical of Elkaber for his failure to help the liquidity shortage and allowing the value of the dinar to fall. In return, Elkaber said that Serraj lacked any economic policy and was leading the economy to ruin. Gentiloni said that as well as the lack of liquidity in the banking system, another problem was that employees were not being paid. He said that getting a grip on finances would help the GNA restore infrastructure, particularly for the increase in production of oil and gas.

The London meeting was panned by Ali Gatrani, a member of the PC and supporter of Haftar, who said the London meeting was "a conspiracy designed to impose the will of outside governments on Libya". Gatrani pointed out that the House of Representatives(HoR) was the legislative body of the GNA and the fate of the state budget was in its hands. He also maintained that the PC had been inquorate at its meetings since they were not always attended by the chair and all five deputies as required by the LPA. While the HoR is the legislature of the GNA, it takes on that role only when it votes confidence in the GNA as required by the LPA. The LPA is the Libya Political Agreement. Last August 22 the HoR voted against the GNA and there has been no vote of confidence in the GNA since then. At present, the High State Council claims that it is the legislature of the GNA for now even though by the LPA it is mainly an advisory body.

General Haftar turns control of seized ports to National Oil Company

The four export ports in Libya's Oil Crescent seized by Libyan general Khalifa Haftar were turned over to the Libyan National Oil Company based in Tripoli.

General Haftar launched Operation Surprise Lightning on September 11. With little resistance, Haftar's forces ended up in control of four ports: Ras Lanuf, Es Sidra, Zuwetina, and Brega. Haftar subsequently turned over control of the ports to the Tripoli-Based NOC. I believe that the situation as it is now is the result of an agreement between the head of the NOC Mustafa Sanalla and Haftar. The agreement I believe was along the following lines. Haftar would seize the ports that were under the control of the Petroleum Forces Guards a group whose leader Ibrahim Jodhran Sanalla hates. He had vehemently criticized the deal between the GNA and Jadhran even though Jadhran, unlike Haftar, accepted the authority of the GNA. In return, Haftar would agree to turn over the ports to the control of the NOC. As a reward for doing so, the NOC would ensure that the rival government, the HoR government of PM Al-Thinni would receive a share of the proceeds from oil revenues that it found acceptable. Sanalla would also lift the force majeure that was preventing foreign ships from loading oil for export at the ports.

It seems Martin Kobler, Special Representative of the Secreatry-General (SRSG) and many in the international community were not aware of the deal or at least their actions suggest that they were expecting the deal to make it more difficult to export oil. Kobler said that it would make oil export more difficult. Six nations issued a statement echoing Kobler and also demanding that Haftar withdraw his military forces. You will not hear that demand repeated any more. The emerging consensus is that oil exports will now be quickly increased. As a recent tweet puts it: "Two oil vessels docked at #RasLanuf and #Brega today to load over 1.2 million barrels of crude #OilCrescent." Sanalla had made Kobler look foolish in claiming that oil exports would be more difficult. Sanalla hated Kobler for arranging the deal with Jadhran. He was also angry with the UN-backed Government of National Accord (GNA) in that it had not been advancing the money needed to do work on damaged oil facilities. The nations asking for a withdrawal will no doubt be silent from now on about the issue and applaud the great leap forward toward greater production and export of oil from Libya.

For some reason the press often shows not the slightest curiousity about the most obviously important issues. To illustrate this consider the Reuters and Wall Street Journal's report on the merger of the Tripoli-based National Oil Company (NOC) associated with the GNA and the Bayda-based NOC associated with the Al-Thinni government and the House of Representatives. The issue of the division of the oil revenues is not discussed at all or even brought up. The Reuters report does say: "The NOC said it recognized the presidential council as the executive and also the parliament in the east, the House of Representatives. It would report to both bodies... It plans to make its new headquarters in the eastern city of Benghazi." Note that the deal recognizes the parliament in the east, the HoR. However as things stand now this is in fact recognizing a parallel institution: the HoR government of Al-Thinni supported by Haftar. The merger also agreed to move the headquarters to Benghazi, a city controlled by the HoR rival government. So much for not dealing with parallel institutions.

Yet this was not enough for the HoR, which rejected the merger. Whatever the deal was with respect to dividing revenues it did not satisfy the HoR. Al-Thinni PM of the HoR totally rejected the deal and among other things demanded: "Based on regional interest, Al-Thanni demanded that 40 percent in net oil revenues must be allocated to the eastern region and the remaining 60 percent goes to the western and southern regions." No follow up on this by the press. However a recent tweet shows that the deal is still not agreed upon and that the heads of the two rival NOC's will meet soon to finish the deal: "#Libya | Chairman of eastern NOC says he'll meet Tripoli NOC chairman next week to unite the two corporations & re-open oil ports."

The NOC will now most certainly be funding not just the GNA but also the rival government of Al-Thinni and the HoR. Haftar can make sure that the division of receipts is sufficient for adequate funding of his armed forces. The UN and Kobler go on about the necessity not to deal with parallel institutions. However, its monopsonic NOC has obviously made a deal that ensures a rival parallel government is well funded. If the NOC breaks the deal, the ports and oil fields could very well close again. We have returned to the two government system that existed when the HoR and GNC Salvation Government were rivals.

The lose-lose situation where there were no oil revenues may no doubt be replaced by one in which Haftar is able to see oil exported from the ports he controls under the auspices of the officially accepted NOC associated with the GNA. However the merged NOC is also associated with and reports to the HoR and will be forced to finance the rival government. The headquarters will even be moved to Benghazi where Haftar, Al Thinni, and the sanctioned Saleh hold sway. For Sanallah this is fine in that under the former two governments the NOC was also neutral though based in Tripoli. He retained his job and got rid of the hated Jadhran. He also made Kobler look like a fool. Not a bad deal.

Of course my view may be completely wrong. There may be no deal at all. Sanalla and Haftar simply want to save Libya from that pirate Jadhran and ensure that since Libyan oil belongs to all Libyans its increased production and exports will result in revenues that will be distributed to and benefit all Libyans. Given that foreign oil companies benefit from what has happened perhaps this is the narrative that will prevail and be upheld by experts.