The fourth-largest country in Africa, the continent’s second-biggest oil producer, has been terra incognita for the petroleum industry for a decade and a half. Since Libya’s 2011 revolution, its oil output has oscillated wildly, and volatile, murky politics have kept investment away. But now Libyan oil might be on its way back to the big time – enticing oil seekers, challenging Opec.
The divided country’s internal affairs remain as fractious as ever. But its oil sector is enjoying the best period since the overthrow of Colonel Gaddafi. Production this year is hovering around 1.3 million barrels per day, which would be the best since 2012 if sustained. In 2007-8, Libya had touched 1.8 million barrels daily.
Now, the National Oil Company (NOC) targets 2 million bpd by 2028-2030. If achieved, that would be the biggest increase in capacity within the Opec+ alliance after the UAE and Iraq. Unlike those two, Libya has been exempt from fixed targets because of its political volatility.
In July, 37 international companies qualified for Libya’s bid round, which will be its first since 2007. The 22 blocks offered cover a spread of acreage, mostly in the Sirte Basin and the adjoining offshore areas in the central northern part of the country, and some in the Ghadames and Murzuq basins in the far west and south-west.
NOC says the blocks contain 1.63 billion barrels of discovered oil and gas in place, with potential of 18 billion barrels to be found. That would be a significant addition to current reserves of about 48 billion barrels of oil, the largest in Africa.
Libya has also improved its previously very stringent fiscal terms, which made many Gaddafi-era discoveries unprofitable.
Recent moves
The qualifiers are an interesting group, and testament to Libya’s sudden rehabilitation in the eyes of oil companies. They include all the international supermajors such as Shell and ExxonMobil, the national oil companies of some Mena neighbours including QatarEnergy, Oman’s OQ, and Algeria’s Sonatrach, leading Chinese, Turkish, Indian and Pakistani state firms, and a scattering of independent firms from Europe, the US, China and the Middle East.
Specifically, Shell, BP and ExxonMobil have signed co-operation agreements. BP is looking into rehabilitating the giant Sarir and Messla fields in the Sirte Basin, two mainstays of Libyan output currently run by a NOC subsidiary. The British company will also study unconventional hydrocarbon resources. Shell meanwhile may develop the Atshan field near the Algerian border.
Another qualifier as an investor, though not operator, is Bares Holding, a recently-established Swiss company that works with Arkenu. Arkenu, not listed as qualifying itself, is Libya’s first and so far only private oil company, believed to have strong political backing from the country’s eastern leadership.
Libya will also launch an auction of marginal fields later in the year, with more than 40 fields having potential production from 5,000 to 20,000 barrels per day each, where smaller companies could participate.
Improved and enhanced recovery at existing giant fields, such as the BP deal, will be a faster way to boost output than exploration. It is unlikely that major new fields from this bid round will be found and brought on-stream fast enough to contribute to the 2030 production target.
The timing of the opening is good. Oil and gas prices remain reasonably strong. Europe would like more gas on its doorstep to help complete its switch away from Russia, and avoid depending too heavily on liquefied natural gas imports from an erratic and bullying US.
Underlying conflict
As shale oil resources at home become more mature and expensive to develop, American corporations are finally turning back to the international scene. European companies, especially BP, have decided to make a strong return to their petroleum core business, after years of underinvestment in which future growth prospects dwindled. Most of the international supermajors have enjoyed recent success in deepwater areas, but concentrated in a very few countries, mostly Guyana and Surinam, Brazil and Namibia.
It makes sense to balance these high-cost and technically challenging projects with a highly prospective, low-cost producer such as Libya. A similar train of thought explains the renewed interest of ExxonMobil, Chevron and BP in Iraq.
None of them will be naive about the political tensions still frothing beneath Libya’s surface. The western administration of Mr Dbeibeh, and the eastern, dominated by military leader Khalifa Haftar and his sons, have reached a modus vivendi, for now.
But last August, the crucial Sharara field in the south-west was closed down by local protesters. There were suspicions that they were acting as a front for political interests.
In October, a crisis over leadership of the Central Bank led to shutdowns of several ports, reducing exports to less than half usual levels for weeks. In December, the Zawiya refinery, west of Tripoli, was damaged in clashes between rival militias.
January saw protesters threatening to close down oil export terminals, demanding relocation of NOC offices to the Sirte “oil crescent” region to create jobs. Fighting broke out in Tripoli in May after the killing of a prominent militia leader, and gunmen stormed the NOC offices in what was described as a “limited personal dispute”.
More broadly, in the post-revolution period, the industry has suffered badly from lack of maintenance and investment, fuel smuggling, gas and power shortages, sabotage, blockades by local protesters and armed groups, and outright east-west military conflict. Production was severely cut back in 2011, 2014 to 2017, and 2020.
The overlay of such instability will shade companies’ assessments of blocks. The existing offshore fields in the west, adjoining Tunisia, have proved mostly immune to disruption. On the other hand, the little-explored deepwater areas off the eastern coast come with more technical risks and costs than the onshore. New discoveries and larger revenue flows could encourage eastern and western administrations to work together – or, more likely, fuel renewed competition.
But if Libya can make a success of its revival, it could become a hot-spot for new energy investment. Technically, its accessible potential is second only to Iraq’s. If it does progress, there may be some interesting conversations in a couple of years with its Opec+ colleagues. For now, it needs to make a success of the bid round, draw in some high-quality partners, and get the drill-bits spinning.
