Libya is Emphatically Back to the Oil Market
Anwar Altaqi – Esam Aziz
Signs of the Libyan oil sector recovering are long due. Libyan crude is finding its way back to the market full steam. But for how long? Will the Islamic State (ISIL) give the country an opportunity to breath?
In January, a chain of good news for Libyan crude hit the newswires. Royal Dutch Shell (Shell) and British Petroleum (BP) signed annual deals to buy Libyan crude. Numbers testify that Libya pumped the most oil in four years in 2017 amid signs that the worst of a conflict that paralyzed its oil sector was being to dwindle. Global investments are once again considering Libya in their search for promising opportunities.
The return of Shell and BP to its list of customers would be good news for Libya, but the country’s production remains well below where it was under the rule of Muammar el-Qaddafi. Libya’s oil production returned to about 1 million barrels in the beginning of 2018, following power disruptions at the Sharara field, the nation’s largest. Boosting output will be challenging because Libya made a commitment to OPEC to limit supplies to reduce a global surplus. Libya’s state energy producer National Oil Corp (NOC), announced the restart of production at Wintershall’s Sara oil fields more than two months after they were closed by protests, in the latest sign that the OPEC nation’s oil industry may be stabilizing.
Wintershall will increase the North African country’s crude output by 57,000 barrels a day, according to an NOC statement on Sunday. Wintershall confirmed that crude output at the fields resumed on Jan. 21, according to an emailed statement from the company. The shutdown since November resulted in the loss of 4.4 million barrels of production at a cost to the economy of $281.5 million, NOC said in the statement. The municipality of Jikharra had decided to reopen the area following pressure from NOC and the public prosecution, the statement read. People demanding jobs and more local development projects closed the field in November.
In a reminder that the national conflict is not completely over yet, NOC Chairman Mustafa Sanalla said the restart in Jikharra was a setback for a parallel Libyan oil administration based in eastern Libya, which for several years had tried to gain control over the country’s central and eastern oil facilities and export the crude independently. It failed to do so as major international oil companies only recognize the Tripoli-based NOC.
Nonetheless, signs of slow, yet unstable, recovery are evident. Libya’s powerful black market traders are encountering an unfamiliar sight: people showing up with bundles of dollars for sale. It is clear that rising oil prices have relieved financial pressure on Libya, allowing authorities to channel more dollars to importers since the start of the year. Meanwhile, the central bank has eased restrictions on currency transfers that had made the black market the primary supplier of hard currency, fueling record inflation and impoverishing wage earners already struggling since 2011. The sudden hard currency influx strengthened the dinar by 50 percent on the black market last week. By Monday, the rate had stabilized around 6.25 per dollar after collapsing to between nine and 10 for much of last year. The official rate is pegged at 1.34 per dollar.
Gradual improvement in Libya’s output was offset by low prices. As dollar earnings dwindled, the central bank stopped granting letters of credit to most importers. That forced them into the black market, where a weakened dinar drove inflation to a record 31 percent in the second quarter of last year. However, improvement in crude prices in the global market started to change the picture.
Oil revenue nearly tripled to $14 billion in 2017 from $4.8 billion in 2016, according to central bank data. Black market traders said Libyans began offloading their dollars savings after the central bank announced it would raise the annual amount of foreign currency available to individuals to $500 from $400, effective Jan. 15. It eased restrictions on foreign currency transfers and bankcards, too. Importers and economists estimated at least 2,000 letters of credit worth $1.5 billion have been processed so far.
Still, the black shadow of ISIL is latent in the minds of all. The United States Africa Command (Africom) announced recently that Islamic State forces in Libya might be planning an attack on the country’s so-called oil crescent, where its export terminals and many fields are located. “At the moment, we believe that the organization (ISIS-Libya) is likely to give priority to the restructuring of security forces and infrastructure, and to launch strikes, which may include targets in the Libyan oil crescent,” according to Africom representative Robyn Mack.
Since September last year, the oil crescent has been under the control of the Libyan National Army (LNA), which is affiliated with the eastern government but working with the National Oil Corporation to protect the area from militant groups. An LNA general confirmed the Africom information, saying that ISIL forces have made more than one attempt to enter the heart of Libya’s oil industry, but have thus far been repelled by the LNA. On December 26, an explosion on the Zaggut – El Sider oil pipeline in eastern Libya occurred, as confirmed by Libya’s National Oil Corporation. The pipeline transports crude oil to Libya’s largest oil export terminal, El Sider.