Libya oil output set to collapse to lowest level since fall of Gaddafi

Libya’s oil output will collapse “within days” to the lowest level since the 2011 civil war as a blockade of its export terminals has forced a rapid shutdown of production and electricity blackouts in parts of the country, according to the head of the national oil company.

Mustafa Sanalla, chairman of the National Oil Corporation, said the country’s output had already plummeted from 1.3m barrels a day to just 400,000 b/d since the Libyan strongman trying to seize political power in the country, Gen Khalifa Haftar, started the blockade on Friday. Production was now expected to fall to as little as 72,000 b/d “within days” or at most weeks, he told the Financial Times.

“Every day the situation is getting worse,” Mr Sanalla said from his offices in Tripoli, where the NOC has had to rehouse staff in hotels because of fighting on the edge of the capital. “These blockades are illegal, criminal actions. It needs to be resolved quickly as the longer we stay offline the more difficult it is to restore production at older fields.”

Gen Haftar, whose forces control much of the east and south of the country, including the majority of its key oil terminals, shut down crude exports last week in an effort to maximise pressure on his rivals in the UN-backed Government of National Accord in Tripoli. Gen Haftar launched an offensive to take Tripoli in April last year but that advance had stalled on the outskirts of the city.

The military leader’s move to blockade exports came after he refused to sign a ceasefire agreement in Moscow and ahead of an international conference in Berlin, which ultimately failed to produce a peace deal despite the presence of several world leaders.

The US embassy in Libya has called for an immediate resumption of oil production saying the shutdown risked exacerbating the humanitarian situation in the country.

The loss of gas supplies — normally sourced as a byproduct of oil extraction — was affecting power generation, Mr Sanalla said, creating shortages on the national grid and blackouts in parts of eastern Libya. The NOC was shutting down production at a petrochemical facility in Brega to release gas supplies for the national grid, but he feared it would not be enough to address the shortage.

Mr Sanalla described the shutdown as the “worst” since the revolution in 2011 that toppled Muammer Gaddafi. Previous disruptions have at times cut production sharply, but never to as little as 72,000 b/d, the level he expects to reach now.

Most of Libya’s oil is onshore and with limited storage capacity and no export routes, production will have to be shut in, according to Mr Sanalla.

With no resolution to the blockade in sight, he warned that the crisis risked eroding the country’s cash reserves and exacerbating the refugee crisis in Europe, encouraging more people to risk the treacherous journey from Libya across the Mediterranean Sea.

“If people lose their livelihoods, if people cannot see light at the end of the tunnel — the frustration means more will try to cross the Mediterranean,” Mr Sanalla said, adding he hoped international pressure could help resolve the crisis. Migration from Libya is a major political issue in many EU states, particularly Italy — Libya’s former colonial ruler.

Mr Sanalla said he had sought to keep the NOC politically neutral, arguing it was the only institution capable of holding the country together. But Gen Haftar has increasingly complained that the NOC was aligned with the GNA, and said the blockade was designed to get “his interests more greatly represented”, according to Tim Eaton, senior research fellow at Chatham House.

Mr Eaton said the blockade would have “a massive impact on state finances” but might ultimately prove “self-defeating” because the international community has so far been adamant that the NOC must remain the sole institution authorised to handle the export of Libyan oil.

Mr Sanalla said Libya’s ambitions of raising its oil production to 1.5m b/d this year and 2.5m b/d later this decade were in serious jeopardy. “This will damage and destroy our work. We need to keep the oil production running,” he said. “If this country is a failed state, people will not invest.”

Source: FT