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article imageOp-Ed: Libyan oil production and exports may only increase slowly

By Ken Hanly     Jul 5, 2016 in Business
Tripoli - Recently the two rival Libyan National Oil Companies (NOC), one based in the east in Bayda and the other in the west in Tripoli, have agreed to unify. This is just one small step in restoring production and exports of oil from Libya.
The Tripoli-based NOC is the one recognized by the UN, most of the international community and the UN-backed Government of National Accord (GNA), while the Bayda-based NOC is recognized by the rival House of Representatives (HoR) based in Tobruk. The HoR has yet to recognize the GNA or vote confidence in it as required by the Libyan Political Agreement (LPA).
The unified NOC is described in a recent Digital Journal article. It is also reported in the Libya Gazette and here. While some analysts predict a rapid rise in production and exports, there are still many issues unresolved as a recent article in Bloomberg reports.
The article notes that the political division between the GNA and the HoR is still not solved. The agreement retains Mustafa Sanailla, the chair of the Tripoli-based NOC as chair of the new NOC and Naji al-Maighrabi, chair of the Bayda-based NOC, becomes a board member of the new NOC. In order to reach the agreement it was agreed that the headquarters of the NOC would move to Benghazi and that board meetings would occur there as soon as security admits. This is a move fraught with danger for the GNA, since Benghazi is controlled by the HoR and protected by Khalifa Haftar, the commander-in-chief of the Libyan National Army. Neither the HoR nor Haftar recognize the GNA. Even in negotiating with the eastern NOC, the GNA is violating its own prohibitions from dealing with "parallel institutions" not recognized as part of the legitimate structures of the GNA which is recognized by the UN and most countries as sole legitimate Libyan government. The HoR has gained considerable more leverage and legitimacy. The same general processes are under way in agreements between the two competing Libyan Central Banks. As long as the continued political division remains the agreement with regards to oil will be fragile although no doubt both sides wish to avoid returning to a situation where the competing parties prevent each other from producing and exporting oil resulting in a lose-lose game.
However, there are other factors that threaten increased production and export of oil. Much of the countries oil structure is damaged. Some of it was caused by attacks by the Islamic State but in other clashes as well. In many cases, the oil fields are in territory controlled by forces hostile to those in control of the ports where the oil is exported. Agreements have to be reached between groups such as the Petroleum Forces Guard and General Hafter who controls some of the oil fields.
Richard Mallinson, an analyst at Energy Aspects in London said:“I am not convinced the announcement about the reunification of the two rival NOCs will actually deliver any increase in production any time soon." The new government is struggling to unify the various factions and Haftar and his allies “have sufficient control of infrastructure and politics in the east to prevent the GNA from broadening its mandate.”
These divisions have resulted in oil production being 85 percent less than before the overthrow of Gadaffi. For example in the southwest of Libya, the El Feel and Sharar oil fields which together are Libya's largest are controlled by GNA allies. However, the pipeline linking the fields to the coast export ports are blocked by Zintani militia affiliated with General Hafar. The shipping terminal is controlled by allies of the Tripoli branch of the Petroleum Facilities Guard (PFG). In the east, some fields are controlled by Haftar's LNA forces, many of the export facilities are held by units of the PFG headed by Ibrahim Jodhran aligned at present with the GNA and a foe of Haftar.
As analyst Mattia Toaldo notes the merger between the two NOC's is a welcome step forward but "restarting production depends on forces who actually control installations". No single group has control. Those who do are often at odds with others. While output has increased in June by about 40,000 barrels a day to 320,00 barrels a month it is still quite low.
There are splits even within the Petroleum Facilities Guard with the Brega PFG backing Haftar. Exports remain shut down at Ras Lanuf, Zuetina, and Es Sider under the control of members of the PFG headed by Ibrahim Jodhran. Es Sider facilities are severely damaged and tanks are damaged at Ras Lanuf. The facilities suffer from lack of maintenance as well.
As Toaldo remarks, Haftar wants to spoil the LPA because one section deprives him of his position as commander in chief of the armed forces. As Tore Hamming, an analyst at Risk Intelligence based in Denmark puts it there may be more clashes between forces loyal to the GNA and those of Haftar's LNA: “It will probably become more violent, unless they find a solution over Haftar and his role in the Libyan setup. In this struggle, control of the oil becomes more important. I’m not optimistic for the short to medium term.”
However, Martin Kobler, Special Representative of the Secretary-General tweets; "Invited for Libyan political dialogue meeting after eid to discuss next steps on basis of the #LPA. Eid Mubarak to all!!" Kobler is no doubt planning some new stratagem to get around the need for the HoR to vote confidence in the GNA, as required by the LPA, since he has already failed numerous times to achieve this.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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